April 26, 2024 • Real estate market Residential rental

Our analysis of the rental lease reform

After years of discussions, the rental lease reform has been approved by the government! 
Update of 07/11/2024: The revision of the rental lease has been voted by the Chamber of Deputies and will come into effect on 08/01/2024. Learn more. 
“The rental market is increasingly overheating with a constant rise in rents (4% increase compared to Q4/2022) and a persistent scarcity of availability, although slightly improved. The government has listened to the real estate sector and decided to reform the law dating back to 21 September 2006 to make housing more accessible, better protect tenants, and provide more transparency in the landlord-tenant relationship.”The government amendments are now in the legislative process, so that Bill No. 7642 can be reviewed by the Council of State and voted on by the Chamber of Deputies shortly.Our opinion on the main revised aspects: 

1. House-sharing

A housemate will be able to freely replace a housemate before the end of the lease with a 3-month notice and subject to finding a replacement themselves, leaving the option open for other housemates and the landlord to find a replacement as well.

INOWAI’s opinion: “House-sharing is a preferred housing solution for various profiles such as newcomers looking for a more affordable option when they arrive in Luxembourg or people whose situation is in transition. This reform will allow them greater flexibility to adapt to their often rapidly changing situation, which is difficult to anticipate. Keep in mind that current lease conditions still apply, and these impose solidarity between each tenant.”

 

2. Requirement for a written lease and respect for the legal rent ceiling

All residential lease agreements must be made in writing in the future and include certain mandatory clauses. The contract must state that the rent complies with the annual legal cap. The total rent amount cannot exceed 5% of the invested capital. An additional charge can be requested for furnished housing. Upon each adjustment, the rent cannot increase by more than 10% every two years.

INOWAI’s opinion: “As professionals in the field, we obviously operate with written leases.”

 

3. Abolition of the concept of luxury housing

The concept of “luxury housing,” which allowed avoiding the application of the rent ceiling, will be abolished. During each rent adjustment, the rent cannot be increased by more than 10% every two years.

INOWAI’s opinion: “We see this positively. The luxury housing clause raised many questions and apprehensions/misunderstandings from our potential tenants. It was, however, the only way to introduce an indexation in the residential lease. Without this clause, indexation was indeed only allowed for commercial leases. Including a specific percentage in the indexation clause allows for better transparency and understanding of the terms for tenants and simplifies the process. No more complicated calculations with Statec scales!”

 

4. Sharing of real estate agency fees

In the future, real estate agency commission fees will be shared equally – 50/50 – between the landlord and the tenant.

INOWAI’s opinion: “This change would be quite unprecedented for the Luxembourg market, which has so far greatly favoured the interests of the landlord. This reform would be fairer and more coherent as the service and work provided by real estate agencies are carried out for both parties. We assist both the tenant in their search and moving process and the landlord in marketing and renting out their property at large.”

 

5. Regulation of the rental deposit

The maximum legal amount of the rental deposit is reduced from 3 to 2 months’ rent. The bill introduces a procedure for the return of the rental deposit, with specific terms, including a penalty for non-compliance with the deadlines provided by law when the tenant leaves the property.INOWAI’s opinion: “From experience, many candidates request a reduction in the amount of the bank guarantee given the other costs associated with renting a property. Indeed, these represent almost five times the rent amount (1 month rent, 1 month rent for agency fees, and 3 months deposit). This proposal is an advance for the tenant; however, keep in mind that the deposit is the only security for the landlord who may face repair costs.”For any additional information, our rental team is at your disposal. Please feel free to contact us at +352 25 03 39 or by email at info@inowai.com.

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