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Real Estate Luxembourg : Reform of the law on residential lease

Bail à loyer avocat luxembourg

New features expected on 1 August 2024 for the residential lease in Luxembourg

Introduced on 31 July 2020, the bill amending the Residential Tenancies Act of 21 September 2006 was finally passed on 10 July 2024 and is due to come into force at the beginning of August.

This reform contains a number of new provisions that will change the relationship between (co-)tenants, landlords and estate agents.

1. Changes to the rental guarantee

– Capping

The rental guarantee will now be limited to a maximum of two months’ rent (instead of three).

– Repayment

50% of the rental deposit will be refunded if no damage is found to the property and there is no unpaid rent, and this within one month of the inventory of fixtures at the end of the rental period.

Except in circumstances for which the tenant is responsible, the owner’s failure to pay may give rise to the application of a penalty of 10% of the rent for each month’s delay.

2. New formalities

– A written lease

Oral leases, although no longer used in practice, will now be considered null and void (if entered into after the law comes into force).

The lease will now be in writing and will have to contain certain clauses, in particular: identity of the parties, amount of rent and charges, etc.

– Shared flats

The amendments to the law will formalise the practice of joint tenancy by making it compulsory to sign a joint tenancy agreement.

This pact will be used to regulate the terms and conditions of living together, by determining, for example, how the rent is to be shared and any joint liability between tenants.

3. Rent ceilings

– 5% of capital invested rule

The rule capping rents at 5% of the capital invested, which already exists in existing legislation, remains unchanged.

Despite considerable discussion on the subject, the amount of capital invested will not have to be mentioned in the lease.

– The end of “luxury housing”

The reform of residential leases includes the abolition of “luxury accommodation” – a qualification which depended on the amount of rent or capital invested and which allowed derogation both from the 5% cap and from the automatic extension of lease contracts in favour of tenants.

4. Sharing agency fees

One of the final points of note is the introduction of a system for sharing estate agency fees, previously borne entirely by the tenant(s), which will now be split 50/50 between the (co-)tenant(s) and the landlord(s).

While the handover of the keys was usually conditional on the tenant paying the agency fees, it would not be surprising if the landlord(s) now decided to market their property themselves, or even tried to obtain a waiver of the collection of the landlord’s share…

It will be important, especially for landlords (but also for tenants), to ensure that lease contracts entered into after 1 August 2024 include the new compulsory information, as the penalty provided for is the nullity of the lease.

Don’t hesitate to contact us to review your lease agreement, your templates or if you have any questions about the consequences of this reform.