Martin can you tell me if it's normally in rental contracts for the rent to increase annually ? I know there's some clause saying you can't put up rent by more than 2%.
Tenants tend to be long term so how does the rent get increased if you don't change tenants?
I only have limited recent experience in this one but I'll do my best to answer the question based on some research on German language websites. It used to be normal to have a fixed basic rent for very very long periods (Festmiete). The service charges (nebenkosten) could be varied based on real costs or publicly accepted formulas. But inflation in Germany was generally very low. Friends of mine typically had no rental raises for 5 years or even more. So indeed, the rent got relatively cheaper over time.
On this site () it says: Rental raises have to be notified formally in advance via a letter (Mieterhöhungserklärung). The raise can only be made effective at least every 15 months or longer since the last raise (Jahressperrfrist), and has to be justified either on the basis of an improvement to the property (Modernisierungen), via a specialist rental report (Sachverständigengutachten), or with reference to a rental database (ortsübliche Vergleichsmiete = generally accepted comparison rent for this neighborhood) or other rental database (Mietdatenbank), or with at least 3 named comparison properties, or quoting the qualified reference rent for the neighborhood (qualifizierten Mietspiegels). The rent is capped by various formulas (Kappungsgrenze), including the local reference rent +20%, and a maximum raise of 20% in 3 years. The tenant then has the right to either accept or challenge the intended raise within a reasonable time frame (3 months). The tenant has to accept if: the letter is properly written, the landlord is not asking more than the comparison rent, and the cap limits and time between raises have been observed.
Alternatively rent can be raised on the basis of a fixed reference formula/ index such as retail price inflation, agreed and built into the rental contract in advance (Staffel or Indexmietvertrag), but then you can't go back and use one of the other methods later on.
So there are many ways to justify raising the rent without changing tenants or contracts. I never saw a contract that included the indexation clause, but these type of contracts only became valid in about September 2001. But you certainly can't just write "I am going to raise the rent by 5% next month because the market will bear it, otherwise get out and I'll find someone else." The letter has to be properly worded and the raise justified quoting the relevant law, otherwise the tenant will almost certainly appeal against it, and win. Some local professional help is therefore advised.
However, on this site (which is a very reliable source of information) [broken link removed] it quotes a very recent ruling saying that the rent no longer has to be fixed to an open database if that information is generally publicly available. Instead the tenant has to gather his own (private) statistics to decide whether to accept or counter the raise.
I could not find any reference to the 2% rule you quoted, but I guess that would have been around the recent Retail Price Index applicable to an index related contract (Indexmietvertrag).
This brochure ISBN: 978-3-933091-67-3 tells you more about comparison rents and is pretty definitive (if you can read German): [broken link removed][]=Mieterh%F6hung
You can find officially recognized qualified reference rents for most cities in Germany (Mietspiegel) online here: [broken link removed]
If the requested rent is more than 20% higher than the applicable reference rent, the tenant can claim back the difference under civil law. If it is more than 50% higher than the reference rent it is a criminal offence of extortion. See [broken link removed]