“Landlord” vs tenant: why tenants in Germany are prohibited from earning money from subletting

Фото: ФРГ, Рейхстаг

An important court ruling has come into force in Germany and has become a subject of discussion among landlords, tenants, and housing market experts. Germany’s Federal Court of Justice, the highest civil court in the country, ruled that a tenant of residential property cannot make a profit from subletting. The decision followed a real court dispute in which a property owner (landlord) sued their tenant, according to a publication by I am expat In Germany».

How it all began: an unusual court case

The case began in Berlin, where a tenant rented a two-room apartment for €460 per month and then, without the landlord’s permission, sublet the same apartment to other people for €962 per month.

When the apartment owner learned about this, they terminated the lease and went to court demanding the tenant’s eviction.

Initially, a lower court rejected the claim, but after an appeal, the Berlin regional court upheld the landlord’s demands and found that the subtenant was paying significantly above the average market level, which in that area is about €748 per month.

The case reached the Federal Court of Justice in Karlsruhe, which confirmed that the purpose of subletting is to cover one’s own costs, not to generate profit. The court noted that if the sublease rent significantly exceeds the main tenant’s rent without objective justification, this violates fundamental principles of tenancy law, writes The Berliner.

Legal context: is subletting allowed in Germany?

Under the German Civil Code, tenants may sublet an apartment or a room, but they must obtain the landlord’s consent.

There is also the concept of a “legitimate interest”, for example, the tenant’s temporary absence or the need to cover rent in a difficult financial situation.

If subletting is carried out without the landlord’s consent, it may be considered a serious breach of the lease agreement and lead to its termination and the tenant’s eviction.

Until recently, German courts did not give a clear signal as to whether it was permissible to make a profit from subletting at all.

The Federal Court has now provided clarity: sublease rent may cover the tenant’s actual expenses (for example, utility costs or permissible additional services), but it must not serve as a source of profit, reports Recht 24/7.

Why this matters now

The court decision comes amid a tense situation in Germany’s housing market. In major cities such as Berlin, Munich, and Hamburg, demand for rental housing far exceeds supply.

Many tenants who secured favorable contracts before the crisis or pay below-average rents use this difference to sublet apartments or rooms at higher rates.

This practice, in addition to violating lease agreements, creates further problems:

• subtenants find themselves in a vulnerable position because formally their contract is only with the main tenant, not with the property owner.

• many subtenants pay significantly above average rental rates, making housing less affordable for a wide range of people, notes Money Times.

What the decision means for market participants

According to the ruling, a tenant may sublet housing if they have the landlord’s permission. However, making a profit, that is, charging subtenants an amount that significantly exceeds the tenant’s own rent or economically justified expenses, is prohibited.

If a tenant violates this rule, the landlord has a legal basis to terminate the lease and demand eviction.

The decision also creates a new precedent that subtenants themselves may use if they believe they are paying an unfairly high rent, based on the so-called Mietspiegel, the official index of rental rates for the area.

But there are nuances

The practical application of this rule can be difficult:

• subtenants rarely initiate disputes with the main tenant because they fear eviction, especially amid housing shortages.

• many sublease agreements are drawn up informally and are not registered, which complicates legal protection.

• contracts may contain various clauses on rental and subletting conditions that affect enforcement.

What’s next?

The new decision by Germany’s Federal Court clearly strengthens landlords’ positions in subletting disputes and introduces stricter restrictions for tenants seeking to earn money from subletting.

This, in turn, increases investor interest in purchasing housing in Germany. Currently, investors are cautious when buying because laws in disputes between landlords and tenants tend to protect the latter.

In other words, the desire to make housing more affordable may have the exact opposite effect, experts at International Investment believe.