Apportioning property tax to tenants: Useful information for landlords
Landlords can claim property tax from their tenants on the service charge statement. However, if you as a property owner want to pass on the property tax to your tenants, you must observe a few rules and know the premises for doing so. We inform you how you can apply this option in full and reduce your annual expenses in an uncomplicated way.
What is property tax?
Property tax is used to tax the ownership of real estate. In contrast to the one-off land transfer tax, it is incurred on a regular basis. Homeowners must pay property tax to the local municipality. It is an item that counts as one of the property’s operating costs. Its amount is primarily determined by a rate set by the city or municipality. However, it also depends on the value of the land and the buildings erected on it. This adds up to a three- to four-digit sum per year. Although landlords have to bear this expense, they can later pass the property tax on to the tenants via the service charge statement.
What is the basis for apportioning property tax?
The legal basis for apportioning property tax to tenants is Section 556 of the German Civil Code (BGB). The possibility of apportioning costs to tenants arises from Section 2 of the Operating Costs Ordinance (BetrKV). There, property tax is explicitly named as a public burden on the property. Other ancillary costs that a landlord can allocate to the tenants are also listed in the BetrKV. These include charges for drainage, waste disposal, winter services and street cleaning. These ancillary costs are part of the property charges. If you as a landlord occupy rooms yourself, you may not pass on property tax for these areas to the tenants.
Under what conditions can landlords pass on property tax to tenants?
Unless it is stipulated in the tenancy agreement that the landlord may apportion the property tax to the tenants, no apportionment is possible. In order for a valid agreement and an effective operating cost statement to come into being, the tenancy agreement must be legally sound. There can be no doubt about this if the tenancy agreement lists § 2 of the BetrKV and the individual cost items in detail. According to current case law of the Federal Court of Justice (BGH), a reference to the BetrKV and the cost items contained therein would already suffice. However, in order to avoid legal disputes, it is advisable to include the property tax clearly in the contract.
How to pass on the property tax to the tenant!
In order to get the property tax refunded by tenants, the operating costs statement must comply with the legal requirements. Provided that the apportionment was properly regulated in the tenancy agreement and the tenant has paid a monthly instalment on the operating costs in advance, you as the landlord are obliged to settle the operating costs. This must be done within 12 months after the end of the accounting period. It should go without saying that the amounts of the service charges must be stated correctly, otherwise tenants have a right of objection. You must then provide exact proof of the actual costs, and overpaid operating costs may have to be refunded to the flat owner. A subsequent claim for increased property tax is in principle possible against tenants within a three-month period.
What has to be taken into account when settling the service charge account?
In principle, the service charge statement must be comprehensible and transparent for the tenant. The cost types must be listed in full and allocated to each tenant. The allocation is made according to a distribution key. This must be explained in the tenancy agreement in a way that is comprehensible to the tenant. There are four options according to which the operating costs can be allocated to the tenants, according to:
- Living space,
- living units,
- number of persons in the household,
- co-ownership shares in the case of rented condominiums.
The landlord is free to choose. If the document does not contain a statement on the allocation key, the operating costs must be billed according to living space. The living space is also the decisive criterion for social housing.
How do landlords calculate the tenant's share of property tax?
The amount of property tax can be taken from the tax assessment notice from the tax office. However, the total amount may only be distributed if all residential units in an apartment building are rented out. If one or more flats in the house are empty, the unoccupied units must be deducted proportionately. The property tax due on the empty flats may not be apportioned. If the vacancy has occurred through no fault of your own, for example due to a fire, you as the landlord can apply for a property tax waiver from the responsible municipality. When calculating the property tax portion in mixed-tenanted properties, special considerations must be taken into account. This applies to buildings in which both flats and commercial space are rented out.
Apportioning property tax to tenants in mixed-tenancy properties
The property tax for areas used by shops, businesses or craftsmen is higher than for residential areas. In order not to place a disproportionately high burden on private tenants, the property tax must be divided between residential and commercial space. Only the part resulting from the actual living space is apportionable. The commercially rented part must be deducted. This assumes that you can accurately quantify the value of the commercial property using the capitalised earnings value method. To make things easier for landlords, case law has granted residential tenants their right to apportion only if they are at an additional disadvantage of more than ten percent compared to commercial tenants.
Summary:
Landlords should prepare their operating cost statement in good time within the 12-month period so that they do not miss out on additional payments for ancillary costs under certain circumstances. Property tax is one of the ancillary housing costs that can be distributed in full to the tenants if the property is one hundred percent rented. For this purpose, the property tax apportionment according to BetrKV must be agreed in the tenancy agreement and the expenses correctly itemised in the service charge statement. In this way, you can save money as a landlord and pass on the property tax to your tenants.
