Luxembourg’s residential lease reform clarifies relations between tenants and landlords. It imposes a written lease contract, under penalty of nullity, and introduces rules on joint tenancy. Agency fees are shared between tenant and landlord, and rent is capped at 5% of the capital invested. Rent increases are limited to 10% every two years. The rental guarantee is reduced to two months’ rent, with precise rules for its return.

The reform of residential leases has introduced a series of measures aimed at clarifying and structuring the relationships between tenants and landlords. Here is an overview of the main changes and points of discussion.

Shared Accommodation (“Colocation”)

In the latest edition of our book “The Lease Contract in Luxembourg Law”, we raised the issues related to the lack of legislation governing “shared accommodation” in Luxembourg, particularly regarding joint liability between tenants, the termination of the lease by one tenant, and the payment of rent.

We can only welcome the legislator’s intention to provide a legal framework for this type of rental, which is now finally defined by law.

Since these new rules are numerous and may also be subject to varying interpretations, we will examine them in a separate article.

Requirement for a Written Agreement

The residential lease must now be in writing and contain a certain amount of information, under penalty of nullity. A verbal contract is no longer valid.

This can first penalize the imprudent tenant: if a written lease exists but does not meet the new legal requirements – under penalty of nullity – the landlord will more easily be able to obtain the tenant’s eviction by invoking the nullity, without having to comply with the strict conditions provided in the case of a unilateral termination by the landlord.

On the other hand, it sometimes happens that an owner lets a person live in an accommodation, sometimes even for years, but without a written contract. A frequently asked question in such cases is whether the contractual relationship between the parties should be legally classified as a residential lease or rather as a precarious occupation agreement, knowing that the latter type of contract does not offer special protection for the occupant.

As a residential lease must be concluded in writing, the occupant will in principle no longer be able to argue that this first classification should apply and may then risk not benefiting from protective rules.

However, landlords must also be cautious: In case of nullity, the contract is retroactively annulled, which would entitle the tenant to refunds: the rent paid would, in principle, have to be reimbursed. We believe that the landlord should be able to assert a “restitution by equivalent,” i.e., a claim for payment to compensate for the “loss of use” of the premises. However, such restitution is not guaranteed, and any possible amount would, in principle, be determined sovereignly by the judges, not necessarily corresponding to the rent agreed upon by the parties. The landlord thus risks being awarded amounts lower than the agreed rent or even having to reimburse all the rents without compensation, although this latter outcome seems less likely to us.

Sharing Agency Fees

Agency fees must now be shared equally between the landlord and the tenant, putting an end to a widespread practice in Luxembourg.

Rent Cap

The rent cap remains set at 5% per year of the invested capital, despite several heated debates on this issue.

The concept of “luxury housing” has been abolished, but an additional monthly charge in addition to the rent may be requested for furnished housing, not exceeding 15% of the total amount of invoices for the furniture purchased within the last 10 years.

Note: The supplement must be indicated separately from the rent in the lease contract.

Rent Increase

The increase in rent and the furniture supplement, which can only occur every two years, is now limited to 10%.

The previous law stipulated that any increase exceeding this rate would be applied in thirds annually.

However, an increase beyond this limit is not automatically invalid. The law clearly states that the portion of the rent exceeding the 10% rate is not due from the first payment following the tenant’s written complaint to the landlord by registered letter.

Rental Guarantee

The rental guarantee can no longer exceed two months’ rent, instead of the previous three months.

If the condition of the premises upon departure corresponds to that upon entry, except for normal wear and tear, and there are no arrears of rent or damages, half of the rental guarantee must be returned within one month following the handover of the keys.

The final adjustment and return of the balance, after deducting justified sums, must occur within one month following the receipt of the expense statements or the approval of the annual accounts.

In case of dispute by the landlord, they may withhold the amounts owed, subject to justification.

If the guarantee is not returned on time, the landlord is liable to pay 10% of the monthly rent for each month of delay, unless the delay is attributable to the tenant.

These changes aim to prevent landlords from unjustly withholding the rental guarantee for too long.

It remains to be seen how these changes will be applied by the courts.