Is a price more transparent if you ban it – or if you see it?

The ruling of the Federal Court of Justice in May has a pleasingly short guiding principle:

The facts behind it are quickly told. One company managed 129 apartments and 134 garages for one owner. She received 24 euros per month per apartment for ongoing management, and an additional two months' rent for a new lease.

It happened thirteen times. In total, the owner paid 16,815.71 euros. After the end of the cooperation, she demanded the money back.

Rightly so, the BGH decided.

This is because the Housing Brokerage Act excludes a commission claim if the housing broker is also the administrator of the apartment in question. According to the decision, this does not only apply to the tenant. Nor can the owner validly commit himself to paying his administrator a commission for the brokerage of his apartment.

This is not about every condominium administrator who occasionally brokers an apartment. The decisive factor is that he also manages the apartment in question. In the case decided, the powers of the administration were far-reaching: Among other things, it was allowed to conclude rental contracts for the owner.

Legally, the matter is thus decided. Economically, however, it only begins here!

The manager's argument is obvious: If it is not the tenant who pays the commission, but the owner – what is the disadvantage for the tenant?

Interestingly, even the Federal Court of Justice does not see a structural conflict of interest at this point. If the owner commissions the same service provider with administration and mediation, the latter will typically have a special interest in looking after the interests of his client.

Nevertheless, the commission remains inadmissible.

This is because the Housing Brokerage Act is also intended to protect the tenant from indirect economic burdens. The BGH sees the danger that the landlord will ultimately pass on the commission he paid to the tenant via a higher rent. The strict separation of housing agency and administration therefore creates market transparency.

Is that really understandable? In any case, it raises legitimate questions.

This is because an apartment does not rent itself out by making a commission inadmissible. Renting costs time, staff and money: Someone has to offer it, process enquiries, organise viewings, check interested parties and prepare the lease.

In the case decided, these were clearly indicated: 24 euros per apartment and month for ongoing management, two months' rent for a successful new letting.

The BGH justifies the restriction of this freedom of contract with the fact that the owner could ultimately shift the costs to the tenant via a higher rent.

However, the costs of renting do not disappear as a result of the ban on commissions. If they are absorbed elsewhere in the future – for example through higher basic remuneration or time-based fees, as is already being discussed in the industry – they can also be included in the landlord's calculation. It is possible that they are then much more difficult to assign to the specific rental performance.

Perhaps it would be more expedient if the legislator were to focus on transparency instead of a ban – for example, through an obligation to disclose the remuneration paid by the owner to the tenant.

This raises a second question: What do such rules do to a market?

After all, the more difficult it is to remunerate individual services separately, the more important scaling can become. A large property manager can distribute personnel, software, and standardized rental processes across thousands of units. A small administrator can do this much worse.

In the market for real estate management, this meets an industry in which smaller communities in particular are already having increasing difficulties finding a professional manager at all. Many administrations now work with minimum sizes or no longer accept new condominium mandates.

The ruling will not cause this development. But it could strengthen a mechanism that has long been at work: the more difficult it is to price services individually, the more valuable size becomes.

Regulation then not only influences prices. It also influences which business model can still afford a service. And this is not necessarily to the advantage of smaller WEGs.

The BGH also wants to create market transparency with the strict separation of administration and brokerage. However, if the costs remain and the service is to continue to be provided, their price will no longer be visible in the result where it was before.

Is a price more transparent if you ban it – or if you see it?