Andelsblatt: What rising gas prices mean for landlords and tenants

“The situation is more than dramatic and social peace in Germany is massively at risk,” the president of the German Housing Association (GdW), Axel Gedaschko, warned a few days ago about the increase in energy price charges for tenants. and housing companies, according to Handelsblatt. On average across all energy types, price increases had already reached 37% by May 2022 compared to the same period last year.

The union chief isn’t alone in fearing a cost shock with the next service charge bill – especially as energy prices continue to rise. Natural gas alone has increased many times over a year ago in the wake of the war in Ukraine.

So what awaits residents and landlords when the service charge bill comes due? Below are the most important points that renters and landlords should be prepared for, according to experts.

How expensive can it get?

Consumer advocates are not too optimistic: they advise a family with an average annual consumption of 20,000 kilowatt-hours (KWh) of natural gas to expect additional incidental costs of 1,000 to 2,000 euros per year due to the price increases of recent months.

But if the federal government moves from tier two to tier three under its gas emergency plan, allowing utilities to raise prices to a “reasonable level,” it could become even more expensive for consumers.

“If the alarm level and the reduction determination comes, then much higher additional costs could arise,” said Thomas Engelke, an energy expert at the Federation of German Consumer Organizations (vzbv).

In this extreme case, according to GdW’s calculations, a family of four would face additional costs of up to 5074 euros for the entire year 2022. In the best-case scenario, the burden for a family of four would still be 1818 euros higher than ,what the previous year.

The natural gas emergency plan: escalation in three stages

For a one-person household, the additional cost will amount to 2749 euros in the worst case – in the best case scenario, it will still be 985 euros.

According to calculations by the comparison portal Check 24, the additional cost for a detached house with an annual consumption of 20,000 kWh in July this year already amounts to 1462 euros just for natural gas within twelve months, corresponding to an increase of 113%. Currently, the residents of such a house should expect to spend a total of 2752 euros – a year ago, the amount was still around 1290 euros.

Suppliers must buy at accurate time-lagged exchange rates

Steffen Suttner, managing director Energy of the comparison portal, knows: “The high energy prices will only reach private electricity and gas customers with some delay.” But when the amounts of energy already procured by suppliers before the crisis run out, they will have to buy at today’s expensive exchange rates, the expert warns.

Vonovia boss Rolf Buch is also very worried about this development. “To understand what this means: people today spend an average of 30% of their disposable income on housing,” he told Handelsblatt recently. “If I charge them two more two months’ rent for incidentals, I write a bill for their total income for the month.” The subject therefore has a social explosive power.

For most landlords, heating costs are a pass-through, but they have to pay them up front. On average, it accounts for 30 percent of the service charge bill. Among the tenants, however, there are many families, the elderly, single-parent families and young professionals who often have little financial margin. So the tenant lobby has already been rattled.

Due to strong increases in energy prices, the German Tenants Association recently called on the government to introduce a package of relief measures for tenants. Above all, there must be permanent subsidization of heating costs for all low-income households. Housing benefits should also be increased. A cap on natural gas prices could legislate to prevent incalculable price increases for end customers. In addition, the tenants’ union is demanding that electricity and gas freezes be prevented and rent increases be tightened.

Many energy suppliers had significantly increased their tariffs during the first half of the year. With the German government declaring the next level of emergency plan for natural gas, there is the threat of further increases – especially if the price adjustment mechanism of the Energy Security Act is implemented. Then, according to Check-24 expert Suttner, price jumps in the natural gas market could be passed on directly to end consumers.

The majority of German tenants are heated with natural gas

A large proportion of German tenants will be affected. This is because the majority use natural gas for heating and will therefore feel the effects of a tariff increase. Calls for savings from politicians are correspondingly urgent. Klaus Müller, head of the network organization, said a few days ago that everyone in industry and private households can contribute. This includes the jumper, or the “shower head, turning the heat down a bit. It all helps”.

Federal Economy Minister Robert Habeck claims he is already setting a good example: “I follow what my ministry recommends,” the green politician said in an interview. “I’ve significantly reduced my shower time again.”

But even more austerity is unlikely to prevent the service charge bill being drastically higher for 2022. However, tenants don’t need to expect an immediate extra payment or increase in down payment. “Owners can only adjust advance payments for operating costs if the annual statement for the previous year shows a deviation from actual consumption,” says the landlord association Haus und Grund Deutschland. Even though it’s obvious that costs are going up significantly this year, owners can’t just adjust monthly deductions on their own initiative. An adjustment is however possible – if done by mutual agreement.

It is not clear to what extent higher advances have already been agreed. “At least this request is increasingly addressed to tenants,” explains the representative of the Tenants’ Association Jutta Hartmann. So far, no major conflicts have been reported. However, the tenants’ representative points out that landlords are entitled to the payment of the increased service charge advances only after the settlement bill has been submitted. Therefore, the tenant must have proof of the significantly increased costs.

The Federal Network Agency could change the price adjustment clause

However, the Federal Network Agency could change this standard regulation by triggering the so-called price adjustment clause. This will allow natural gas suppliers to pass on higher prices to their customers. So far, the Federal Network Agency has refrained from triggering the clause.

However, if it decides to take that step, for example because Russian gas supplies are permanently cut off, the price could readjust even on a weekly basis – and indefinitely. Customers will then have a special right of termination. However, this would be of almost no use in such a situation, as the tenants’ association explains, because prices would skyrocket everywhere.

This means many renters will be hit by a wave of costs. Because those who do not receive housing benefit must shoulder the increased costs themselves. “The law does not provide for any payment deferral that tenants could insist on and, by the way, there is no upper limit for monthly installments,” emphasizes lawyer Thomas Gohrke of Luther Rechtsanwaltsgesellschaft mbH, who advises tenants to voluntarily pay higher installments . Because it is inevitable that costs will increase. Next year, monthly bills for natural gas consumers will at least triple, according to Federal Grid Agency estimates.

It recommends landlords make it easier for tenants if they can’t pay their full energy costs despite higher rates. “As an owner, I can offer a reprieve for this case,” says Gohrke. At Vonovia, they already allow the additional cost to be paid in installments and favor a limited moratorium on complaints.

A few days ago, a cooperative in Saxony showed how rising energy prices are affecting the sector. Due to the drastic increase in energy prices, she temporarily stopped the supply of hot water to her tenants, whose apartments are supplied with natural gas. During the main periods of use in the morning, noon and evening, it remains available – at night and in between, the water comes out cold from the tap. In addition, the heating is not activated until September.

However, this example is unlikely to set a precedent in all areas. The tenants’ association emphasizes that this measure is only allowed if all tenants expressly agree in advance.