A rental lease, or a residential tenancy lease, is an agreement whereby the owner (landlord) of a dwelling and a tenant freely set the term and specific conditions of the rental agreement.
Who is concerned
The legislation in force on rental agreements applies only to accommodation used as the main place of residence let out to natural persons.
The following, in particular, are not covered by that legislation:
- commercial leases;
- administrative leases;
- industrial leases;
- leases for artisanal use or for the exercise of a freelance/liberal profession;
- secondary residences;
- premises that are not attached to a housing unit (such as a garage not attached to a house);
- hotel rooms;
- shelters for temporary accommodation of foreigners for the purpose of their reception and integration in Luxembourg;
- furnished or unfurnished dwellings in special accommodation facilities (old people's homes, integrated centres for the elderly, geriatric centres, centres for the disabled, etc.);
- furnished or unfurnished dwellings made available to natural persons as part of a social assistance programme implemented by a commune, an association of communes, a non-profit association or a foundation involved the field of housing.
The following are considered incapable of entering into a lease agreement:
- adults without legal capacity to manage their own assets;
- people who have been declared bankrupt.
How to proceed
Form of the contract
The lease entered into by the landlord and tenant may be either oral or written. There is no requirement for this type of agreement to be drawn up in a specific form.
Nevertheless, although an oral agreement is absolutely valid, it carries with it the disadvantage of being very difficult (in case of a legal dispute, for instance) not just to prove its existence, but also to ascertain its content and terms (duration, means of termination, distribution of responsibilities, etc.).
For greater security in relations between tenants and landlords, therefore, it is preferable to draw up a written rental agreement, setting out the most relevant aspects of the agreement between the parties, including, for example:
- the duration of the tenancy;
- the agreed conditions of termination (with or without notice);
- any alterations the tenant is allowed to make during their tenancy;
- the amount of rent and the frequency of the payments to be made;
- the additional rental expenses.
A residential tenancy lease agreement must always be drawn up in as many copies as there are parties to it.
In the absence of a written agreement, oral leases are considered to run indefinitely.
Certain optional documents may also be included in a lease, such as an inventory report.
Energy performance of the building
As of 1 July 2012, advertisements for the sale or rental of property published in commercial media must specify the energy performance class—with regard to the primary energy expenditure index—and the thermal insulation class—with regard to the heating energy expenditure index—of residential buildings.
The regulation pertaining to a building's energy performance stipulates that anyone interested in renting a residential building is entitled to see its energy performance certificate.
Even when the tenant does not ask to see the energy performance certificate, the landlord is obliged to send every new tenant a certified copy of the certificate.
Duration of the lease
The duration of the lease may be determined by the parties at their discretion. They may opt for an indefinite-term lease, or set a specific term. In the latter case, the duration of the lease is specified in the agreement.
The lease will be automatically renewed at the end of the period stipulated in the agreement. Hence, if one of the parties does not wish to extend the lease when it expires, the party wishing to terminate the lease must expressly inform the other of their intention, observing the notice period stipulated in the contract (or, if there is no such contractual stipulation, then the notice period required by the use of the premises).
Amount of rent
Pursuant to legislation, the maximum amount that a landlord may charge in rent may not exceed 5 % of the amount the landlord has invested in the property. The concept of invested capital includes:
- the price of the land on which the dwelling is built;
- the cost of constructing the building;
- the amount invested in any renovation and transformation works.
Social housing provided for rent by the Housing Fund administered by the National low-cost housing administration (Société nationale des habitations à bon marché – SNHBM) and communal authorities, and luxury housing (as defined by law), are exempt from this provision.
The rent is set when the lease is signed. It may only be adjusted once every 2 years.
Additional rental expenses
Additional rental expenses are those costs which the landlord may ask the tenant to pay. These include:
- costs incurred for energy consumption;
- costs for the maintenance and upkeep of the dwelling and communal areas;
- costs for small repairs;
- fees pertaining to the use of the dwelling.
Water rates, heating/gas bills, electricity, sewerage, waste collection and chimney sweeping bills are borne by the tenant, as are the normal costs for maintenance of the central heating system.
Such costs are not included in the monthly rent.
However, property tax and all other taxes and charges pertaining to the property are borne by the landlord.
The landlord may require that any extra costs that are to be borne by the tenant be paid in instalments. The instalments can be adjusted in line with the amounts actually paid by the landlord on the tenant's behalf in the previous financial years.
An annual breakdown of costs must be sent to the tenant—along with the receipts/invoices (or copies of them) relative to the costs paid—itemising the expenses for which the tenant is being charged. That breakdown includes all monthly advances on costs paid by the tenant, and also the expenses actually incurred.
The payment of the costs to be borne by the tenant may also set as a lump-sum by the parties if that lump-sum corresponds to the tenant's normal consumption and costs. The lump sum may be adjusted during the course of the lease.
During the lease, the parties may switch from the monthly instalment arrangement to the lump-sum payment arrangement, and vice versa.
When the rental agreement is concluded, the landlord may require a security deposit to be paid. That deposit amount may not exceed the equivalent of 3 months' rent.
The purpose of the deposit is to serve as a guarantee for the payment of the rent, the additional charges, and any damage that may be caused to the property.
The security deposit may take any one of the following five forms:
- a bank guarantee, with a distinction being drawn between:
- a so-called 'first demand guarantee': in this case, the guarantee is given to the landlord by the tenant's bank. In practice, the amount of the deposit set out in the lease agreement is locked into a special bank account in the tenant's name for a predefined, and renewable, period of time. That duration is often equal to the agreed length of the lease, plus a few months. Should the tenant default on their contractual obligations, the landlord can obtain, directly from the bank, upon request, either all or part of the amount set aside in the tenant's special bank account, without the tenant's prior consent and without having to give reasons;
- a simple bank guarantee, also known as a 'bank caution': much like the 'first demand guarantee', the amount of the deposit determined in the lease is locked into a special bank account held by the tenant for a certain, renewable length of time. That period is often equal to the agreed length of the lease plus a few months. However, unlike a first demand guarantee, the tenant's bank will only disburse the amount demanded by the landlord if the latter can prove the legitimacy of the tenant's debt, for instance by producing a definitive ruling handed down by a judge authorised to rule on matters of rent, compelling the tenant to pay a specific amount, or by sending the tenant's bank a document written by the tenant acknowledging the debt in question;
- a deposit by simple bank transfer directly to the landlord's account;
- a security deposit paid in cash: this solution may only be proposed by the tenant; it may not be imposed by the landlord;
- a deposit paid by the State;
- a rental deposit insurance policy: provide that the landlord agrees to this kind of deposit, the tenant can take out an insurance policy whereby, if the rent is not paid, the insurance company will indemnify the landlord directly. This type of insurance may include an indemnification arrangement comparable to that of the first demand bank guarantee.
State of the property at the beginning of the lease
In most cases, the so-called 'entry inventory' is drawn up jointly by the landlord and tenant, or by their representatives, to avoid having to pay the fees for the services of a third party. Inventory is generally assessed at the end of the contract, but it is highly recommended to also carry one out at the beginning of the contractual relationship.
A report on the state of the property must be produced by the landlord and tenant (or their representatives) no later than the time when the tenant takes possession of the premises. The more accurate it is, the more reliable it will be as a reference in case of later problems. It is dated and signed by both parties at the time of its drawing up.
The inventory need not necessarily be a separate document, distinct from the lease itself; it could also be the result of an exchange of correspondence, or simply a clause in the agreement.
The establishment of the inventory on entry is in the interests of both the tenant and landlord. Indeed, the law states that unless an inventory has been established, it is assumed that the dwelling was in a good, rent-worthy state at the time of entry, and that the tenant must return it in the same condition (unless it can be proved that there was already pre-existing damage when the tenant moved in). The landlord, for their part, may not make use of the rental deposit as payment for any damage caused to the property if no such inventory is available.
It often happens that leases contain a clause whereby the tenant declares that the property was in good condition when they moved in. This type of clause is valid, and means that, at the end of the lease, if no inspection of the premises was carried out at the beginning, the tenant can no longer provide any evidence to the contrary. The consequence is that the tenant automatically bears responsibility for any damage to the property noted when the contract comes to an end.
Thus, if the tenant notices damage on their first visit to the property, they must insist that such damage be mentioned in a report on the state of the property. Under no circumstances should they sign a contract stipulating that the property is leased in good condition at the time of entry.
When, within a few days of taking up residence, the tenant notices damage that was not mentioned in the report, they can report the damage to the landlord (preferably by registered delivery), but the landlord may refuse to recognise the damage, and base the decision only on the entry inventory signed by both parties.
A sample inventory form can be found in the publication entitled, "Bail à loyer - La nouvelle législation en matière de bail à usage d'habitation" (Rental leases - New legislation on residential leases).
End of the lease
The lease may run for a definite period or indefinitely. A lease concluded for a definite period is automatically extended if neither party ends it. However, the fact that a contract states an exact date does not mean that the tenant is obliged to leave the property by that date.
The rules in force regarding termination of a lease agreement vary depending on the person wishing to end it. Indeed, the landlord must respect fairly restrictive conditions, while the tenant has a greater degree of freedom.
As a general rule, an outgoing inventory check is carried out when the tenant leaves the dwelling and returns the keys to the landlord (technically, the tenant is supposed to keep paying rent until the keys are returned to the landlord).
In principle—unless stipulated otherwise in the lease agreement—the tenant is required to return the rented premises in the same condition they were in at the start of the tenancy.
Damage caused as a result of normal use, wear and tear or dilapidation is not considered as rental damage (e.g., small holes in the wall due to nails used to hang paintings), and the tenant cannot be held responsible for such damage. Therefore, there is no need to mention such damage in an outgoing inventory check.
Return of deposit
At the end of the lease and after the establishment of the final breakdown, the landlord will return the deposit to the tenant if there are no issues to claim against. If rental payments or charges have gone unpaid, the landlord can deduct them from the amount put up for guarantee.
Time limit for return of deposit
The tenant may demand that the rental deposit be returned if:
- an outgoing inventory check, further to an incoming inventory check, has been carried out;
- the tenant has returned the keys to the property, because the return of the keys is the point marking the end of the lease.
Once these two conditions have been fulfilled, in principle, the tenant is entitled to demand the return of the rental deposit, unless it was to be deducted from the payment of an advance on additional rental expenses in addition to the monthly rent.
In this case, the tenant must wait until the annual breakdown of the additional costs is established before claiming the return of the rental deposit.
However, the law does not specify a time limit within which the landlord is required to provide the tenant with such a breakdown.
If the tenant believes they are entitled to claim the return of their deposit, they may take the following courses of action:
- firstly, send a formal demand for the return of the deposit within a specific period of time;
- then acting through the judiciary, with a rental petition.
Note that in this case, the judge is required by law to apply the mechanism of legal compensation between the rental deposit amount and the amount of charges remaining to be paid. Thus, it is not certain that the tenant will recover the whole of the rental deposit at the conclusion of the case. It may even be the case that the tenant actually owes the landlord a certain amount.
Rental deposit including a bank guarantee
If the lease agreement provides that it will be accompanied by a first demand guarantee or a simple bank guarantee, the deposit amount is placed on a special bank account belonging to the tenant.
The money in that account earns interest for the tenant, which can be claimed at the end of the contract. It also generates bank charges that will be borne by the tenant.
If the lease agreement stipulates that the bank guarantee should be paid by a simple transfer to the landlord's bank account, then the interest and fees attributable to that deposit to that account apply to the landlord.