Rent reform: a problem half-solved

We saw some welcome news out of the Chamber of Deputies this week, as they voted through a reform of the 2006 rent and lease bill. This was certainly a long time coming, and flaudering attempts at similar changes have been made for quite some time.

Luxembourg's housing market has long been a bit of a curioisity, and a painfully expensive one for renters and would-be owners alike. But let's focus on the matter at hand: renting. In a time long ago, before Covid, I wrote an opinion on the power imbalance between renters and landlords.

The basic problems I highlighted then were these:

1. Deposits are ludicriously high, requiring downpayments in the area of €4,500 to €8,700 (at the time, mind you);
2. The rules around inventories lack specificity and fail to protect tentants against arbitrary charges when moving out;
3. What landlords deduct, and how much, from the deposit is entirely arbitrary and without oversight.

To that I should, in hindsight, have noted how peculiar it is that tenants pay the cost of letting agencies, rather than landlords. It's a bit like booking a taxi only for the driver to take you to a garage and force you to pay for new tyres as an additional cost to the fare.

So, does the amended legislation address these issues? It's a mixed bag.

Agency fees: a problem half solved

The new legilslation mandates that landlords and tenants split agency fees 50/50. That's certainly an improvement on making tenants pay the full fee, but it remains unclear to me why tenants should pay even a part of the agency's fees.

Agencies, not least those operating in Luxembourg's notoriously competitive rental market, work for the landlord. They do not work for the tenant. This is frankly the case everywhere, as it's their job to look after their customer (the landlord) and the property, not the consumer.

We don't ask customers to directly pay the cost of sales in other areas. When buying a house, those agencies don't charge property listing fees to the buyer; that cost is borne by the seller, i.e. the agency's customer.

The counter-argument here is obvious: if the landlord has to carry the cost of the agency in full, they will simply increase the rent to make up for this additional expense, meaning the tenant will nonetheless have to pay; just indirectly.

That's true, but overlooks the fact that we have rental caps. Rent can't exceed 5% of the capital invested in the accommodation. A landlord's ability to extract additional rent to cover the cost of an agency is thus dependent on them not already maximising the potential rental income. That's a rare landlord indeed.

Lower deposits: it's a start

Better news here, in that the maximum chargeable deposit is being reduced from three to two months' rent. That means prospective tenants will put less of their hard-earned cash into the black hole that is a rental deposit, and I'm certainly in favour of this change. Keeping it at two months, rather than lowering it further yet to a single month, also seems sensible given the risk shouldered by landlords.

The problem is that putting any amount of money into a black hole is generally a bad idea. While the amendments state that half of the deposit has to be returned within a month of leaving the property – subject to all rental payments having been made and there being no serious damage to the property – there is still no deposit protection scheme.

Deposits can be paid in six ways, ranging from a cash payment to a bank surety. Of the options available, only a bank surety offers any real protection to tenants, as it's the only route through which the landlord has to prove the legitimacy of their claim before withholding part or all of the tenant's deposit.

That is to say, the current system for desposits is and will remain entirely arbitrary, placing the tenant in a weak position against any landlord acting in bad faith.

By contrast, a proper deposit protection scheme would see all deposits under the mandatory care of a registered third party, the cost of which is borne equally by both parties, and who thus acts as a neutral arbiter in the event of a dispute. Landlords would have to submit claims and evidence before deducting any part of a deposit, and tenants would be given the opportunity to submit counter-claims and evidence.

Sadly there is no such provision in the amendment. On the bright side, its omission leads room for improvement.