Increasing Ancillary Costs As a Property Owner
The Best Way to Go About Increasing Service Charges
Operating costs are currently rising everywhere. This is due, on the one hand, to the energy crisis and, on the other hand, to the increased cost of living and materials in the wake of the current high inflation rates. Of course, this also affects property owners who have purchased their property as an investment and are now renting it out.
As a result, many landlords are now considering increasing the ancillary costs, aka utility costs or service charges, for their tenants. In principle, this is possible, but certain conditions must be met. Of course, you need to take a look at the rental agreement, an operating cost statement must be available, and other requirements must be met. We have compiled a detailed list of exactly what these are for you. So listen to the podcast episode or read the information below. 🙌
- Definition
- Conditions
- Operating Cost Statement
- Correct Approach
- Flat Rate Instead of Prepayment?
- Useful?
What Are Ancillary Costs?
Ancillary costs are costs incurred by you as a landlord that are not already covered by the rent, such as service fees. These include all costs that you incur on an ongoing basis as a result of owning the property and using the building, facilities, equipment, and land for their intended purpose. One-time expenses are not included.
As a landlord, you can recover some of these ancillary costs from your tenants in accordance with Section 656 of the German Civil Code (BGB). The costs that you can pass on are referred to as apportionable ancillary costs, services charges or operating costs. Conversely, there are also non-apportionable ancillary costs. But be careful: this has nothing to do with the incidental costs of purchase! You can find out what this means here. 👇
As a Landlord, Are You Allowed to Increase the Utility Costs?
In principle, this is possible and also makes sense. If it turns out that the utility costs have increased, your tenant would otherwise have to compensate for this with an additional payment. To avoid this unpleasant surprise at the end of the year and to keep the effort to a minimum, you can adjust the advance payment for utility costs.
Requirements For Increasing Utility Costs
However, there are a few conditions that must be met. Strictly speaking, there are three requirements that you must check before you can increase the utility cost advance payment:
An operating cost statement is available
The operating cost statement is complete and correct in terms of form and content
The rental agreement does not contain any clause that excludes an increase in utility costs
Once you have checked all of this, you can proceed with the increase in utility costs. You are not legally obliged to do so, but it makes sense in any case.
Mandatory Operating Cost Statement: What Must Be Included
As a landlord, you use the operating cost statement to calculate the costs you incur from renting out and using your property. As a landlord, you are required to prepare an operating cost statement in accordance with Section 560 (4) of the German Civil Code (BGB). Regardless of the general obligation, a correct operating cost statement is also a prerequisite for increasing ancillary costs. To ensure that everything is correct, it must contain the following information:
Date of creation
Settlement period
Details of the apartment
Landlord or property manager as issuer
Breakdown of all costs
Details and explanation of the allocation key
Calculation of the specific share of your tenants
Deduction of the advance payment
All of this must be clearly structured and organized. The best way to do this is to refer directly to the catalog of the Operating Costs Ordinance.
Increasing Ancillary Costs Correctly: Here's How
Once you have correctly calculated the operating costs, you can adjust the advance payment for ancillary costs. To do this, take the costs for the entire year as determined in the operating costs statement and divide them by 12. The result is the new advance payment for the coming year. If you have to repay your tenants, it makes sense to adjust the advance payment downwards.
You must announce the adjustment in writing—a verbal announcement is not sufficient. Although an explanation is not legally necessary, as it is clear from the operating costs statement, it is recommended in order to maintain a good relationship with your tenants.
Can Landlords Increase Utility Costs During the Year?
Actually, you can only adjust utility costs after the end of a billing period—i.e., at the end of the year. However, under certain circumstances, you can also adjust utility costs during the year. For example, if unforeseen new operating costs arise due to an increase in property tax or increased costs for building liability insurance. However, this is only possible if the rental agreement contains an opening clause that allows you to do so. In this case, you must also give written notice and even provide reasons for the increase.
If additional people move into the apartment, you as the landlord also have the right to adjust the rent.
Flat-Rate Operating Costs Instead of Advance Payment?
As a landlord, you also have the option of agreeing a flat rate with your tenants instead of an advance payment, in accordance with Section 556 (2) sentence 1 of the German Civil Code (BGB). However, this means that you bear the risk. If your tenant uses more water or electricity, you will be left with the additional costs. This therefore usually only makes sense in exceptional cases. In most cases, this option is only used for short-term, temporary tenancies.
Increasing Utility Costs: Does It Make Sense?
Does it make sense to adjust utility costs regularly? After all, you will receive the money at the end of the year anyway, or you will have to pay it back if your tenant has paid too much. We believe you should still keep an eye on this because it's only fair to your tenants and saves both of you time and labor. After all, your tenant naturally wants to know what to expect as precisely as possible. Receiving a large additional payment at the end of the year is not fun for anyone. It is therefore also worthwhile in terms of maintaining a fair and good relationship with your tenants.
It also protects you legally. So if you pay attention to all the legal requirements, it will make your life as a landlord much more relaxed. ✅
By the way: We also have advice for you on how to raise the rent fairly. Check it out.