Without wanting to state the obvious, your landlord isn't allowed to raise your rent arbitrarily. You have signed a legal agreement with him/her and therefore they need a reason to demand more money - which is backed by German law.
So if you get a letter stating that you'll be paying €20 a month extra from now on because they need to finance a new garden shed, you don't need to take it very seriously.
So when can a landlord demand a rent increase (Mieterhöhung)? Well, there are a few different reasons each with slightly different parameters.
Meeting the rental average
If you are lucky enough to have signed a contract at below the market value - good for you! As many people struggle to even get their names on a rental contract these days, you have struck oil.
But there is some bad news: Your landlord has the right to raise the rent up to the level of what is called the Mietspiegel. This is the average rent for comparable apartments in your area - and is assessed at regular intervals by local authorities. Your landlord is not allowed to raise your rent above the Mietspiegel, though.
There are a few other limitations on what your landlord can do here, too. They are only allowed to raise the rent once every 15 months and they are not allowed to raise it by more than 20 percent in a three-year period.
Rise in running costs
As you are probably aware, your rent is broken down into Kaltmiete (cold rent) and Warmmiete (warm rent). Your cold rent is basically the rental of the apartment itself, while warm rent is things like heating bills and payment for the upkeep of common spaces in the building. The landlord is within his rights to increase the warm rent if he can show that Nebenkosten (additional costs) have gone up above the price that he is charging.
Unfortunately for you, there are no limits on how often your landlord can do this.
If the landlord decides that it is time to insulate the roof, paint an outside wall or in some other way modernize your apartment, he is allowed to raise your rent to cover up to 11 percent of the costs.
The landlord is allowed to raise your rent more than once in a short period of time if he undertakes several different modernization works in succession.
But whatever happens, the landlord cannot raise your rent above the Mietspiegel.
When the landlord isn't allowed to raise your rent
If you have signed a contract on a new flat and then, after chatting with your neighbours, you find your paying above the market rate - that's too bad. Landlords are allowed to rent out new properties over the Mietspiegel - and in the current climate of housing shortages they are rather inclined to do so. But what they are not allowed to do is raise your Kaltmiete again until the Mietspiegel catches up with it.
Also, if you have signed up to a Staffelmiete - a rent that goes up by a certain percentage annually - the landlord is not allowed to raise the rent above and beyond that.
What to do in the event of a rent increase
If the rent is increased, both sides have to agree first. Your landlord can't just write to you and say 'Hey I'm putting up the rent next month, be prepared to pay up!" They have to inform you that they intend to raise the rent and ask for your consent. But this doesn't mean that you can reply 'thanks but no thanks'. If they don't get your consent but feel that the law entitles them to raise the rent then they will likely take you to court.
But you do have quite a bit of time to consider your answer. You have the month that you received notice of the increase plus the two following months to make up your mind. If you feel like the increase is not justified then it is highly advisable that you seek the advise of your local Mieterverein. You need to be a member of a Mieterverein, but they will offer free legal advise once you have paid a small membership fee.
SEE ALSO: Tip of the week: How to join a Mieterverein (renter's association) in Germany