The Graduated Lease Agreement

For landlords, it provides planning security. A graduated rent agreement allows for a fixed arrangement regarding future rent increases. These agreements are permitted for both residential and commercial leases. A graduated rent agreement offers several advantages, particularly for landlords. A brief summary from your tax advisor in Düsseldorf

and Oberhausen

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By permitting graduated rent agreements, the legislature primarily sought to enable commercial investors to calculate returns more accurately. Until then, it was possible to increase the rent to the local comparative rent. However, this procedure was deemed insufficient, as certain formalities had to be observed and other developments that were difficult to predict had to be taken into account. In addition to its opportunities, the graduated rent agreement also carries some risks.

Residential Space: The Characteristics of a Graduated Rent Agreement for Residential Space

If a future rent increase is agreed upon, a graduated rent agreement is already in place. There are no limits on how many increments can be agreed upon. The graduated rent agreement is generally recorded in writing. It specifies either the new rent to be paid or the amount of the increase that takes effect with each respective tier. This excludes percentage increases, which may not be agreed upon in residential rent agreements.

Regarding rent control: It also applies to the graduated rent agreement. It affects both the initial rent and the increases for each individual stage.

The fixed term of a lease is not linked to the conclusion of a graduated rent agreement. In principle, either party may terminate the contract with notice. After four years, it is possible to terminate fixed-term leases or leases for an indefinite term with a non-termination clause.

Other rent increases excluded

During the term of a graduated rent agreement, rent increases are generally excluded. This applies to the entire term of the graduated rent agreement. This provision also applies if the landlord undertakes modernization measures.

With the final increase stage, the exclusion is lifted. A rent increase is possible for the first year following the last increase. The rent contractually owed is the rent agreed upon after the final graduated rent increase. This amount changes only with the first effective rent increase. Otherwise, a rent adjustment or a new graduated rent agreement may be negotiated.

Advantages of the graduated rent agreement for the tenant

There are several advantages for the tenant under a graduated rent agreement. First of all, the tenant can plan their rental expenses over the long term. Additionally, the graduated rent agreement can be combined with a fixed-term lease. The tenant’s right to terminate the lease may be restricted for up to four years.

Since rent increases are not an option for the duration of the graduated rent agreement, the tenant is in any case exempt from them. Last but not least, the rent cap also applies here. This means that in areas with tight housing markets, the rent may not exceed the local comparative rent by more than 10%.

Disadvantages of the graduated rent agreement for the tenant

Despite all the restrictions, the rent may exceed the local comparative rent during the term of the lease due to graduated rent increases. Furthermore, the 15–20% cap does not apply. In addition, the tenant must be prepared for the landlord to potentially forego modernizations, as the landlord cannot raise the rent to cover the costs. In some cases, this circumstance can also be an advantage.

Advantages of the graduated rent agreement for the landlord

The main benefit here is planning security, as the future rent increase is fixed. This allows the landlord to avoid regular rent increase procedures, which reduces administrative burden. Additionally, the law stipulates that rent increases can be implemented at shorter intervals. No cooling-off period needs to be observed. Thus, rent increases can be implemented in 12 months instead of 15. As mentioned at the outset, it often happens that rent increases under a graduated rent agreement result in rents that exceed the local comparative rent.

Disadvantages of the graduated rent agreement for the landlord

The landlord is taking a risk here. It is possible that the forecast is incorrect and the agreed-upon rent increase falls short of the actual development of the local comparative rent. Additionally, rent increases cannot be implemented due to renovations. As already mentioned, these are excluded during the term of the graduated rent agreement.

There is also an exception in areas with tight housing markets. In such areas, future rent increases cannot result in a rent that exceeds the local market rate by more than 10%. Such areas could be described as unpredictable for a graduated rent agreement. A landlord has difficulty forecasting the future development of the local comparative rent.

Commercial Leases and Graduated Rent

In general, the regulations for commercial leases differ from those for residential leases. Some restrictions do not apply here. Compliance with the written form is not required. Furthermore, no minimum intervals between individual rent increase brackets must be observed.

Tax Advisors in Düsseldorf and Oberhausen

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