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Property tax is one of the most important ongoing costs incurred by property owners. Especially in times of rising property prices and increasing operating costs, it is important for landlords to keep an eye on their own expenses and pass them on to tenants in a legally compliant manner where possible.
But how exactly does it work? What legal principles apply? What pitfalls are there and how can you avoid mistakes as an owner or property manager? In this detailed blog article, we will give you a comprehensive overview of the apportionment of property tax to tenants, explain the most important terms, show you the latest developments relating to the property tax reform and give you practical tips for everyday implementation.
What is property tax and why is it relevant for landlords?
Property tax is a tax levied by cities and municipalities on the ownership of land and buildings. It is one of the oldest types of tax in Germany and is an important source of income for local authorities. The amount of property tax is based on the so-called standard value or, from 2025, on new valuation bases that will be introduced as part of the property tax reform.
For owners, property tax is an ongoing burden that is incurred regardless of whether the property is used by the owner or rented out. For rented properties in particular, the question therefore arises as to whether and to what extent property tax can be passed on to tenants. This is not only a question of economic efficiency, but also of legal certainty.
Legal basis: Can property tax be passed on to tenants?
The apportionment of property tax to tenants is generally permitted and clearly regulated in tenancy law. The relevant regulations can be found in Section 2 No. 1 of the Operating Costs Ordinance (BetrKV) and in Sections 556 and 557 of the German Civil Code (BGB). Property tax is one of the apportionable operating costs that can be allocated to the tenants as part of the operating cost statement.
Important: The apportionment is only possible, however, if it has been expressly agreed in the tenancy agreement. If there is no provision to this effect, the property tax cannot be passed on to the tenants - in this case, the owner is left with the costs.
Typical wording in the tenancy agreement:
"The operating costs within the meaning of Section 2 of the Operating Costs Ordinance, including property tax, are allocated to the tenant."
Make sure that the clause is clear and understandable. This is the only way to avoid later disputes and ensure that the apportionment is legally compliant.
Which operating costs can still be allocated?
In addition to property tax, there are a number of other operating costs that can be passed on to tenants if this is agreed in the tenancy agreement. These include, among others:
- Costs for water and waste water
- Heating costs and hot water costs
- Costs for waste collection and street cleaning
- Costs for janitors and garden maintenance
- Costs for lighting the common areas
- Insurance (e.g. building insurance)
- Elevator costs
The complete list of apportionable operating costs can be found in Section 2 of the Operating Costs Ordinance. Property tax plays a special role here, as it usually accounts for a significant proportion of the total costs.
Property owners: How is the amount of property tax calculated?
The property tax is calculated in several steps:
- Determining the assessed value:
Until 2024, property tax is based on the so-called assessed value, which is determined by the tax office. From 2025, new valuation bases will apply, which will be introduced as part of the property tax reform. - Determination of the tax assessment amount:
The assessed value is multiplied by a tax assessment figure to determine the tax assessment amount. - Application of the assessment rate:
The municipality sets an individual assessment rate that is applied to the tax assessment amount. The assessment rate can vary greatly depending on the municipality and has a decisive influence on the amount of property tax.
Example:
A detached house has a unit value of EUR 50,000. The tax base rate is 0.35 %. The tax assessment amount is therefore 175 euros. The municipality sets an assessment rate of 400 %. The annual property tax is therefore 700 euros (175 euros x 400%).
The 2025 property tax reform: What will change for owners, landlords and tenants?
A new property tax calculation will apply in Germany from 2025. The background to this is a ruling by the Federal Constitutional Court, which declared the previous calculation unconstitutional due to outdated values. The new property tax is based on current land and building data, such as standard land value, plot area, property type and average net cold rent.
What does this mean for landlords?
The amount of property tax may change significantly as a result of the reform - both upwards and downwards. For many landlords, this means adjusting their utility bills and possibly also more intensive communication with tenants in order to make the changes transparent.
Tip: Find out about the new valuation bases at an early stage and check whether your rental agreements provide for the apportionment of property tax. That way, you will be prepared for the upcoming changes.
The change to Ralph is uncomplicated.
Apportionment key: How is the property tax distributed among the tenants?
Property tax is generally distributed among the individual tenants according to the proportion of living space. This means that each tenant shares in the total costs according to the size of their apartment.
Example:
An apartment building with five apartments of 80 m² each and a total property tax of EUR 2,000 per year. Each apartment pays 400 euros (80 m² / 400 m² x 2,000 euros).
Special case of mixed-use properties:
For properties that include both residential and commercial units, the property tax must be divided according to the respective proportions of use (residential space/commercial space). This requires a precise area calculation and a transparent presentation in the operating cost statement.
Vacancy and owner occupation: What applies to unlet units?
Property tax may only be apportioned for areas that are actually rented out. For vacant apartments or commercial units or those used by the owner him/herself, the tax may not be passed on to the tenants. The owner must pay the corresponding share of the property tax themselves.
Practical example:
In a house with four apartments, one apartment is empty. The property tax amounts to 1,200 euros. The three rented apartments share the property tax proportionately (e.g. 400 euros each), while the owner pays the share of the vacant apartment himself/herself.
The operating cost statement: How to settle property tax correctly
Property tax is allocated to tenants as part of the annual operating cost statement. The following principles apply:
- Billing must be transparent and comprehensible.
- The property tax must be shown as a separate item in the statement.
- Tenants must receive the statement no later than twelve months after the end of the billing period.
- Upon request, you as the landlord must submit the property tax assessment notice and the calculation basis.
Tip: Enclose a copy of the property tax assessment notice with the utility bill. This creates transparency and prevents queries.
What to do if property tax is increased?
If the property tax increases - for example due to a revaluation of the property or a change in the assessment rate by the municipality - you can pass on the higher costs to the tenants as part of the next utility bill. Additional claims are also possible, provided they are made within the statutory period.
Example:
The property tax increases from EUR 1,000 to EUR 1,200 in the current year. You can claim the difference of 200 euros in the next statement as an additional claim.
Important: Inform your tenants about the increase in good time to avoid misunderstandings.
What happens if property tax is reduced?
If the property tax is reduced, for example by reducing the assessment rate or correcting the assessed value, you must also pass on the savings to the tenants. The operating cost statement must show the actual property tax paid.
Common mistakes when apportioning property tax - and how to avoid them
1. missing apportionment clause in the tenancy agreement:
Without a clear agreement in the tenancy agreement, you cannot apportion the property tax to the tenants.
2. incorrect apportionment key:
As a rule, apportionment must be based on living space, not on the number of persons or other criteria.
3. allocation to vacant or owner-occupied units:
Only areas that are actually rented may be taken into account.
4. non-timely settlement:
The statement of operating costs must be issued within twelve months of the end of the settlement period.
5. non-transparent billing:
The property tax must be shown as a separate item. The basis of calculation must be disclosed on request.
Transparency obligation and tenants' rights
Tenants have the right to inspect the statement of operating costs and the underlying documents. This includes, in particular, the property tax assessment notice and the area calculation. As a landlord/landlady, you are obliged to provide copies of these documents on request.
Tip: Open and transparent communication with your tenants creates trust and prevents disputes.
Special cases: Condominiums and WEG
In the case of condominiums that are part of a condominium owners' association (WEG), the property tax is initially distributed among the individual owners. They can then pass on their share to their tenants as part of the operating cost statement, provided there is a corresponding agreement in the tenancy agreement.
Important: Check the declaration of division and the annual statement of accounts of the condominium in order to correctly determine your share of the property tax.
The role of property management
For owners who have commissioned a condominium management company, this usually takes over the preparation of the statement of operating costs and the apportionment of property tax. A professional property management company ensures that all legal requirements are met and that billing is transparent and comprehensible.
Advantages of property management:
- Professional expertise in accounting
- Legally compliant drafting of rental agreements
- Transparent communication with tenants
- Timely preparation of accounts
Property tax in the context of ancillary costs
Property tax is an integral part of the so-called "cold" operating costs. It is incurred regardless of consumption and is relevant for calculating the monthly service charge advance payments. Correctly allocating the property tax helps to ensure that the service charges are calculated realistically and nasty surprises are avoided in the annual statement.
Create service charge statement: This is how it works
Practical tips: How to successfully apportion property tax
- Check your rental agreements:
Make sure that a clear and legally secure apportionment clause is included. - Document all relevant documents:
Keep property tax assessments, area calculations and statements to hand. - Communicate openly and transparently:
Inform your tenants about changes to property tax and disclose the basis of calculation on request. - Use digital tools:
Modern property management software makes it easier to create and manage the operating cost statement. - Stay up to date:
Follow the latest developments relating to the property tax reform and adjust your contracts and invoices accordingly.
FAQ: The most important questions about the apportionment of property tax
Can the property tax be apportioned to all tenants?
No, only to those tenants for whose apartments there is an apportionment agreement in the tenancy agreement and which are actually rented out.
What happens if the rental agreement does not provide for an apportionment?
In this case, the owner is left with the costs.
How is the property tax distributed for mixed-use properties?
The property tax is distributed among the tenants according to the proportion of the respective use (residential/commercial).
Can the property tax be increased retrospectively?
Yes, a retrospective increase can be claimed as part of the next utility bill.
How transparent must the statement be?
The property tax must be shown as a separate item. The property tax assessment notice must be presented on request.
What needs to be considered for condominiums in a WEG?
The property tax is initially distributed among the individual owners, who can pass on their share to the tenants.
The importance of property tax for rent calculation
Property tax is a significant component of the total costs incurred when renting out a property. It not only influences the amount of the monthly service charge advance payment, but also the attractiveness of a property for potential tenants. A realistic and transparent calculation of property tax is therefore an important factor for success as a landlord/landlady.
Tip: Calculate the property tax realistically and adjust the advance payments for ancillary costs in good time in the event of changes.
The future of property tax: What comes after the reform?
The property tax reform from 2025 will fundamentally change the calculation of property tax. The new valuation bases are intended to ensure greater fairness, but will also lead to considerable additional costs for owners and property managers. It can be assumed that property tax will rise in many regions - especially in conurbations with high standard land values.
Recommendation:
Prepare for the new requirements in good time by updating your documents, checking your tenancy agreements and informing your tenants of the upcoming changes.
Conclusion: The apportionment of property tax - opportunity and responsibility for landlords
Apportioning property tax to tenants is an important way for owners to distribute the running costs of a property fairly. However, this requires clear contractual regulations, transparent and correct billing and open communication with tenants. With the upcoming property tax reform, landlords are facing new challenges that require careful preparation and regular information.
Do you already know Ralph?
Are you looking for ways to pass on the new property tax to your tenants in a legally compliant manner? Switching to Ralph means that your property management company is fully aware of all current legal requirements. Simply send us a message to let us know that you are interested in switching to Ralph - we will contact you immediately to discuss all the details.
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