Heat contracting: does it pay off for landlords – and what may I pass on to tenants?

The short answer

Heat contracting pays off for a landlord above all when they want to shed the heating investment without tying up their own capital: the contractor builds and runs the plant, and the owner only pays for the delivered heat. The catch lies in the pass-through. For ongoing residential tenancies, the landlord may pass the contracting cost on to tenants only if it does not make the former self-supply more expensive (§ 556c BGB).

In other words: the saving on investment is real, but it does not land with the tenant automatically. If the heat price breaches the limit of cost neutrality, the difference stays with the owner.

What is heat contracting – and how does it differ from your own heating?

In heat contracting a third party, the contractor, builds and operates the heating plant and sells the building finished heat. The landlord does not invest in a boiler or heat pump, carries no financing risk and no operator duties; in return they pay a heat price that contains the contractor’s investment, operation, fuel and margin. An investment (CAPEX) becomes an ongoing supply (OPEX).

For the pass-through, what matters is how heat delivery enters the tenancy. If it is agreed in the tenancy from the outset, the cost is simply an operating cost of the “self-standing commercial delivery of heat” under § 2 No. 4 letter c of the Operating Costs Ordinance. If, however, the landlord switches an existing building from its own heating to contracting during ongoing tenancies, the protective rule of § 556c BGB applies.

When may the landlord pass contracting costs on? (§ 556c BGB)

Under § 556c Abs. 1 BGB the tenant bears the cost of heat delivery as an operating cost only when three conditions come together:

Condition	Basis	What it requires
Efficiency or a new plant	§ 556c Abs. 1 S. 1 Nr. 1	The heat is delivered with improved efficiency from a plant newly built by the supplier, or from a heat network
Cost neutrality	§ 556c Abs. 1 S. 1 Nr. 2	The cost of heat delivery does not exceed the former operating costs of self-supply
Announcement	§ 556c Abs. 2	The switch is announced at least three months in advance, in text form

An exception is set out in § 556c Abs. 1 Satz 2: if the old plant had an annual utilisation rate of at least 80 per cent, the supplier may, instead of a new plant, confine itself to an energetically improved mode of operation. And § 556c Abs. 4 makes it clear: an agreement to the tenant’s disadvantage is void. The landlord therefore cannot contract cost neutrality away.

What does cost neutrality mean? A worked example

The cost comparison under § 8 WärmeLV sets two figures against each other: the operating costs the tenant bore under the old self-supply, and the costs that would have arisen for heat delivery of the same quantity of heat. The pitfall sits in the word operating costs.

Property: 12 flats, about 900 m², 120,000 kWh of heat demand per year. Gas price: 11.17 ct/kWh (BDEW gas price analysis, apartment building, data as of August 2026). Assumptions: boiler efficiency 93 per cent, old boiler investment €35,000, 20-year service life, 4 per cent interest.

Item of the former self-supply	€/year	passable as an operating cost?
Gas (129,032 kWh × 11.17 ct)	14,413	yes
Operating power, maintenance, chimney sweep, metering (assumption)	1,900	yes
Capital/depreciation of the boiler (assumption, annuity)	2,575	no, borne by the landlord
Total passable operating costs	16,313	—

€16,313 over 120,000 kilowatt hours of heat comes to about 13.6 cents per kilowatt hour. That is the ceiling: only up to this heat price does the switch stay cost-neutral and fully passable.

Here comes the point many overlook. The capital cost of the old boiler, €2,575, never appeared in the tenant’s operating-cost statement; the landlord carried it. The contracting heat price, by contrast, contains the investment in the new plant in full. For the heat price nonetheless not to breach the 13.6 cents, the new plant must save enough fuel to offset its own capital component. In figures: the €2,575 corresponds to about 18 per cent of the old fuel cost. The new plant must therefore use at least about 18 per cent less fuel than the old boiler – and that is before the contractor has earned a single cent of margin.

That is exactly what § 556c Abs. 1 Satz 1 Nr. 1 requires: improved efficiency. Where it is missing, the landlord may well sign a contracting deal, but cannot pass on the part above the ceiling.

What must the switch announcement contain? (§ 11 WärmeLV)

The landlord must announce the switch under § 11 WärmeLV at least three months in advance, in text form. Five statements are mandatory:

1. the type of future heat delivery,
2. the expected efficiency improvement or the improved mode of operation,
3. the cost comparison under §§ 8 to 10 WärmeLV, including the underlying assumptions and calculations,
4. the planned date of the switch,
5. the intended prices and any price-adjustment clauses.

If this announcement is missing, the tenant’s objection period against the statement does not start to run (§ 11 Abs. 3 WärmeLV). The tenant can then challenge the heat delivery costs long after the statement. The announcement is therefore not a formality but the basis of the pass-through.

Who does contracting pay off for – and who not?

The answer depends less on the building than on the tenancy:

• New build and new lettings: the simplest case. If heat delivery is agreed from the start, there is no cost-neutrality hurdle; the costs are operating costs under the Operating Costs Ordinance. The landlord sheds the investment and passes the heat price on in full.
• Existing stock with ongoing tenancies and its own heating: the switch only pays off if the new plant is efficient enough to stay below the ceiling. Otherwise the owner pays the difference – permanently.
• Commercial property: § 556c BGB does not apply. Here the lease decides, and the pass-through is freely negotiable.
• Owners’ associations: switching to contracting is a decision of the association and needs a resolution; a single flat cannot trigger it alone.

The real advantage for the landlord lies not in the price but in the risk: no investment, no borrowing, no operator duties. Anyone who has a new gas or oil heating system installed bears the rising bio-blending steps under the Buildings Modernisation Act from 2029 and the maintenance themselves; in contracting both sit with the operator. That value has to be weighed against the capped pass-through. What a kilowatt hour of heat costs at all per heating route is in the full cost comparison; how the 2027 CO₂ price splits between landlord and tenant is a separate item in this calculation.

What landlords should check before a contracting contract

1. Establish whether this is a switch in existing stock (then § 556c BGB applies) or a fresh agreement in the tenancy (then only operating-cost law applies).
2. Work out the former passable operating costs of the heating per kilowatt hour of heat – without the capital cost of the old boiler. That is the ceiling.
3. Ask the contractor for the heat price per kilowatt hour for the same quantity of heat and hold it against the ceiling. If it is higher, the remainder is not passable.
4. Have the promised efficiency improvement documented; without it the condition under § 556c Abs. 1 Satz 1 Nr. 1 is missing.
5. Prepare the switch announcement with all five mandatory statements and observe the three-month deadline.
6. Check the price-adjustment clause before signing – it determines how the heat price may rise over the term of the contract.