German heating law 2026: New cost sharing rules for landlords

Understanding Germany's New Heating Cost Sharing Rules

Germany's coalition government has finalized reforms to the Building Energy Act (Gebäudeenergiegesetz), commonly known as the "heating law." The core message for landlords: if you install or continue operating fossil fuel heating systems, you'll now bear part of the resulting costs.

This change aims to protect tenants from rising utility costs while creating incentives for climate-friendly heating solutions. The reform will be enacted in 2026 and affects both existing and future rental agreements.

For your property management, this means recalculating your financial projections and developing new strategies for heating modernization investments.

The New Cost Sharing System Explained

The reform's centerpiece is the 50/50 split of specific heating costs between you and your tenants whenever a fossil fuel heating system operates in your property.

Which Costs Are Split?

The cost sharing covers three key areas:

• CO2 Tax: Carbon pricing costs will be split equally between landlord and tenant
• Network Fees: You'll bear 50% of gas network distribution costs
• Biogenic Components: Costs for climate-friendly fuels like biomethane are also shared

As SPD faction leader Matthias Miersch explains: "Climate protection must remain affordable for tenants. We've managed to systematically halve the cost risks for CO2, network fees, and biogas."

When Does Cost Sharing Apply?

The new regulation covers both newly installed fossil fuel heating systems and existing ones. The key factor: whenever you as a landlord make or maintain a decision for fossil fuels, you become liable for the resulting costs.

Federal Justice Minister Stefanie Hubig explains the logic: "When landlords install fossil fuel heating, it affects tenants too. They shouldn't bear the economic consequences alone."

Changes to the 65% Renewable Energy Rule

One of the biggest changes affects the previous 65% rule, which required newly installed heating systems to operate with at least 65% renewable energy. This rigid requirement is now being scrapped.

The New "Bio-Staircase" Approach

Instead of the fixed 65% rule, the reform introduces a flexible "bio-staircase":

1. From January 2029: New gas and oil heating systems must operate with increasing shares of climate-friendly fuels
2. Four stages until 2040: Gradual increase of biogenic fuel components
3. From 2028: Introduction of green gas quotas for existing heating systems

This flexibility gives you greater planning security and time for conversion while maintaining climate policy objectives.

Impact on Your Utility Bill Management

Practical Implementation of Cost Sharing

Your utility billing will see concrete changes:

• You must separately itemize CO2 costs and bear 50% yourself
• Gas network fees are split equally between you and your tenants
• Costs for biogenic fuel components are also shared

These changes require adjusting your billing systems and possibly implementing new software solutions for correct cost allocation.

Documentation Requirements

The new cost sharing brings expanded documentation obligations. You must be able to prove:

• Type and age of installed heating system
• Share of fossil fuel usage
• Amount of CO2 costs and network fees
• Correct allocation between landlord and tenant portions

Financial Impact on Landlords

Cost Estimates and Example Calculations

Financial impacts vary by heating type and energy consumption. For a typical 80m² apartment with gas heating, additional annual costs for landlords can range from €200 to €400.

With a ten-unit portfolio, this quickly adds up to €2,000-€4,000 in additional annual costs. These figures will increase further with rising CO2 prices and network fees.

Strategic Considerations

The reform makes investments in climate-friendly heating even more economically attractive:

• Heat Pumps: No cost sharing for CO2 tax and network fees
• District Heating: Reduced cost burden depending on energy mix
• Hybrid Solutions: Proportional cost distribution based on fossil fuel share

For investment decisions, consider the total cost of ownership:

• Acquisition costs: Including subsidies and financing costs
• Operating costs: Factoring in the new cost sharing
• Maintenance costs: Differences between various systems
• Lifespan: Investment amortization period

Industry Reactions to the Reform

Tenant Association Approval

Melanie Weber-Moritz, President of the German Tenants' Association, views the reform positively: "A 50/50 split of CO2 costs, gas network fees, and biogenic components between tenant and landlord would be an important step toward greater fairness."

However, the tenants' association would have preferred a heating cost cap for even better protection—a proposal that failed due to opposition resistance.

Property Owner Criticism

Kai Warnecke, President of the Property Owners' Association Haus & Grund, sharply criticizes the reform. He calls the agreement a "political failure" and argues that tenants are being protected from costs "solely the state is responsible for."

The one-sided cost shifting to property owners has "nothing to do with responsible political action," according to Warnecke.

Subsidies Remain Available

Despite cost sharing changes, billion-euro government subsidies for heating modernization continue. This means:

• Investment Grants: Continued high subsidies for climate-friendly heating
• Loans: Favorable financing through KfW and other programs
• Tax Incentives: Deductibility of modernization costs remains

This subsidy landscape keeps investments in modern heating technology attractive and can more than compensate for additional operating costs with fossil fuel systems.

Action Recommendations for Landlords

Immediate Measures

1. Portfolio Analysis: Document all heating systems in your properties and their age
2. Cost Estimation: Calculate additional costs from cost sharing
3. Software Updates: Check if your billing software supports new regulations
4. Tenant Communication: Inform tenants early about upcoming changes

Long-term Strategies

• Modernization Planning: Develop a timeline for replacing fossil fuel heating
• Financing Concept: Optimize use of available subsidies
• Energy Consulting: Have properties assessed for optimization potential

Investment Decision Framework

For upcoming heating modernizations, evaluate:

• Current system age and condition
• Available subsidy amounts for different technologies
• Long-term operating cost projections under new rules
• Property-specific factors (building type, insulation, space constraints)

FAQ – Frequently Asked Questions

When does the new heating law take effect?

The reformed law is expected to be approved by the cabinet in 2026, likely taking effect at the 2026/2027 year transition. The new cost sharing rules will apply to both existing and new rental agreements from that point.

Must I pay costs for already installed heating systems?

Yes, cost sharing applies to all existing fossil fuel heating systems once the law takes effect. You'll participate in CO2 costs, network fees, and biogenic components regardless of when the heating was installed.

How does this affect my rental income?

There's no direct impact on base rent, but your net rental income decreases due to additional operating costs for fossil fuel heating. For new lettings, you might factor these costs into your calculations.

Which heating systems are affected by cost sharing?

All heating systems using fossil fuels—gas and oil heating systems. Hybrid heating systems are proportionally affected. Pure heat pumps, district heating from renewable sources, and other climate-friendly systems are exempt.

Can I deduct additional costs for tax purposes?

Yes, additional operating costs from cost sharing are deductible as business expenses for rental income. This reduces your actual financial burden by your personal tax rate.

Is switching to a heat pump now worthwhile?

The reform makes climate-friendly heating even more attractive. Heat pumps eliminate CO2 costs entirely, and you still benefit from high government subsidies. An individual economic calculation considering the new cost sharing is recommended.

Preparing for the New Regulatory Environment

The reformed heating law represents both challenge and opportunity for property owners. While cost sharing for fossil fuel systems increases your operating expenses, it creates strong incentives for climate-friendly modernization.

Now is the right time to strategically review your portfolio and utilize available subsidies. Professional property management becomes increasingly important—from correct utility billing to optimal investment planning.