'This law has added fuel to the fire' according to Georges Krieger

The Luxembourg government had been pledging to reform the rent-and-lease law for years, and the changes have now been implemented under the new coalition government led by the Christian Social People's Party (CSV) and the Democratic Party (DP). In July, the Chamber of Deputies passed the updated law, which took effect at the start of August.

The reform introduces several changes, including the mandatory sharing of agency fees, a new legal cap on rental guarantees (commonly known as deposits), the removal of the "luxury accommodation" category, a legal framework for flat-sharing, new rules for rent adjustments, and a requirement for all lease contracts to be in writing.

However, Georges Krieger, a lawyer and the head of the Homeowners' Union, argues that while these measures might appear to be in the interest of tenants, their actual impact will be minimal. He warns that the revised law could even create additional complications.

Krieger points to the sharing of agency fees as an example, saying, "We're dividing a cake, but no one has determined the size of the cake." He explains that while it has been customary to charge one month's rent plus VAT as a commission, there is now a risk that agencies will simply set a standard fee, such as €5,000, and "that's how it will be."

"The mountain has brought forth a mouse"

This sentiment is echoed by Michel-Edouard Ruben, author of several books on housing issues and the subject of a high-profile court case that earned him the nickname "the Limpertsberg tenant." Ruben expressed his disappointment with the revised law, saying, "There's plenty to be disappointed about." Drawing on a Greek fable, he remarked, "It's commonly said that the mountain has brought forth a mouse, but actually, I think that the mountain has miscarried."

The criticism extends further. Georges Krieger specifically targets the requirement for all lease contracts to be in writing. He points out that nearly a quarter of existing contracts have been verbal agreements, often within families, such as a parent renting a flat to a child. Krieger expressed his dismay that these contracts are now deemed null and void. He argues that the civil servants who drafted the law "don't know what they have written."

Ruben shares this scepticism, referring to the new measures as "minor" but likely to "cause problems." He highlights co-living arrangements as a potential issue, noting that this type of housing "involves a high turnover," which could create challenges for landlords. For instance, a landlord might find themselves "potentially having to pay an agency every six to nine months."

Krieger was particularly critical of the new framework for flat-sharing communities, describing it as "grotesque." He noted that while the Luxembourg government aimed to model the law after a similar one in Belgium, the Belgian government had to revise their law because it was "completely impractical." Krieger lamented, "We copied too much and didn't think things through enough."

According to Krieger, the new law has "above all created a climate of mistrust," a situation that, in his view, did not exist before. He contends that the "peaceful situation" Luxembourg has enjoyed since 2006 has now been disrupted by this legislation. Ruben also expressed doubts that the law would bring about significant changes in the rental market.

Legal rent cap "never applied" in practice 

© AFP

Ruben suggests that the newly revised rules may not be enforced, much like previous regulations. He points to the 2023 controversy surrounding the regulation on invested capital as a prime example. Ruben is not alone in this belief; many have claimed that this aspect of the law has never been respected. Minister for Housing Claude Meisch himself mentioned this in an interview with our colleagues from RTL Infos in March 2024.

Krieger also commented on a proposal by former Minster for Housing Henri Kox to reduce the rate of return on invested capital from 5% to 3.5%. Although this proposal was eventually rejected, Krieger warns that such a change would discourage new construction in Luxembourg, stating, "there would be no one left to build anything."

Ultimately, little has changed. The most contentious issue of the reform, the legal rent cap, remains "temporarily" set aside, with no adjustments made to its governing rules, including those related to invested capital. As the government considers a new calculation formula, Michel-Edouard Ruben highlights a key concern: discussions about invested capital often divert attention to other issues. This, he suggests, is because "no one wants to take on the implications of this rule."

The implication, according to Ruben, is that it is possible to have an expensive property with an extremely affordable rent–a situation that is troubling to some, he says. While he "understands" the hesitation to enforce the 5% rule, Ruben insists that the issue must be addressed. He believes that the market could be liberalised, with regulations such as those pertaining to flat-sharing communities introduced afterward.

This article is part of the podcast series titled 'La Bulle Immo,' (housing bubble) which focuses on housing. You can listen to the French podcast on RTL Play, Apple Podcast, and Spotify.