BERLIN - Germany's Constitutional Court ruled on Thursday that a law setting a rent cap on apartments in Berlin was invalid because the city government lacks the authority to enact such rules.
Shares in property companies with assets in Berlin, including Deutsche Wohnen and Vonovia, rose after the verdict.
The rent cap came into force on Nov. 23, 2020, forcing landlords to cut rents for more than 300,000 tenants and freezing them at that level for five years.
In its ruling, the court said the federal government was responsible for such decisions.
"There is no room for the legislative power of the federal states due to the power of federal law to block it," it said.
German property group Vonovia welcomed the ruling but said it would waive its right to claim rent arrears even though the company was entitled to do so.
"The decision of the Constitutional Court is logical and the rent cap was not suitable for solving the problems on Berlin's housing market," said Vonovia Chief Executive Rolf Buch.
"(Tenants) should not suffer any financial disadvantages as a result of political decisions," added Buch.
Berlin's city senate is run by a three-way leftist coalition headed by the Social Democrats and also including the Greens and the Left party. Berlin is one of Germany's 16 federal states.
"It is now the federal government's task either to create an effective rent law that ensures a social mix in cities or to transfer the competence for this to the states," tweeted Senator Sebastian Scheel, who is responsible for housing.
The real estate industry had criticized the rent freeze as unconstitutional. Some experts said it could worsen Germany’s housing crisis by scaring off real estate investors.
Rents in Berlin were for years lower than rents in other major European cities, but they have more than doubled since 2008 as around 40,000 people a year have moved to the German capital. Some 85% of residents rent rather than own homes.
(Reporting by Madeline Chambers, editing by Kirsti Knolle and Gareth Jones) ((Madeline.Chambers@thomsonreuters.com; +4930220133578;))