Broker commission today (2014) and tomorrow (2015)
> December 2014
Legal situation in 2014 for brokering residential spaceIn the current legal situation, the broker commission is payable if a lease agreement has been caused through the broker (cf., § 2 para. 1 of the Wohnungsvermittelungsgesetz (the Apartment Brokerage Act, the “WoVermittG”)). This means that a lease agreement must, as a matter of fact, be caused on the basis of the brokerage or the proof of the brokerage. The maximum amount of the broker commission is derived from § 3 para. 2 WoVermittG, which determines the amount of two (2) months’ rent, plus applicable statutory sales tax (Umsatzsteuer). It is to be noted, however, that only two (2) months’ rent are meant without the ancillary costs subject to a separate accounting. Only one statutorily permissible rent amount may be taken as the calculation basis. In the event of gradated rent the monthly rent for the first year shall be the calculation basis; as such, the broker’s commission is 2.38 times the monthly rent (= two (2) months’ rent and 19% sales tax).
The draft legislation
On 1 October 2014, the Bundeskabinett passed the so-called Mietrechtsnovelierungsgesetz (the Rent Law Novelization Act). The objective is (i) to stop the increase in rent in areas including, but not limited to, areas with high population densities and (ii) to pass on the broker commissioning costs burden to the client. For this reason, the party who hires the broker is supposed to pay the broker in the future (so-called hiring principle). This means: whoever hires a broker shall pay that broker as well. The consequence of such would be that, in the future, the landlord—and not tenant (as is the case now)—would no longer have to pay the broker’s commission. The spirit and purpose of this regulation is (i) to reduce the costs of the lessee/tenant (according to the federal government, the tenant saving potential for tenants is supposed to be in excess of 570 million Euro in broker commissions) and, by extension, (ii) to lead to a just balance between the interests of landlords and tenants. Whether this shall really lead to a reduction in tenant costs in the future will have to be seen. We will have to wait and see whether landlords do not find ways of shifting the broker’s commission to the tenants again. Thus could landlords increase the rent for new leases, which in the end could lead to a permanent extra burden upon the tenants over the long term. Yet, the “rent brake,” which is also sought here and which—under the government’s coalition agreement—the German states may introduce, could thwart landlords in their attempts to shift the totality of the brokers’ costs to the tenants because the rent demanded by landlords may be no higher than ten (10) percent above the rent typical of the area. This restriction shall, however, expressly not apply to newly built properties and to larger renovations. Thus is it to be expected that brokers shall attempt to enter into contracts before the end of 2014.
Over the long term, competition among brokers may be increased on account of such measures because the landlords shall attempt to find their own tenants, if they cannot shift the broker’s commission to the tenant. The broker’s commission may even be reduced for simple rental properties. Whether the new broker’s commission regulation shall have effects upon the quality of the rentals remains to be seen.
Brokers’ commission tax deductible for residential apartments
Brokers’ fees are generally tax deductible when the back-up information for the payment of such fees is presented:
+ brokers’ commissions are tax deductible for landlords as rent income;
+ broker’s commissions are tax deductible for tenants who are capable of deducting job-related moving costs, if they, as employees, move to a new city because of a change in employer. The same applies in the event employees are re-located to another site/office or if the change in residence would lead to a considerably shorter commute.