Background

The initial text of this bill, filed in July 2020, has undergone numerous changes following three series of government amendments.

Most of the changes proposed in the bill were approved by the bodies consulted, with the exception of the rent cap reform as proposed by the government amendments introduced on 14 October 2022, which was strongly criticized.

To strike a fair balance between the interests of tenants and landlords, the government, which took office following the elections of 8 October 2023 decided to remove the section relating to the said rent cap reform from the bill from which the Law is issued.

Key changes

Form of the lease agreement

• The Law stipulates that all future residential lease contracts must be in writing. As a result, an oral contract will no longer have any legal value if concluded after the Law comes into force (i.e., 1 August 2024).
• Accordingly, a new Article 1714 is inserted into the Civil Code which reads as follows: "Leases may be entered into in writing or verbally, except in the case of residential leases, which may only be entered into in writing."

Shared tenancy

• There were no specific legal provisions related to share tenancy ("colocation") in Luxembourg prior to the Law, even though this concept is more and more frequently used in practice. The Law has formally defined the share tenancy and has laid down specific provisions in this respect. As such, the Law refers to the rental of the same dwelling by several tenants, known as co-tenants, who opt, with the express agreement of the landlord, for the application of specific shared tenancy rules by signing, no later than the date of signature of the shared tenancy agreement, a shared tenancy pact to formalize the aspects of communal living and the practical arrangements for this form of tenancy.
• This pact clarifies responsibilities and solidarity between co-tenants. The landlord must be informed of the identity of the roommates, and any change requires the landlord's agreement. The Law further details the mandatory provisions which must be described in the shared tenancy pact. 

Rental guarantee

• The Law reduces the legal maximum amount of the rental guarantee from three to two months' rent.
• The 2006 Law was mute on the process of the return of the guarantee at the end of the lease. The Law has expressly incorporated such a procedure, with penalties for failure to meet deadlines. In particular, at the end of the lease, if all rents and charges due have been paid by the tenant, and if no deterioration has been noted by the landlord at the time of handover of the keys, the landlord will return 50% of the rental guarantee within one month, with the remaining 50% to be returned within one month of receipt of the service charge statements or the final approval of the building's annual accounts at the next general meeting of co-owners.
• In the event of a transfer of ownership of a building leased in whole or in part, the guarantees are automatically transferred to the new owner. Any agreement to the contrary shall only have effect between the parties to the transfer of ownership.

Real estate agency commission fees

• The Law introduces the sharing (50/50) of costs and fees related to the intervention of a real estate agent (agent immobilier) or other third party in the rental of residential premises by the landlord and the tenant. Prior to the Law, the sharing of these costs was freely determined by the landlord and the tenant.  

Rent ceiling and rent adjustment

• The provisions relating to the rent ceiling (annual rent limited to 5% of the capital invested, revalued and discounted, in the property) set out in Article 3, paragraph 1, sub-paragraph 1, of the 2006 Law, remain in force. However, the Law does now stipulate that rent increases may not exceed 10% every two years.
• In the case of furnished accommodation, in addition to the rent itself, the landlord may charge a monthly rent supplement for the furniture. This rent supplement, which is indicated separately from the rent in the lease contract, may not exceed 1.5% of the total amount of the invoices for the furniture furnishing the rented accommodation. The furniture which can be taken into account for the rent supplement are the furniture which are less than 10 years old (i) on the day the lease is concluded or (ii) on the day the rent is adjusted.

Luxury accommodation 

• The Law abolishes the concept of "luxury accommodation". In practice, this concept permitted to derogate from the 5% cap of the capital invested rule and from the automatic extension of the lease contracts in favor of the tenants, depending on the amount of rent or capital invested.

What's next?

Alongside adopting the Law, the Luxembourg Parliament adopted the two following motions:

• The first motion concerns the rent caps, where the Luxembourg Parliament calls on the government to propose a reform of the current rent cap regime with the aim of protecting tenants by curbing the continued growth of rents in the private rental market, and to table the respective bill before the Luxembourg Parliament by 30 June 2025 at the latest.
• The second motion concerns the tax credit currently granted only for new construction (VEFA), where the Luxembourg Parliament calls on the government to make the temporary tax measure for rental properties introduced by the law of 22 May 2024 also applicable to existing rental properties, and establish the legal basis for it again this year.

We will be monitoring closely to see what happens to these two motions and keep you posted.