The Fixed-Term Rental Contracts Act: an end to temporary rentals?

The Fixed-Term Rental Contracts Act came into force on July 1, 2024. This Act marks a significant change in tenancy law and has far-reaching consequences for both tenants and landlords. Whereas since 2016 it has been possible to enter into temporary leases of up to two years for independent living space and five years for non-independent living space, this practice has largely come to an end. With this legislative change, the legislator aims to increase the housing security of tenants.

What has changed?

The core of the Fixed-Term Rental Contracts Act is that, from now on, rental agreements will in principle be entered into for an indefinite period. This restores the principle of tenancy law that fixed-term contracts are the norm and temporary contracts are only permitted in exceptional cases. For tenants, this means greater legal protection and continuity, while landlords have less freedom to terminate the tenancy without cause.

However, the law still allows a limited number of exceptions. For example, temporary rentals remain possible in the case of hospita rentals, where the landlord lives in the property himself and rents out part of it. Temporary contracts may also be concluded for rentals to students under certain conditions, provided that the use of the living space is demonstrably related to enrollment at an educational institution or is permitted in the event of a social emergency.

It is noteworthy that the law does not currently provide for an explicit exception for migrant workers. This target group is being further elaborated in separate regulations, which are still under development at the time of writing. Until these further details are available, the housing of migrant workers will generally be based on the short stay principle. This means that extra attention must be paid to the qualification of the agreement and the actual arrangement of the use, in order to prevent it from still being considered a regular rental with rent protection.

Consequences for landlords

For landlords, this legislative change means that they will have to think more critically in advance about the type of contract they choose. Whereas temporary contracts previously offered a flexible and relatively accessible solution, that flexibility is now severely restricted. This requires not only a conscious choice when entering into the lease agreement, but also careful documentation of the reason why a temporary rental is permitted. The focus is thus shifting from flexibility in advance to legal sustainability afterwards. In practice, there is a fear that this will make some private landlords more cautious, which could put further pressure on the already scarce supply in the rental market. It remains important to note that temporary rental agreements concluded before July 1, 2024, will continue to be governed by the old law, while new contracts will be governed by the new law.

Consequences for tenants

For tenants, the law primarily provides greater certainty and protection. The likelihood that they will have to look for new accommodation after one or two years is significantly reduced. In this way, the legislator aims to contribute to a greater sense of security, particularly in a tight housing market where moving on is not a given. At the same time, the law does not solve the structural shortage of affordable housing. The number of available homes will not increase, but the position of tenants who have already found a home will be strengthened.

Practice

In the coming period, there will be particular discussion about rental agreements concluded after July 1, 2024, for a fixed term, for example with a term of two years. From a legal point of view, this moment is not coincidentally relevant. Until the Fixed-Term Rental Contracts Act came into force, it had been permitted since 2016 to conclude temporary rental agreements of up to two years for independent living space. As a result, many landlords and tenants have become accustomed to this type of contract.

Precisely because this practice has been the norm for many years, there is a risk that landlords will continue to conclude two-year contracts after July 1, 2024, assuming that this is legally permissible. In reality, unless a legal exception applies, such a contract can be regarded as a lease for an indefinite period. This means that the tenant enjoys full rent protection and the lease cannot simply be terminated at the end of the contract period.

Now that the first contracts concluded after July 1, 2024, for a period of two years are approaching their end date, this could lead to a tipping point in practice. At that point, landlords may be confronted with the fact that they assumed they had concluded a temporary contract, while from a legal point of view it may be an indefinite agreement with associated rent protection. This area of tension is expected to lead to increasingly frequent discussions and possibly also to legal proceedings, with case law having to provide guidance on the application of the new law.

If you have a dispute regarding your lease agreement, please do not hesitate to contact one of our real estate lawyers for advice!