“The lease contract can be adapted every two years whereas the rent can move up or down,” said , partner at the law firm of Elvinger Hoss Prussen during an interview on 7 February 2024. He explained that the rent level may not go beyond 5% of the . It is important to note that “house leases are subject to the law of 21 September 2006.”
“Contrary to a commercial leases, for instance, the law of 2006 forbids indexation clauses (clauses de valeur)… even if it is included in the rental contract.” He explained that the tenant can therefore oppose the application these clauses.
On the other hand, the indexation of luxury flats (above €2,500 per month) is permitted as per the same law. However, a draft bill currently being reviewed in parliament “is expected to drop the notion of luxury rentals,” said Nickels. Moreover, the concept of is not applicable to luxury flats. Luxury dwellings is not a trivial matter as renting a house can easily reach €2,500 in Luxembourg.
Illustration of the process through several scenarios
Let’s take one scenario: Rent on a flat is set at €1,000 and is increased to €1,200 two years later. If the rent is less than 5% of the invested capital, the increase implemented by the landlord is legally possible, even if the rent is up 20%.
Should the tenant believe that the new rent reflects a level above 5% of the invested capital, they are entitled to ask their municipality’s Rent Commission (Commission des Loyers) to calculate the level of the invested capital as described in the law after receiving all the documentation from the landlord.
The tenant is not in a position to calculate the invested capital as the documentation lies with the landlord
Should the commission conclude that the corresponding rent after its calculation of the invested capital is €2,000, it will rule that the rent increase is admissible. However, the landlord will not be able to increase its rent beyond the initially requested €1,200. The landlord will have to wait two more years before requesting a rent higher than €1,200.
The commission has a conciliatory power and aims at reaching out a compromise between the parties. “It is generally more complicated than that as the parties are generally having those compromise discussions before the commission meets,” observed Nickels. Only after going through this process can the parties go to court to challenge the calculation of the Rent Commission and the rent change.
Only the commission may validate the calculation of the invested capital and then the court should the conclusion of the commission be challenged by one or both parties. “The tenant is not in a position to calculate the invested capital as the documentation lies with the landlord,” said Nickels.
It is recommended for the tenant to send a registered letter to the landlord to validate the contestation. Nickels thinks that sending an email to the landlord that generates an acknowledgement of receipt is unlikely to be rejected by the courts.
The tenant may file a request to the commission to review the rent if an agreement between the parties has not been reached within a month after informing the landlord.
The current and future 10% rules
Importantly, the current law states that increasing rent by more than 10% must be spread over three years. This mechanism kicks in only when the case is submitted to the commission or the court. According to Nickels, the current draft bill proposes not to increase the rent by more than 10% every two years, an outcome that would better protect tenants.
The Limpertsberg case
Nickels explained that the Limpertsberg case is famous given the rent requested by the tenant (€300) against the current rent (around €1,600). The case also revealed the calculation of the invested capital is “excessively complicated,” especially when the expert does not have all the elements to perform the calculation. He believed that the case is still in front of the courts.
What if the landlord does not have or want to provide the documentation?
Should the landlord not be able to provide the full documentation to assess the invested capital, an expert may be call upon to assess its level. Nickels noted “that if the calculation of the expert were disproportional to the market valuation, the commission may be authorised to assess the level of the invested capital according to various elements.” He added: “The process is much more complicated than simply asking an expert who would look at the valuations in the vicinity of the flat.”
The landlord must show good faith by providing his documentation as “if there is no invested capital, there is no reference points” and no rent increases, said Nickels. Should the information not be available, the landlord and/or the tenant then need to reach out to an expert.
The draft bill proposes to display the invested capital directly into the rental contract, “a big problem for the landlords,” noted Nickels. “Without it, the rent would be capped to €8m2, a very low level compared to current market levels.”
Building up a feel for the capital invested
“It is likely that the rent for old buildings can reach 5% whereas it is more likely to reach 3.5% for recent constructions,” stated Nickels. He explained that should you have invested €1m for an apartment, it is unlikely that you will find a tenant for a rent as high as €4,166 (€1m X 5% / 12 months). Yet it also means that the landlord has more space to increase the rent.
Interestingly, Nickels noted that the draft law suggests an invested capital limit of 3% for low energy saving class dwellings whereas it could go up to 3.5% for the “class A.” He thinks that it may incentivise landlords to renovate their buildings. Landlords should not panic with the proposed 3%-3.5%. The legislator has also reviewed the tables so that the valuation of older buildings will be increased, which will somehow offset each other out.
Can a landlord easily kick out a tenant?
Whether the rental is for an indefinite period or is under a yearly automatic renewal regime, the landlord can only retake possession of the flat on a back of 1) a personal need; 2) fault of the tenant (e.g,. non-compliance of its obligations); or 3) other serious and legitimate reasons: major work making the accommodation uninhabitable.
Nickels thinks that the landlord claiming the third reason for repainting the building is not a sufficient reason to expel a tenant. Importantly, the tenant may request an explanation on the nature of the work undertakings. Should the works not be executed, the tenants may demand damages from the landlord.
Status of the draft law
Nickels does not think there are major disagreements on the current draft law. The ministry of housing and spatial planning used to be run by the Greens. “It is unclear whether the new government will maintain the provision regarding the energy passport,” noted Nickels. The maintenance of the previous elements and the timing of its adoption remain uncertain.
The tenants’ rights group Mieterschutz Luxembourg could not respond before our deadline. Georges Krieger, president of the Luxembourg landlords association, declined to participate in this article.
This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. .