(Bloomberg) --
A plan by the city of Berlin to freeze rents in the German capital for five years is unconstitutional, according to the federal government.
Issues such as limiting rent should be regulated on a national level rather than by individual states, the German Interior Ministry said in an email to CDU lawmaker Kai Wegner seen by Bloomberg. Rent limits are already “comprehensively and conclusively regulated” by the federal government, the ministry told Wegner, a member of the Bundestag for the Berlin constituency of Spandau and Charlottenburg-Nord.
Berlin's biggest residential landlord, Deutsche Wohnen SE, climbed as much as 4% in Frankfurt. The shares have dropped around 17% since since the measures against landlords were first reported in June.
Read more: Berlin Freezes Rents in Landmark Plan to Tackle Cost Spiral
The initiative put forward by the Left party's Katrin Lompscher, head of Berlin urban development and housing, is intended to ease the burden on tenants after a property boom caused rents to double over the past decade. Among the most radical announced by any city, the rules are expected to come into force in the first quarter of next year.
“Everyone involved has been aware from the start that we're entering virgin legal territory,” Katrin Dietl, a spokeswoman for Lompscher's department, said Monday. “Ultimately, the legality of the measures will be decided in court.” Deutsche Wohnen declined to comment.
While some lawyers have said that the plan may be unconstitutional, Berlin Mayor Michael Mueller said last month that he's confident the measures could withstand legal challenges.
The uncertainty caused by the plan has prompted Deutsche Wohnen to review almost 1 billion euros ($1.1 billion) worth of renovation work and investments in new Berlin homes, the company said last week. It has also earmarked as many as 5,000 Berlin properties for disposal.
To contact the reporter on this story: Andrew Blackman in Berlin at ablackman@bloomberg.net
To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Iain Rogers
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