Luxembourg's Chamber of Commerce has just published its official opinion on draft bill 7642 by which the government intends to amend the law on residential leases, as well as aspects of the Civil Code.

The aim of the bill is to better control the evolution of housing rent and rental charges in the context of a real estate market experiencing an alarming rise in prices. Although the Chamber of Commerce said it remains convinced that well-considered and concerted political action is needed to counteract the rise in property prices, it has questioned the value of certain provisions in the bill, which are feared to be counterproductive.

The Chamber of Commerce confirmed that it shares the observation made by the authors of the bill that there is an urgent need to combat the imbalance between supply and demand in the Luxembourg property market. In this context, the Chamber would like to see the development of a housing policy that is more supply-oriented and that takes into account urban planning constraints, while also aiming to simplify, accelerate and lighten authorisation procedures.

In the view of the Chamber of Commerce, there is a risk to the country’s long-term economic development from the increasing difficulties faced by people seeking access to housing. According to the Chamber, the relatively minor measures proposed in the bill regarding reform of current legislation on residential leases will not be sufficient on their own to alleviate problems in the housing market.

The three main provisions of the bill are as follows: reducing the maximum amount of the rental deposit from the current equivalent of three months' rent to two months; requiring the real estate agency’s commission to be split equally between the owner and the tenant; and reclassifying a fixed-term lease contract into an open-ended contract in the event of a contract extension. The Chamber of Commerce expressed its concerns that all three measures will have the opposite of the intended effect, maintaining that in a property market where the supply of housing cannot keep up with the increase in demand, these provisions may ultimately fuel the upward spiral of property prices. 

The Chamber of Commerce expressed regret that measures and regulations so far put in place to deal with the housing problem had been implemented in isolation and have mainly served to affect demand rather than supply. However, action on the supply side should be prioritised as part of an overall strategy to strengthen the number of properties available on the market.

Finally, the Chamber of Commerce proposed a longer transition period before the new provisions come into force. This would give real estate professionals and property owners time to familiarise themselves with the new provisions train their staff where necessary and adapt their practices and contractual models to the new requirements.

Nevertheless, the Chamber welcomed some of the measures in the bill. Moves aimed at regulating the practice of co-tenancy would ensure legal certainty for all parties to such a contract. Also welcome are measures regarding the modification of certain provisions concerning rental commission, a reform which would fill a legal void.