The Draft "Tenancy Law II" (Mietrecht II) at a Glance
German tenancy law is facing another comprehensive reform. On February 8, 2026, Federal Justice Minister Stefanie Hubig published the ministerial draft of the so-called "Tenancy Law II" (Mietrecht II). Following the already enacted extension of the rent cap (Mietpreisbremse) through 2029 (Tenancy Law I), this is the second major reform package of the current legislative period, originating from the 2025 coalition agreement. The consultation deadline for associations and federal states ended on March 6, 2026.
The draft bill addresses four central areas of significant importance for landlords and property managers in the Rhine-Main region: the cap on index-linked rent increases, new transparency requirements for furnished apartment surcharges, a limitation on fixed-term leases, and an expansion of the grace period payment. In this article, we explain all key changes, assess their practical impact, and outline what landlords and property managers should do now.
As a professional rental management company in the Rhine-Main region, we continuously monitor legislative developments and advise our clients early on regulatory changes.
What Is the Draft "Tenancy Law II"?
Background: Coalition Agreement and Tenancy Law I
The federal government's 2025 coalition agreement contains an extensive chapter on tenancy law. The coalition partners agreed on several reform steps to be implemented in two legislative packages:
The ministerial draft was published on February 8, 2026 by the Federal Ministry of Justice and circulated to the federal states and peak associations for comment. The deadline expired on March 6, 2026. Based on the comments received, the draft will be revised before being introduced as a government bill to the cabinet and subsequently to the Bundestag.
Objectives of the Draft Bill
The stated objective is to protect tenants from disproportionate burdens, particularly in tight housing markets. At the same time, the regulation is intended not to excessively restrict landlords' willingness to invest, according to the ministry. The draft draws on recommendations from the Tenancy Law Expert Commission, which presented its final report in summer 2025.
Index Rent Cap: Maximum 3.5% Per Year
Current Legal Situation: No Upper Limit
The index-linked rent under Section 557b of the German Civil Code (BGB) is a popular contractual arrangement in which the rent automatically adjusts in line with the Consumer Price Index (CPI) published by the Federal Statistical Office. In 2022 and 2023, high inflation led to index rent increases of over 10% per year in some cases – an enormous burden on tenants, with no statutory upper limit in place to date.
The Proposed New Rules
The Tenancy Law II draft provides that index-linked rents in tight housing markets may increase by no more than 3.5% per year going forward. The key elements:
Impact on the Rhine-Main Region
This regulation is particularly relevant for landlords in the Rhine-Main region, as virtually all major cities in the area are classified as tight housing markets. Affected areas include:
Landlords with index rent agreements in these areas should review their rent adjustment planning now. If inflation exceeds 3.5%, they will no longer be able to pass on the difference to their tenants. This can lead to a real rent reduction in the long term.
> Practical tip: Check whether your rental property is located in a designated tight housing market. The current list of affected municipalities in Hesse can be found in the Hessian Tenant Protection Ordinance (Hessische Mieterschutzverordnung).
Furnished Apartment Surcharge: New Transparency Requirements
The Problem: Non-Transparent Premiums
In many major German cities – particularly in Frankfurt – furnished apartment rents have risen sharply in recent years. The furniture surcharge is often not disclosed separately but "hidden" within the total rent. This makes it virtually impossible for tenants to verify the reasonableness of the surcharge or to effectively invoke the rent cap. In some cases, premiums of 30 to 50% of the net cold rent are charged – for furnishings worth only a few hundred euros.
The Proposed New Rules
The Tenancy Law II draft provides for the following measures:
What This Means for Landlords
For landlords of furnished apartments – particularly in Frankfurt and the Rhine-Main region – the new rules represent a significant administrative effort:
> Practical tip: Start creating a comprehensive inventory list for your furnished units now, including purchase date, purchase price, and estimated current value for each item. This will make the transition considerably easier.
Short-Term Leases: The 6-Month Limit
Background: Circumventing Tenant Protections
Fixed-term lease agreements are increasingly being used in practice to circumvent statutory tenant protections. So-called chain contracts – the continuous stringing together of short fixed-term leases – allow landlords to regularly rotate tenants without stating reasons for termination and to increase rent with each new letting.
The Proposed New Rules
The draft bill provides for the following restrictions:
Practical Impact
For landlords who have relied on short-term fixed-term leases to maintain flexibility, this regulation represents a significant restriction. The previous business model for furnished apartments and temporary housing will be partially called into question. Landlords should verify whether a recognized legal ground for the fixed term exists and adjust their contracting practices accordingly.
Grace Period Payment: Expanded Tenant Protection
Current Legal Situation
Under current law, a landlord may issue an extraordinary termination without notice if the tenant is in arrears by at least two months' rent (Section 543(2) No. 3 BGB). The tenant can avert the termination by paying all outstanding arrears in full within two months of being served with the eviction lawsuit (so-called grace period payment / Schonfristzahlung, Section 569(3) No. 2 BGB). Under existing case law of the Federal Court of Justice (BGH), this right may only be exercised once.
The Proposed New Rules
The draft bill clarifies and expands the grace period payment provisions:
Practical Implications
For landlords and property managers, this regulation means that enforcing eviction claims may become more difficult. Tenants receive a second chance, and the process may be prolonged accordingly. This makes professional receivables management even more important – detecting rent arrears early and pursuing them consistently but fairly.
Timeline: When Will the Law Take Effect?
The legislative process for Tenancy Law II follows the standard procedure:
| Phase | Expected Timeframe |
|---|---|
| Ministerial draft published | February 8, 2026 |
| Consultation period (associations & states) | Until March 6, 2026 |
| Revision and cabinet decision | Q2 2026 (expected) |
| First reading in the Bundestag | H2 2026 |
| Committee deliberations and hearings | H2 2026 |
| Adoption by Bundestag and Bundesrat | Late 2026 / early 2027 |
| Expected entry into force | 2027 |
The draft is expected to undergo changes during the parliamentary process. Real estate associations have already voiced strong criticism of certain provisions – particularly the index rent cap and the short-term lease limitation. The final version may therefore differ from the key points described here.
What Landlords and Property Managers Should Do Now
Even though the law has not yet taken effect, landlords and property managers should take preparatory steps now:
1. Review Index Rent Agreements
Check how many of your tenancies are based on index rent agreements and whether the properties concerned are located in a designated tight housing market. Calculate the impact of a 3.5% cap under various inflation scenarios and adjust your rent adjustment strategy accordingly.
2. Create Inventory Lists for Furnished Units
If you rent out furnished apartments, prepare a detailed inventory list with the following information for each furnishing item:
3. Review Fixed-Term Lease Agreements
Examine existing fixed-term leases for compatibility with the planned 6-month limit. Ensure that for fixed terms exceeding 6 months, a recognized legal ground under Section 575 BGB exists and is documented in the contract.
4. Professionalize Receivables Management
Given the expanded grace period payment rules, early and consistent dunning procedures become even more important. Rent arrears should be identified and addressed promptly, before they reach the threshold for extraordinary termination.
5. Seek Professional Advice
The Tenancy Law II reform is complex and affects many individual aspects of daily management practice. As an experienced property management company in the Rhine-Main region, we help you analyze your contract portfolio, prepare for the new regulations, and manage your rental properties on an ongoing basis. Contact us – we are happy to advise you on the specific impact on your portfolio.
Conclusion: Prepare Early, Recognize Opportunities
The Tenancy Law II draft bill represents the most significant tenancy law reform in years and will significantly change the rules for landlords in tight housing markets. The index rent cap, furnished surcharge transparency requirements, short-term lease limitations, and expanded grace period payment rules intervene deeply in existing business models and contractual structures.
Landlords who prepare early can use the transition period to adapt their contracts, processes, and calculations. Those who ignore the changes risk legal uncertainty and financial disadvantages.
As a professional individual unit management and rental management company, we guide landlords and property owners throughout the Rhine-Main region through this reform phase. Contact us for individual advice on the impact of Tenancy Law II on your properties.
