Rental Lease Law Reform Clarifies Principle of 5% Cap on Invested Capital

At a press conference on Wednesday, Luxembourg's Minister of Housing Henri Kox presented the key elements of the overhaul of the rental lease law.

The reform is aimed at better protecting and informing tenants, especially those with the lowest incomes, through improved supervision of tenants' rights. In this context, the principle of 5% of the capital invested in housing (to set the maximum amount of rent that can be requested by the lessor) has been clarified and the concept of shared accommodation introduced into the legislation. 

The changes come in response to the sharp rise in rental market prices in recent years in Luxembourg.

Key changes to the current law include the improved management of agency fees and rental guarantees, for instance the maximum legal amount of rental deposits is reduced from three- to two-months' rent, and facilitating flat-sharing and strengthening the rights of contracting parties. The changes also specify the methods for determining the invested capital, for example if the construction of the housing dates back to 15 years or more, the invested capital falls by 2% per period of two additional years (this 15-year period runs from the day of first occupation of the housing), as well as specifying a rent cap (5% of the capital invested) in the event of renting furnished accommodation. 

In addition, the concept of "luxury accommodation" has been abolished and the 2006 law on lease extensions has been clarified; in the event of an extension of a lease contract, the extended lease becomes a lease for an indefinite period (and not for a fixed period as at present). Finally, tenants who live in a municipality in which the competent rent commission cannot sit due to a vacancy of one of its assessors will now be able to refer directly to the justice of the peace in the event of a dispute.

Commenting on these changes, Housing Minister Henri Kox stated: “Low-income households are increasingly exposed to insecurity, because the part of their income spent on housing leaves them less and less to live. Faced with soaring prices, the government will better frame the private rental market, in order to better protect tenants".

The minister recalled that the increase in the cost of living allowance will not impact the calculation of social rents. In May 2020, the government doubled the cost of living allowance for the current year in order to provide specific support to low-income people who have been particularly hard hit by the coronavirus crisis. To ensure that this additional aid could fully benefit the households concerned, the government adopted a draft regulation stating that this doubling of the amount of the cost-of-living allowance should not be taken into account when calculating social rents by public promoters, i.e. the Housing Fund (Fonds du Logement), SNHBM and municipalities.