Property tax is one of the most significant ongoing costs faced by property owners. Especially in times of rising property prices and growing operating costs, it's 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 does it work exactly? What legal principles apply? What pitfalls are there, and how can you, as a property owner or property manager, avoid mistakes? In this detailed blog post, we provide a comprehensive overview of the allocation of property tax to tenants, explain the key terms, highlight the current developments surrounding the property tax reform, and offer practical tips for implementing it in your daily life.
What is property tax and why is it relevant for landlords?Link to this section
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 represents an important source of revenue for municipalities. The amount of property tax is based on the so-called standard value or, from 2025, on new valuation bases introduced as part of the property tax reform.
For property owners, property tax is an ongoing burden that arises regardless of whether the property is used by the owner or rented out. Especially for rented properties, the question arises as to whether and to what extent the property tax can be passed on to tenants. This is not only a matter of economic efficiency, but also of legal certainty.
Legal basis: Can property tax be passed on to tenants?Link to this section
The allocation of property tax to tenants is generally permissible and clearly regulated in tenancy law. The relevant provisions can be found in Section 2 No. 1 of the Operating Costs Ordinance (BetrKV) and Sections 556 and 557 of the German Civil Code (BGB). Property tax is one of the apportionable operating costs that can be allocated to tenants as part of the operating cost statement.
Important:However, the apportionment is only possible if it is explicitly agreed upon in the rental agreement. If there is no corresponding provision, the property tax cannot be passed on to the tenants – in this case, the owner is left with the costs.
Typical wording in a rental agreement:“The operating costs within the meaning of Section 2 of the Operating Costs Ordinance, including property tax, are passed on to the tenant.”
Make sure the clause is clear and understandable. This is the only way to avoid future disputes and ensure the allocation is legally sound.
Which operating costs can still be passed on?Link to this section
In addition to property taxes, there are a number of other operating costs that can be passed on to tenants, provided this is agreed upon in the lease. These include:
Costs for water and wastewaterHeating and hot water costsCosts for garbage collection and street cleaningCosts for caretakers and garden maintenanceCosts for lighting common areasInsurance (e.g. building insurance)Elevator costs
The complete list of allocable operating costs can be found in Section 2 of the Operating Costs Ordinance. Property tax occupies a special position here, as it generally accounts for a significant portion of total costs.
Property owners: How is the property tax calculated?Link to this section
The calculation of property tax takes place in several steps:
Determination of the unit value:Until 2024, property tax will be based on the so-called standard value, which is determined by the tax office. Starting in 2025, new valuation bases will apply, which will be introduced as part of the property tax reform.Determination of the tax assessment amount:The standard value is multiplied by a tax assessment number to determine the tax assessment amount.Application of the tax rate:The municipality sets an individual assessment rate, which is applied to the taxable amount. This assessment rate can vary considerably depending on the municipality and has a significant impact on the amount of property tax.
Example:A single-family home has a assessed value of €50,000. The tax rate is 0.35%. The tax base is therefore €175. The municipality sets a tax rate of 400%. The annual property tax is therefore €700 (€175 x 400%).
The 2025 property tax reform: What will change for owners, landlords, and tenants?Link to this section
A new property tax calculation will apply in Germany starting in 2025. This is based on 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 property and building data, such as the standard land value, property area, property type, and average net rent.
What does this mean for landlords?The reform could significantly change the amount of property tax—both upwards and downwards. For many landlords, this means adjusting their utility bills and possibly also increasing communication with tenants to make the changes transparent.
Tip:Find out about the new valuation principles early on and check whether your rental agreements provide for a property tax allocation. This way, you'll be prepared for the upcoming changes.
Allocation key: How is the property tax distributed among tenants?Link to this section
The property tax is generally distributed among individual tenants based on their share of the living space. This means that each tenant contributes to the total costs in proportion to the size of their apartment.
Example:An apartment building with five apartments of 80 m² each and a total property tax of €2,000 per year. Each apartment contributes €400 (80 m² / 400 m² x €2,000).
Special case of mixed-use properties:For properties that include both residential and commercial units, property tax must be apportioned according to the respective usage ratios (residential space/commercial space). This requires an accurate area calculation and a transparent presentation in the operating costs statement.
Vacancy and owner-occupancy: What applies to unrented units?Link to this section
The property tax may only be passed on to tenants for properties that are actually rented. For vacant apartments or commercial units used by the owner, no allocation to tenants is permitted. The owner must bear the corresponding share of the property tax themselves.
Practical example:In a building with four apartments, one apartment is vacant. The property tax is €1,200. The three rented apartments share the property tax proportionally (e.g., €400 each), while the owner pays the share of the vacant apartment themselves.
The operating costs statement: How to correctly calculate property taxLink to this section
The property tax is passed on to tenants as part of the annual operating costs statement. The following principles apply:
Billing must be transparent and comprehensible.The property tax must be shown as a separate item in the invoice.The invoice must be received by the tenant no later than twelve months after the end of the billing period.As a landlord, you must provide the property tax assessment and the calculation basis upon request.
Tip:Attach a copy of the property tax assessment to your utility bill. This creates transparency and prevents queries.
What to do if property taxes increase?Link to this section
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 the increased costs on to the tenants as part of the next utility bill. Additional payments are also possible, provided they are made within the statutory deadline.
Example:This year, the property tax will increase from €1,000 to €1,200. You can claim the difference of €200 as a supplementary tax on your next bill.
Important:Inform your tenants about the increase in a timely manner to avoid misunderstandings.
What happens if property taxes are reduced?Link to this section
If the property tax is reduced, for example, through a reduction in the assessment rate or an adjustment of the assessed value, you must also pass the savings on to the tenants. The operating costs statement must show the actual property tax paid.
Common mistakes in the allocation of property taxes – and how to avoid themLink to this section
1. Missing apportionment clause in the rental agreement:Without a clear agreement in the rental agreement, you cannot pass the property tax on to the tenants.
2. Incorrect allocation key:As a rule, distribution must be based on living space, not on the number of people or other criteria.
3. Allocation to vacant or owner-occupied units:Only areas that are actually rented may be taken into account.
4. Failure to pay on time:The operating costs statement must be submitted within twelve months of the end of the billing period.
5. Opaque billing:Property tax must be reported as a separate item. The calculation basis must be disclosed upon request.
Transparency obligation and tenants’ rightsLink to this section
Tenants have the right to inspect the utility bill and the underlying documents. This includes, in particular, the property tax assessment and the area calculation. As a landlord, you are obligated to provide copies of these documents upon request.
Tip:Open and transparent communication with your tenants builds trust and prevents disputes.
Special cases: condominiums and condominiumsLink to this section
For condominiums that are part of a homeowners' 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 utility bill, provided a corresponding agreement exists in the rental agreement.
Important:Check the declaration of division and the annual statement of the condominium association to correctly determine your share of the property tax.
The role of property managementLink to this section
For owners who have a WEG administration If you have commissioned a property manager, they usually take care of preparing the operating costs statement and allocating the property tax. A professional property management company ensures that all legal requirements are met and that the billing is transparent and comprehensible.
Advantages of property management:
Professional expertise in billingLegally secure drafting of rental agreementsTransparent communication with tenantsTimely preparation of invoices
Property tax in the context of additional costsLink to this section
Property tax is an integral part of the so-called "cold" operating costs. It is charged regardless of consumption and is relevant for calculating monthly utility costs. Correct allocation of property tax helps ensure that utility costs are realistically calculated and avoids unpleasant surprises during the Annual statement be avoided.
Create utility bill: How it works
Practical tips: How to successfully allocate property taxLink to this section
Check your rental agreements:Make sure that a clear and legally secure allocation clause is included.Document all relevant documents:Keep property tax notices, area calculations, and invoices handy.Communicate openly and transparently:Inform your tenants about changes to property taxes and, if requested, disclose the basis for calculation.Use digital tools:Modern property management software makes it easier to create and manage utility bills.Stay up to date:Follow current developments surrounding the property tax reform and adjust your contracts and invoices accordingly.
FAQ: The most important questions about the allocation of property taxLink to this section
Can property tax be passed on to all tenants?No, only for tenants whose apartments have a cost-sharing agreement in their rental agreement and which are actually rented.
What happens if the rental agreement does not provide for a levy?In this case, the owner is left with the costs.
How is property tax distributed for mixed-use properties?The property tax is distributed among the tenants according to the proportion of their respective use (residential/commercial).
Can the property tax be increased retroactively?Yes, a subsequent increase can be claimed as part of the next operating costs statement.
How transparent does billing need to be?Property tax must be reported as a separate item. The property tax assessment must be presented upon request.
What should be considered when buying condominiums in a condominium association?The property tax is initially distributed among the individual owners, who can then pass on their share to the tenants.
The importance of property tax for rent calculationLink to this section
Property tax is a significant component of the total costs incurred when renting a property. It not only influences the amount of monthly utility bills, but also the attractiveness of an apartment to potential tenants. A realistic and transparent calculation of property tax is therefore a key factor for success as a landlord.
Tip:Calculate the property tax realistically and adjust the utility costs prepayments in a timely manner if there are any changes.
The future of property tax: What comes after the reform?Link to this section
The property tax reform, effective in 2025, will fundamentally change the way property tax is calculated. The new valuation principles are intended to ensure greater fairness, but they will also result in considerable additional costs for property owners and property management companies. Property taxes are expected to rise in many regions – especially in metropolitan areas with high land values.
Recommendation:Prepare for the new requirements early by updating your documents, reviewing your leases, and informing your tenants about the upcoming changes.
Conclusion: The allocation of property tax – opportunity and responsibility for landlordsLink to this section
Allocation of property taxes to tenants is an important way for owners to fairly distribute the running costs of a property. However, this requires clear contractual arrangements, transparent and accurate billing, and open communication with tenants. The upcoming property tax reform presents new challenges for landlords that require careful preparation and regular information.
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