Modernisation rent increase in Germany: the 8% rule (2026)

If you modernise a let flat in Germany, you may pass part of the cost on to the rent permanently. This is the Modernisierungsumlage – the modernisation rent increase. The headline rule sounds simple, 8% a year, but between the invoice total and the actual increase sit three deductions and three caps. This guide works through the whole calculation, including the separate track for a heating swap.

What can be passed on at all

Only modernisation measures qualify, not repairs. § 555b BGB (the German Civil Code) lists them exhaustively – from saving final energy (no. 1) through installing a heating system (no. 1a), reducing water consumption (no. 3) and permanently increasing the utility value of the property (no. 4) to creating new living space (no. 7).

Of those, nos. 1, 3, 4, 5 and 6 entitle the landlord to a rent increase (§ 559 (1) BGB) – so newly created living space under no. 7 does not, and neither does plain maintenance. Installing a heating system under no. 1a has its own provision; more on that below.

Step 1: the 8% rule

The core is in § 559 (1) BGB: the landlord "may increase the annual rent by 8% of the costs incurred for the flat". Two details are routinely missed:

• The 8% applies to the annual rent. The monthly increase is one twelfth of it.
• The increase is permanent. It does not stop once the costs are "paid off" – it becomes part of the new base rent.

Step 2: the three deductions

The maintenance share is the biggest point of dispute in practice. Replacing 40-year-old windows with triple glazing is partly overdue maintenance – and that part cannot be passed on.

The simplified route for small measures

If the costs claimed for the flat stay at or below €10,000, § 559c (1) BGB allows a simplified calculation: instead of an individual estimate, a flat 30% is deducted as the maintenance share. The price for that is in § 559c (4) BGB – for five years afterwards no further increases under § 559 or § 559e BGB are possible, apart from two narrow exceptions.

Step 3: the caps

Even a correctly calculated increase is capped. § 559 (3a) BGB sets three ceilings, each measured over a six-year period:

Increases under § 558 BGB (local comparative rent) and § 560 BGB (operating costs) are disregarded for this ceiling – it limits the modernisation increase only.

Worked example: windows and insulation

A flat of 70 m², net cold rent €630 a month (€9.00 per m²).

1. Costs attributable to the flat: €24,000
2. Estimated maintenance share: €6,000 → €18,000 remain
3. Public subsidy: €3,000 → €15,000 remain
4. Annual amount: 8% of €15,000 = €1,200
5. Monthly: €1,200 ÷ 12 = €100
6. Cap check: €100 ÷ 70 m² = €1.43 per m². The starting rent is above €7 per m², so the €3 ceiling applies – the increase fits.

New net cold rent: €730.

The separate track for a heating swap

Since the reform of German heating law, installing a heating system has its own provision, § 559e BGB. It is more generous and stricter at the same time:

• 10% instead of 8% of the costs incurred less the third-party funds actually drawn – but only if the measure meets the conditions for public subsidies in principle and such funds were actually used (§ 559e (1) sentence 1 BGB). Without funding, the ordinary route under § 559 BGB applies (sentence 2).
• A flat maintenance deduction of 15% instead of an individual estimate (§ 559e (2) sentence 1 BGB). It does not apply, however, "insofar as costs arose from the installation of a heating system within the meaning of § 43 of the Gebäudemodernisierungs­gesetz" (sentence 2).
• A ceiling of €0.50 per m² over six years (§ 559e (3) BGB). If further modernisations are added, the overall limits of €3 and €2 still may not be exceeded.

What that means in practice, using the same 70 m² flat: if €20,000 of heating costs are attributable to it and €8,000 of funding is deducted, €12,000 remain. 10% of that is €1,200 a year, i.e. €100 a month. The ceiling, however, is 70 m² × €0.50 = €35. That is the limit – so a heating swap only refinances itself through the rent to a small extent.

New since the end of July 2026: for the installation of a heating system, the BGB no longer refers to the Gebäudeenergiegesetz (the Buildings Energy Act) but to the "Gebäudemodernisierungsgesetz of 8 August 2020 (BGBl. I p. 1728), last amended by Article 4 of the Act of 23 July 2026 (BGBl. 2026 I no. 226)" (§ 555b no. 1a BGB) – the same act under a new name, with renumbered heating provisions. The consolidated text on gesetze-im-internet.de carries a note that the amendment by Article 1 of the same act, in force from 29 July 2026, is "not yet incorporated". We therefore deliberately state no technical requirements from German heating law here – check the current wording before making an investment decision.

Notice, form and effect

The best calculation is worthless if the procedure is wrong:

1. Notice in text form at least three months before the start, stating the nature and expected scope of the measure, the expected start and duration, the amount of the expected rent increase and the expected future operating costs (§ 555c (1) BGB).
2. Toleration and hardship: the tenant must in principle tolerate the measure (§ 555d (1) BGB). Grounds of hardship must be notified by the end of the month following receipt of the notice (§ 555d (3) BGB).
3. Declaration of increase in text form, in which the increase is calculated and explained (§ 559b (1) BGB).
4. Effect: the increased rent is owed from the beginning of the third month after the declaration is received. That period is extended by six months if proper notice was not given or if the actual increase exceeds the announced one by more than 10% (§ 559b (2) BGB).

The increase is also excluded insofar as it would constitute unjustifiable hardship for the tenant (§ 559 (4) BGB) – although that balancing exercise is dropped where the property was merely brought up to a generally customary standard.

And for tax?

Tenancy law and tax law part ways here. The share you had to strip out as maintenance for rent purposes is usually immediately deductible for tax; the modernisation share, by contrast, is often capitalised and only relieved through depreciation. And if the work falls within the first three years after purchase, reclassification under § 6 (1) no. 1a EStG looms: if the renovation and modernisation expenditure excluding VAT exceeds 15% of the building's acquisition cost, all of it becomes anschaffungsnahe Herstellungskosten – post-purchase capitalised costs. Details in our article on the 15% threshold; how the amounts then land in the tax return is covered in the guide to Anlage V, the German rental income schedule.

FAQ

Does the increase survive a change of tenant?

The increase becomes part of the ongoing rent of the existing tenancy. On a new letting the rent is agreed afresh anyway – there the rules on permissible rent at the time of contract apply, not § 559 BGB.

Do I have to claim the increase?

No. § 559 BGB grants a right, not an obligation. You may waive it in whole or in part – which can make commercial sense if the flat is below the local comparative rent anyway and an increase under § 558 BGB would yield more.

What happens if I ask for too much?

An excessive declaration is ineffective to the extent it is impermissible; agreements to the tenant's disadvantage are void in any case under § 559 (6) BGB. And if the actual increase exceeds the announced one by more than 10%, the effect is additionally postponed by six months.

This article offers general orientation and does not replace individual tax or legal advice within the meaning of § 3 StBerG. The version of the law in force at the time governs; German heating law was last amended at the end of July 2026. Check the wording or consult an authorised adviser.