Allocation formula

Allocation Formula - The allocation formula (also known as the apportionment formula) determines the criteria used to allocate operating costs, heating costs, and condominium association fees among individual tenants or owners. Common allocation criteria include living area, co-ownership share, number of occupants, consumption, and number of units. The correct allocation formula ensures that costs are distributed fairly and transparently.

Allocation Formulas in Tenancy Law

Under tenancy law, the following applies: If the lease agreement lacks a provision regarding the allocation formula, operating costs are distributed based on living space (Section 556a(1) of the German Civil Code (BGB)). This provision is the statutory default rule and reflects the assumption that larger apartments incur higher costs. Alternatively, the landlord may bill based on number of occupants or another appropriate criterion if this is agreed upon in the lease agreement-a unilateral change to the allocation formula specified in the lease agreement is possible only within narrow limits without the tenant’s consent.

Heating costs constitute an important exception: According to the Heating Costs Ordinance (HeizKV), at least 50 percent and at most 70 percent of heating and hot water costs must be billed based on consumption-the remainder according to a fixed allocation formula (usually living space). This requirement applies regardless of the terms of the lease agreement and protects tenants with energy-efficient heating habits. Anyone who fails to comply with the Heating Costs Ordinance must grant the affected tenants a 15 percent deduction on their share of heating costs.

The landlord may unilaterally change the allocation formula with notice until the next billing period (Section 556a(2) of the German Civil Code (BGB)) if the change is appropriate-such as switching from a per-person allocation to one based on living space or consumption-based billing. The tenant must be notified of the change in a timely manner before the start of the new billing period.

Allocation Keys in WEG Law

Under the WEG, the allocation key for common property costs is specified in the Declaration of Division or Community Rules-usually based on co-ownership shares (MEA). The co-ownership shares are determined by the notary when the property is divided and entered in the land register. They are intended to reflect economic circumstances, but in practice often only approximately correspond to the actual distribution of living space.

Since the 2020 WEG Reform, owners can change the allocation formula by a simple majority (Section 16(2) WEG)-previously, an agreement among all owners was required, which made changes virtually impossible in practice. However, the change must be reasonable: Arbitrary redistributions at the expense of individual owners are impermissible and can be challenged. Consumption-based allocation keys (e.g., for water based on meter readings) are significantly easier to implement following the reform.

The WEG provides for a differentiated system for individual cost categories: Maintenance and repair of the common property are billed according to the general allocation formula (usually MEA), unless a different provision applies. For measures constituting structural alterations (Section 20 WEG), costs are generally borne only by those who voted in favor of the measure.

Practical Implications for the Annual Statement

The allocation formula is the foundation of every WEG annual statement and every utility bill. An incorrect or unclear formula leads to erroneous statements, which can be contested by tenants or owners. Under the WEG, an incorrectly calculated annual statement can be declared invalid through a lawsuit to contest it-with the result that the entire statement must be redone.

The situation is particularly delicate when different types of costs are calculated using different allocation keys-such as heating costs based on consumption, operating costs based on living space, and reserves based on MEA. Transparency and traceability are essential here: Every tenant and every owner must be able to understand from the statement how their share was calculated.

Practical Tip for Owners in Nuremberg

We recommend that owners and landlords in the Nuremberg metropolitan region regularly check the allocation formula for accuracy. In many older WEG complexes in Nuremberg in Langwasser, Schweinau, or Maxfeld, the formula is based on co-ownership shares that were established during the division of the property in the 1960s or 1970s-these do not always correspond to the actual distribution of living space.

Since the 2020 condominium reform, the owners’ meeting can adjust the formula by a simple majority. We help homeowners’ associations prepare a proper amendment to the allocation formula and submit it to the meeting for a vote. For landlords: Check whether switching to consumption-based billing for heat and water would be fairer and more transparent for tenants-this often improves tenant relations and avoids disputes during the annual billing process.

Frequently Asked Questions

Can the landlord change the allocation formula retroactively?

Yes, the landlord can change the allocation formula unilaterally for a future billing period if the change is appropriate (Section 556a(2) of the German Civil Code (BGB)). A switch to consumption-based billing is always permitted. A change to the formula agreed upon in the lease generally requires the tenant’s consent-unless the lease contains an opt-out clause. The change must be declared before the start of the billing period and cannot be applied retroactively.

Which allocation formula is the fairest?

That depends on the type of cost: living space is fair for area-based costs (building insurance, property tax, janitor). Number of occupants is fair for occupancy-based costs (garbage collection, water without a meter). Consumption is the fairest for consumption-based costs (heating, hot and cold water, provided meters are available). Co-ownership shares are standard in condominium associations (WEGs), but can be unfair if they do not correspond to the actual distribution of floor space. A combination of different allocation keys depending on the cost type is the most appropriate solution and complies with the legal framework.

What to do if the allocation formula is obviously unfair?

Tenants can file a complaint regarding an incorrect or unfair allocation in the utility bill within 12 months of receiving the bill. In a condominium association, owners can have a change to the allocation formula placed on the agenda of the next owners’ meeting-since the 2020 condominium reform, a simple majority is sufficient for the change. In cases of grossly unfair allocation keys that systematically disadvantage individual owners, the adjustment can also be enforced in court. We assist owners in preparing the relevant resolution proposals.

Back to the Real Estate Glossary.