Maintenance costs

Maintenance costs include all expenses necessary to keep a property in proper, functional condition and to preserve its value. They include both routine maintenance work (e.g., heating system maintenance, gutter cleaning) and repairs for damage and wear and tear (e.g., replacement of defective windows, renewal of exterior cladding). Maintenance costs must be distinguished from modernization costs (which improve the standard of the property); this distinction has significant tax implications.

Guidelines for Maintenance Cost Planning

The Peters Formula serves as a rule of thumb: For residential buildings, approximately 1.0-1.5% of the building’s construction cost per square meter of living space per year should be set aside for maintenance. Since the current construction cost for existing buildings is often difficult to determine, simplified guidelines are used in practice: for older buildings (built before 1980) 12-15 euros/m²/year, for newer buildings (built after 1980) 8-10 euros/m²/year, and for new buildings in the first 10 years 5-7 euros/m²/year.

These values are intended for medium-term reserve planning; actual costs in a given year can vary significantly-depending on the building’s age, condition, and whether major work is required that year. As an investor, one should also distinguish between regularly occurring minor costs (ongoing maintenance) and irregularly occurring major investments (roof replacement, heating system replacement, facade renovation). A 5- to 10-year maintenance plan is recommended for every property.

Tax Treatment of Maintenance Costs

For rental properties, maintenance costs are immediately and fully deductible as business expenses against rental income-unlike construction costs (which must be capitalized and depreciated via depreciation). The distinction between maintenance and construction is significant for tax purposes:

A kitchen that is replaced 1:1 with a new kitchen of the same quality (repair) is a maintenance expense and immediately deductible. If, on the other hand, a built-in kitchen is installed for the first time or a significantly higher-quality kitchen is installed, this constitutes a construction expense that must be capitalized. Window replacement (equivalent replacement) is generally considered maintenance; the installation of triple-pane windows in a building with single-pane windows may qualify as construction.

Special caution is required for the first three years following the purchase of a property: Measures that together exceed 15% of the building’s purchase price are treated as acquisition-related construction costs and cannot be deducted immediately (Section 6(1)(1a) of the German Income Tax Act (EStG)). We recommend always consulting with a tax advisor regarding major maintenance measures after purchase.

Maintenance Costs for Condominiums (WEG)

For condominiums within a condominium owners’ association (WEG), the maintenance costs attributable to the common property are financed through the maintenance reserve (formerly: maintenance fund), which is included in the monthly advance payments for building maintenance fees. The costs for the individual unit (the apartment itself) are borne by each owner individually.

When reviewing the purchase price of a condominium, both the amount of the reserve and the condition of the common property should therefore be examined. A low reserve in older buildings indicates a potential need for special assessments-a risk that must be factored into the purchase calculation.

Distinction: Maintenance vs. Modernization

In tenancy law, the distinction between maintenance and modernization is particularly relevant: Maintenance costs are borne by the landlord; modernization costs can be passed on to the rent at a rate of up to 8% annually (Section 559 of the German Civil Code (BGB), following the cap introduced by the tenancy law reform). Modernization occurs when the living quality is sustainably improved, energy consumption is permanently reduced, or the general utility value is increased.

Typical modernizations include: installation of a new heating system (especially a heat pump or pellet heating), facade insulation, elevator installation, and barrier-free bathroom renovation. Typical maintenance measures include: roof repair (not complete replacement), replacement of defective windows with equivalent ones, and renewal of outdated water pipes.

Practical Tip for Property Owners in Nuremberg and Franconia

In Nuremberg’s existing buildings-especially Wilhelminian-style houses and post-war structures from the 1950s to the 1970s-maintenance costs are a frequently underestimated factor. Anyone buying an older house should review the maintenance history for the past 10 years and draw up a maintenance plan (5-year plan). We help our clients realistically assess the need for renovation and factor this into purchase price negotiations. Experienced local contractors can provide a cost estimate for planned measures upon request.

Frequently Asked Questions

How do maintenance and modernization costs differ?

Maintenance preserves the existing condition (repairs, replacement of equivalent components). Modernization improves the standard or extends the useful life beyond the original scope (e.g., thermal insulation, new heating system). This distinction is relevant for tax purposes and under tenancy law (modernization apportionment).

Can I pass on maintenance costs to the tenant?

The landlord’s maintenance costs are generally not passable on to the tenant. Only certain costs, exhaustively listed in the Operating Costs Ordinance (e.g., heating maintenance, gutter cleaning), can be billed as operating costs. Repair and restoration costs are borne by the landlord.

What are cosmetic repairs-maintenance or something else?

Cosmetic repairs (painting walls, ceilings, floors, doors, windows) are a specific category that can be assigned to the tenant under tenancy law-but only if the lease contains clearly worded, valid clauses. They are maintenance in the broader sense, but are treated separately under tenancy law. According to current Federal Court of Justice (BGH) case law, rigid time-limit clauses (e.g., “paint every three years”) are invalid; valid clauses are based on the actual need for renovation.

What is the concept of acquisition-related production costs?

In the first three years following the purchase of a property, maintenance measures that together amount to more than 15% of the building’s purchase price (excluding sales tax) are treated for tax purposes as production costs (Section 6(1)(1a) of the German Income Tax Act (EStG)). They are not immediately deductible but must be depreciated over time. Buyers of properties in need of renovation should definitely discuss this aspect with their tax advisor.

Back to the Real Estate Glossary.