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RENTING PRIVATE ACCOMMODATION The birth of the residential tenancy contract

On 29/03/2017
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RENTING PRIVATE ACCOMMODATION

The birth of the residential tenancy contract

Legislation, and the definition of the du Bail à lover

The residential tenancy contract [contrat de bail à usage d'habitation] can be concluded verbally or in writing between the two parties: the owner and the tenant. But the regulations in force in the Grand Duchy for the rental lease contract [contrat de bail à loyer] recommend a written contract. So how should this be formulated? And why pay a rental guarantee? Legal advice from Paulo FELIX, court lawyer.

“In the Grand Duchy of Luxembourg, renting private accommodation is covered by Articles 1713, and following, of the Code Civil, as well as by the Law dated 21 September 2006 which governs the rental lease contract (referred to as the residential tenancy contract [contrat de bail à usage d'habitation]), explains Paulo Felix, court lawyer. The residential tenancy contract [contrat de bail à usage d'habitation] is a contract whereby one party referred to as the lessor, confers upon another party, referred to as the lessee, or tenant, the right to use a movable or immovable property, for a fixed or indeterminate period, subject to payment of rent. “It should be stressed that the present Law of 21 September 2006 does not apply to property for commercial, administrative, industrial, trade/crafts use, or for the pursuit of the liberal professions".

A written or verbal contract?

The legislator does not impose any particular formality. “The nature of this contract, which is consensual in nature, may be established verbally, or in writing in notarised form, or as a deed under private seal”. It is nonetheless important to guarantee legal security between the lessor and the lessee, “and this Latin adage, which has survived the centuries without losing its relevance, reminds us that "Idem est non esse aut non probari". Which means: “having a right without being able to prove it equates to not having a right at all”. It is therefore strongly recommended that the parties should draw up a contract in writing in case of any subsequent dispute, so as to be able to prove the existence of the contract, but also the proposed points of agreement. “For example, the amount of the rental, the arrangements for cancellation, etc.” If the lease contract is drawn up in writing, it must be drawn up in as many copies as there are parties: lessor, lessee, co-tenants. “Failure to observe this rule does not render the contact void, but its purpose is also to avoid problems of proof that may subsequently arise.”

The content of the residential tenancy contract

The rental lease contract is based upon some very simple rules. “It is sufficient that there a written document setting out the agreement of the parties as to the object given in lease and the rental.” The parties are however advised to provide the maximum possible detail. “The most important references to include in the contract are the following: the object of the lease, the amount of the rental, the duration of the lease and the intended use of the property”. Regarding the object of the lease, it is essential to provide a detailed description of the property leased, “specifying the premises given in lease, but also the annexes: cellars, garage or parking space. If the property is furnished, the lease contract should specify the description of the furniture made available to the tenant and a detailed inventory of this furniture should also be added to the tenancy contact”. The reference to existence of a rental is an essential condition to this contract, because, if the property is rented free of charge, the Law dated 21 September 2006 does not apply”. The contract must also contain the detail of the amount of advances on charges, as well as the date when the payment of the rental should take place. “Although the lessor is free to determine the amount of the rental, the Law of 2006 has provided for a system for capping rentals, specifying that the rental claimed for a full year should not exceed 5% of the capital invested. The parties are, in principle, free to set the duration of the lease. “If the parties have agreed a verbal lease, then the duration of the lease is presumed to be indeterminate, unless proved to be otherwise. “For the tenancy contract drawn up in writing, the absence of the reference to the duration of the tenancy does not presuppose that it is of an indeterminate period, but in the event of a subsequent dispute between the parties, the judge will be called upon to interpret the parties’ intentions concerning duration”. The reference to the intended use of the property means that the use made of the property by the tenant can be specified. “For example, the lessor can prohibit any professional or commercial use of the premises.”

The rent guarantee

At the time when the residential tenancy contract is concluded, the lessor may require of the lessee a rent guarantee (commonly referred to as a deposit), “which should not exceed 3 months of rent, by virtue of the Law of 21 September 2006. In principle, this should be returned to the lessee by the lessor when the tenancy contract ends, after the exit/closing inventory and schedule of condition”. This constitutes a guarantee for the lessor in the event of the lessee defaulting in their payments of rentals. “Similarly, in the case of deterioration caused by the tenant, the lessor would be entitled to retain the sum corresponding to the amount claimed. It is also preferable that a reference to this should be recorded in the tenancy contract between the parties”.

Emilie Di Vincenzo

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