Renting a granny annexe – what tenants and landlords need to be aware of

If the general conditions are right, both parties benefit: both the tenants and the landlords of a granny flat. What you should pay attention to, what advantages you can expect and what else plays an important role in this topic, you will learn below.

When is a granny annexe to be spoken of at all??

The so-called "einlieger" helped this housing concept to its name. In the past, this was the name given to farm workers who hired in with farmers and supported them on their farms. In the years following the end of the second world war, a law even obliged owners of new single-family houses to install granny apartments. This was intended to counteract the lack of living space at the time.

Before discussing the aspects of such a tenancy, it makes sense to define the term granny apartment. Various conditions must apply in order for this type of property to be considered at all. An essential prerequisite is that it is a self-contained residential unit within a house. Another important condition is to be able to run the household completely independently – an own kitchen and a bathroom are essential for it. In summary, a granny apartment has to meet these criteria:

• It is lockable and thus separated from the rest of the living area.
• It cannot be reached from the outside via its own entrance.
• The way to the apartment leads instead over the front door or the staircase.
• It allows independent household management.
• It must offer a bathroom with shower and toilet as well as cooking facilities.
• Its area is smaller than that of the main living area.

Without own household management it would be a classical room rental. Equally significant is the criterion that there is no separate access from the outside. Otherwise, it is not a single-family house with a granny annexe, but a two-family house.

If you want to rent out a granny apartment, you should also pay attention to the minimum size. Although this is not uniformly regulated nationwide, but mostly 25 square meters are mentioned as a default. To be profitable for renting, however, 50 square meters is considered a good benchmark. A limit upwards does not exist. The only decisive factor is that the granny apartment has a smaller living space than that of the house owner.

Renting out granny apartments: here's what owners need to watch out for

The basis for the tenancy is the associated contract. The living concept of the granny apartment is special in that owner and tenant live closer together than usual. This may seem quite straightforward in the case of a family relationship. The situation may be different for third-party tenants. To create clarity, precise agreements in the contract are important. Points such as these can be recorded:

• Rules for sharing the garden
• Possible obligation to maintain the exterior, incl. Snow clearing in winter
• Arrangements for keeping pets
• Use of areas such as basement or attic

One contentious point can also be avoided right from the start: it concerns the consumption costs. Owners who rent out a granny apartment are not obliged to charge for it based on consumption. For maximum transparency, however, it is recommended to install separate meters for energy and water supply.

Good to know: if relatives rent your granny apartment, you should also draw up a contract in any case. In the absence of such an agreement, you as the landlord may not be able to take advantage of the tax benefits unless the lease is recognized as such.

The amount of rent is another important aspect. If relatives live in the granny apartment, it stands to reason that they should be granted particularly favorable terms. As understandable as this procedure is – the fiscal consequences are not to be disregarded. The amount called up should not lie definitely below 50 per cent of the local warm rent. Expenses such as loan interest, depreciation or maintenance costs would then only be deductible on a pro rata basis.

Critically however already the range is to be regarded starting from 66 per cent up to said 50 per cent. If the rent moves within this range, the tax office will do an audit. This examines the extent to which the owner intends to generate income in the long term. If the calculation leads to a positive result, the costs can be claimed in full – otherwise only proportionally.

Owners who rent out a granny annex enjoy a special right of termination. Differently than with conventional tenancies they do not need to bring forward a valid reason such as an own need. However, it is important to remember that the statutory period of notice for the tenant is extended if the landlord makes use of his special right of termination – to what extent depends on the term of the existing contract. These deadlines must be taken into account:

• 6 months for a lease existing for up to 5 years
• 9 months for a lease term of between 5 and 8 years
• 12 months in the case of a lease existing for more than 8 years

Renting out a granny apartment: what tenants should consider

All prospective tenants who wish to rent a granny apartment also have certain points to consider. To the basic conditions to terminate the contract can be tied immediately from the tenant's point of view. They must be aware that these legal requirements are associated with certain disadvantages for them. As a rule, they have no choice but to accept a termination of the contract if the landlord exercises his special right of termination.

All those who rent a granny apartment can only help themselves with the social clause. However, in order for this to take effect, they must provide evidence. It must be proven that the termination will cause particular hardship for the tenants. This would be the case, for example, if they suffer from a serious illness or have problems finding an adequate alternative living space. However, it is also possible to talk to the landlord in advance and make different arrangements for the notice periods. This may only be done for the benefit of the tenants. However, the landlord does not have to agree to it.

Another critical aspect is the billing of consumption costs. The landlord is not required to determine the heating costs based on consumption. He may also determine it proportionally according to the square footage. In an unfavorable scenario, tenants thereby share some of the landlord's costs. However, such an agreement is only effective if it is contractually recorded in such a way. Ideally, separate water and gas and electricity meters are set up.

Renting out a granny apartment: this speaks for it

An obvious reason for renting out a granny apartment is the associated income. They can already be helpful during the real estate financing to pay the installments. Later they serve as a second income. In addition, there is the possibility of taking out 2 loans, one of which is for the main living area and one for the granny annexe. If the property meets the requirements of the kreditanstalt fur wiederaufbau (kfw), you can benefit twice from the state subsidy.

Tax advantages are also a very significant reason to rent out a granny apartment. The following expenses in particular are taken into account:

• Interest costs
• Expenses for maintenance
• Work on modernization
• Repairs
• Brokerage costs
• Production costs for new construction (2 % depreciation annually)

Ultimately, the interpersonal factor also favors the decision to rent out a granny apartment. Who accommodates its relatives in the object, can create thereby a multi-generation house, in which old and young mutually support each other. Of course, it is also conceivable to build up a close relationship with other tenants and to benefit from each other.

Renting a granny apartment: this speaks in favor

For tenants, living in a granny apartment also brings certain benefits. Financial aspects also play a role here. Objects of this type are often offered at more attractive conditions than classic rental apartments.

Certain compromises in privacy and the not unusual location in the basement or under the roof justify a concession. This makes it easier for certain target groups, such as students or trainees, to find affordable accommodation. Ideally, the granny apartment for rent is already furnished and thus directly ready for occupancy. A final argument unites tenants and landlords: families can live together under one roof with certain retreat options and independent household management.

Result: the granny annexe is a special housing concept

Anyone who wants to rent a granny apartment must bear in mind that this living concept is different from others. The separate notice conditions are a quite substantial difference. But attention must also be paid to the billing of consumption costs. A significant advantage are the mostly lower rents.

All those who rent out a granny apartment benefit from the possibility of being able to claim the associated expenses for tax purposes. For this to be fully permissible, they must not set the rent too low. Due to the very close residential relationship, precise and, if necessary, additional agreements are recommended in the rental agreement. So possible disputes can be largely excluded. To avoid this, separate meters for billing consumption data are also helpful.