Reform fraught with obstacles: A brief guide for tenants on the Building Modernisation Act

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The government led by Friedrich Merz had already proclaimed the ‘Autumn of Reforms’ back in 2025. However, this did not materialise. Then the ‘Spring of Reforms’ was due to follow. Spring 2026 did arrive, but the reforms did not. Now it is summer’s turn to sort things out. That is why, shortly before the summer recess, the three governing parties passed amendments to legislation. Improvements were promised for the economy and consumers in relation to the energy transition and the heating transition, but unfortunately only changes and complications were introduced to the energy transition, with new bureaucratic hurdles.

None of the reforms that are actually needed have been set in motion. Instead, some matters are being regulated in a way that is, apparently deliberately, more confusing and cumbersome; hurdles are being erected that can then be streamlined at a later date; and funding is being cut wherever possible.

The Building Energy Act (GEG) has been amended via the Building Modernisation Act (GModG), with serious implications for consumers. I will therefore first address the GModG for those affected. In a subsequent article, I will then cover the Renewable Energy Sources Act (EEG) and the associated so-called ‘grid package’.

Regarding the changes to the GModG, the LZ published information from me on 21, 22 and 23 March 2026 for consumers – and tenants in particular – on the planned changes relating to the heating transition. (Part 1, Part 2, Part 3)

In these three articles, I sought to outline the options available for limiting heating costs and to explain that tenants have very little scope for reducing their costs. Here is some new information on this:

Since early July 2026, the GModG has been in force following its adoption by the Federal Government. This law removes the requirement that new heating systems must be climate-friendly; in other words, the 65 per cent rule on the use of climate-friendly heating systems from the GEG has been scrapped. This means that the installation of new gas heating systems is once again permitted, and the continued operation of existing fossil-fuel boilers is to be allowed without restriction. This so-called ‘freedom in the boiler room’ could prove costly for tenants and has massive consequences for the climate.

The myth of the ‘bio-staircase’

As the CDU/SPD grand coalition under Angela Merkel has set a binding target for the Federal Republic to reduce carbon dioxide emissions by 2045, a ‘bio-step’ has been introduced. Under the GModG, climate-friendly fuels such as biomethane and synthetic fuels must be blended with gas or oil to ensure that this share reaches at least 10 per cent from 2029 onwards. In 2030, this proportion will rise to at least 15 per cent, to at least 30 per cent in 2035, and to at least 60 per cent in 2040. Gas and oil suppliers are to offer corresponding tariffs.

However, these renewable gas components and bio-oils are already in short supply and cannot be produced in sufficient quantities, and are therefore only available in limited amounts. As a result, these bio-based fuel components are becoming increasingly scarce and, consequently, expensive. Under the GModG, half of the costs arising from the blending of alternative fuels are to be borne by the landlord, as are half of the CO₂ price and the grid charges. In this way, the government aims to support and reassure tenants. It is not yet clear how this cost-sharing arrangement will work.

The Munich Environmental Institute (UIM) and the organisation Protect the Planet commissioned a legal opinion which shows that tenants can also assert their rights regarding heating costs. Anyone faced with rising costs due to fossil fuels can fight back – and in doing so, may even trigger a constitutional review of the law.

If landlords install a new gas heating system under the GModG and costs skyrocket, tenants have two avenues in court to challenge the higher costs:
a) against rising operating costs on the heating bill and
b) against the passing on of investment costs for new gas or oil heating systems.

Landlords, on the other hand, face a considerable risk if they continue to rely on fossil fuels for heating. Two new studies by the Fraunhofer Institute have shown that gas heating systems will cost the households affected thousands of euros in additional annual costs within ten to twenty years. Furthermore, many cost-conscious property owners are switching to heat pumps, meaning that fewer and fewer gas pipes are needed and must be decommissioned. For gas users, energy suppliers and local authorities, the gas networks will become a dangerous financial risk in less than 20 years.

Tenants can challenge gas heating bills in court

According to information from the UIM: “As the principle of economic efficiency under tenancy law relates solely to consumption costs (gas, oil or electricity), it is irrelevant in the case of newly installed fossil fuel heating systems whether the purchase cost of a heat pump would have been higher than that of a fossil fuel heating system. For tenants, the only thing that matters is what is stated on the heating bill. If this becomes more expensive due to the installation of a fossil fuel heating system, tenants can challenge the bill solely on the basis of the principle of economic efficiency.”

Tenants can challenge the modernisation levy for gas heating systems

“Through the modernisation levy, landlords can pass on the costs of investments in their flat or house to tenants on a percentage basis over the years. Under current law, they may only claim this levy for heating modernisations if the new heating system saves energy. This would not generally be the case with a new gas heating system; therefore, the costs of new gas heating systems cannot currently be passed on to tenants via a modernisation levy. Under the new Building Modernisation Act, this would initially be permitted again. However, tenants are not obliged to accept this levy.”

You can take the matter to court and argue that, whilst the charge is only permissible under the GModG for a new gas heating system, this particular system does not save any energy equivalents (kWh) and does not meet the latest technical standards. The Building Modernisation Act therefore does not provide freedom in the boiler room, but rather creates new legal risks.

It would also make sense for owners to consistently opt for fully renewable energy sources when replacing their heating systems. These are more cost-effective in the long term for all parties involved, can be installed in a legally compliant manner and are sustainable.

New subsidy schemes for homeowners for heat pumps

With the high summer temperatures, the thought of winter heating may seem a little far-fetched, but it is necessary, as winters too can become more extreme due to climate change. Anyone prioritising heating efficiency and considering the installation of a new heat pump must take new subsidy guidelines into account. New guidelines for the Federal Subsidy Scheme for Efficient Buildings (BEG) have been in force since 21 July 2026.

A transitional arrangement applies to ongoing projects. Property owners should therefore check which regulations apply to their own project. When planning, it is important to bear in mind that the application must be submitted to the KfW development bank before the project begins. Unfortunately, the subsidy for energy advice has been abolished, but it is now more necessary than ever to help navigate the many regulations.

The basic subsidy for heat pumps remains at 30 per cent of eligible costs, but the eligible investment costs are being reduced. The aim is to take applicants’ income situations into account in a more nuanced way in future.

The climate speed bonus will initially fall from 20 to 16 per cent and, after 1 February 2027, will be reduced by four percentage points every six months. So you’ll need to be able to do the maths here. The existing five per cent efficiency bonus is also to be scrapped. However, in future, the use of natural refrigerants will be mandatory to qualify for the subsidy, which seems sensible from a climate perspective.

A key argument in favour of installing heat pumps (HP) is their energy efficiency, with a ratio of 1 to 3 for the kilowatt-hours (kWh) used – or 1 to 4 for high-quality systems under favourable conditions. In addition, you can save on energy costs by combining a heat pump with a photovoltaic (PV) system on your own roof. The PV system, with its storage unit, supplies electricity when it is needed – that is, when the heat pump is running. In winter, more electricity is required to operate the heat pump, as energy output is lower at lower temperatures. A heat pump also reduces dependence on fossil fuels in the long term.

Heat pumps for blocks of flats

For blocks of flats, models involving the direct sale of electricity – known as ‘electricity sharing’ – using large-scale heat pumps, a solar panel system and electricity storage are now of particular interest, as the portion of electricity generated by the solar panel system that is not consumed by the residents can be sold directly to neighbours. This would increase the return on investment for an electricity generation system; neighbours could obtain low-cost electricity from local sources and would be less dependent on electricity price fluctuations on the electricity exchanges.

There would also be less reliance on long-distance transmission networks, meaning lower grid charges would be possible. When it comes to electricity sharing, the bureaucratic hurdles involved in electricity distribution – due to the connection to the local electricity grid – and the billing arrangements for tenants must be taken into account. However, there are already commercial solutions available for this.

Furthermore, tenants can benefit from using heat pumps, as running costs are lower and prices for fossil fuels are rising.

The new EEG is slowing down the expansion of small-scale PV systems

Under the amendment to the Renewable Energy Sources Act (EEG), the feed-in tariff for smaller PV systems with a capacity of less than 25 kilowatts was due to be completely phased out on 1 January 2027. Now, as a transitional measure, it is planned that the feed-in tariff previously in place will only apply for a further 36 months. After that, a bureaucratic monster will be re-established, requiring operators of small-scale PV systems to sell their electricity directly on the electricity exchange in order to encourage them to behave in a way that ‘benefits the grid’.

In other words, feeding electricity into the grid should, as far as possible, only take place when supply is limited and scarce. Direct marketing may involve the use of brokers, and a subsidy of 1.5 cents per kilowatt-hour would be provided for four years.

Which small-scale PV operator is supposed to manage this? This is quite clearly intended to slow down the further expansion of solar installations.

Incidentally, as of 1 August 2026, the feed-in tariff for newly connected solar installations will fall again by around 1 per cent, in line with the provisions of the amended EEG, which stipulates a half-yearly reduction. The rate applicable when the new solar installation is commissioned remains valid for 20 years and does not decrease thereafter. The amount of the feed-in tariff depends on the capacity of the solar installation and on whether the electricity is fed into the grid in part or in full.