CO₂ Cost Sharing Act to be fundamentally expanded for the first time since it came into force
The CO₂ Cost Sharing Act will be fundamentally expanded for the first time since it came into force in 2023. Since 2023, landlords have no longer been able to pass on the state CO₂ price included in the heating costs in full to their tenants, but must bear part of these costs themselves, depending on the energy quality of the building. The Building Modernization Act now goes one step further: In the future, it will no longer be possible to pass on other components of heating costs in full to tenants. To this end, the German Bundestag passed the Building Modernisation Act on 10 July 2026. The law is scheduled to come into force on November 1, 2026.
“The public discussion has so far focused almost exclusively on gas and oil heating systems, which will be permitted again in the future. On the other hand, the significant changes to the CO₂ Cost Sharing Act, which will have considerable financial implications for landlords and tenants, have largely gone unnoticed,” says lawyer Oliver Letzner, specialist lawyer for tenancy and residential property law and partner at the law firm Müller Radack Schultz in Berlin.
Choice of heating becomes freer again, but new consequences for landlords
In the future, owners will again be able to decide more freely which heating system they install. In addition to heat pumps, new gas and oil heating systems will also remain permitted. However, in the future, these heating systems will have to be operated gradually with an increasing proportion of climate-neutral fuels such as biomethane or biooil.
For landlords, however, this greater freedom does not end with the investment decision. If they decide on a new gas or oil heating system, they will also have to take into account the tenancy law and economic consequences in the future. In the future, certain components of the heating costs can no longer be passed on in full to the tenants.
CO₂ Cost Allocation Act to be significantly expanded
The amendments to the CO₂ Cost Sharing Act, which only came into force on 1 January 2023, are particularly far-reaching, and is thus already undergoing its first fundamental reform. So far, the CO₂ Cost Allocation Act has only regulated the extent to which landlords and tenants have to bear the state CO₂ price, which is incurred as part of the heating costs. Since January 1, 2023, landlords can no longer pass on this cost component in full to their tenants. The poorer the energy quality of a residential building, the higher the share of the CO₂ costs to be borne by the landlord.
In the future, the law will no longer be limited to the distribution of this CO₂ price component. For the first time, certain operating costs that may arise from the legally prescribed use of climate-neutral fuels as well as from future grid fees are also recorded. In the future, these costs will also no longer be able to be passed on in full to the tenants.
“The CO₂ Cost Sharing Act is thus developing from a law on the distribution of CO₂ costs to a law that additionally regulates the distribution of certain operating costs for newly installed gas and oil heating systems,” says Letzner.
Profitability of fossil heating systems must be reassessed
A new gas or oil heating system can be cheaper to buy than a heat pump. In the long term, however, landlords must take into account that the legally required increasing share of climate-neutral fuels can lead to higher fuel costs. As a result, part of the economic risk shifts from the tenant to the landlord.
Tenants also do not fully benefit from the new regulation. They will continue to have to bear some of the higher fuel costs themselves as a result of the legally required use of climate-neutral fuels.
“In the future, many owners will no longer have to answer the question of which heating system is technically permissible. Rather, the decisive factor will be the long-term economic consequences of the respective heating decision for landlords and tenants,” says Letzner.
