Real estate finance law in Luxembourg

Foreign lenders are not restricted from taking mortgages over immovable property located in Luxembourg.

Yes, in both cases.

There is no distinction under Luxembourg law between a mortgage over land and a mortgage over the buildings on the land. In both instances, the mortgagee will be entitled to the same rights and remedies against the mortgagor.

A mortgage over real estate generally extends to the land and to the buildings attached to it, and the mortgagee will be entitled to the same rights and remedies against the mortgagor in respect of the whole property, unless otherwise agreed.

Luxembourg recognises and regulates mortgage certificates according to the Belgium model whereby securities issued by the owner of the real estate give the certificate owners the right to a part of the rental income and the gains on the disposal of the real estate.

Mortgage certificates are bearer or registered securities representing a debt. Therefore, they can be transferred without any formal process.

Furthermore, the registration of mortgages is an essential element that guarantees the security of property transactions and credit. Mortgages are registered at the Mortgage Office (“Bureau de conservation des hypothèques”) in the district where the property subject to the mortgage is situated. In fact, as between creditors, a mortgage, whether legal, judicial or contractual, ranks only from the date of registration by the creditor in the registers of the Mortgage Office, in the form and manner prescribed by law, subject to some exceptions. Registration fees are payable by the debtor. The Mortgage Office must deliver to all those that request it (i) copies of the deeds recorded in its registers and those of the subsisting registrations, or (ii) a certificate that there are none. Registrations preserve mortgages and liens for 10 years from the date on which they are made; they cease to have effect if they are not renewed before the expiry of this period. However, expiry only affects the registration, not the mortgage right of the creditor, which may make a new registration. The new registration will only rank on its (new) date and will thus be subject to all other mortgage registrations made on the same property prior to that date.

Second ranking security can be taken in Luxembourg. It is registered with the Mortgage Office. However, the mortgage deed will not expressly state that the mortgagee will rank second. The rank is determined by the day on which the mortgagee registers its mortgage with the Mortgage Office. Mortgages registered on the same day will rank equal.

Yes. If the debtor sells the property while it is still encumbered by a mortgage, the creditor will have a “droit de suite” against the third-party purchaser; in other words, the creditor will be able to enforce the property from parties other than the mortgagor. A mortgagee can enforce the mortgage even though the property is no longer owned by the original mortgagor. In practice, a mortgage deed includes an agreement not to sell (or grant rights in or to) the property except with the prior written approval of the lender. In practice, droit de suite is rarely used. When a property is sold, the notary checks whether it is encumbered, and the buyer can either release the mortgage (“mainlevée”) or use the purge procedure.

The preferred creditors are:

1. the seller of the real property for the payment of the price;
2. the persons that have provided the buyers with the money to purchase the real estate;
3. the co-heirs;
4. the architects and persons that have built, rebuilt and/or repaired the real estate and/or the persons that have lent the money to pay such architects and persons.

No. The mortgage deed must specify the secured amount. If the secured amount is subject to a future condition and/or undetermined value, the mortgagor will declare an estimated value, which the mortgagee can reduce.

Yes, a landlord’s right to receive rent can be charged, assigned or transferred to a lender by way of security. Such security is generally formalised pursuant to a receivables pledge agreement. The only requirement will be the mutual agreement of the parties.

Yes, it is customary. Restrictions over bank accounts can indeed be agreed by the parties to the relevant account pledge agreement.

Mortgages should be registered with the Mortgage Office assigned to the immovable property location. The mortgagor should provide Luxembourg authorities with the original document that created the mortgage.

All rights created by real estate related agreements and listed under Luxembourg law have to be registered. This includes sales of land, creation of ownership splits, certain judgments, leases with a term exceeding nine years, public expropriations, certain gifts and other operations (transfer of rights in rem, i.e. the sale, gift, exchange contribution of a property to a company and the transfer of inheritance rights relating to one or more properties forming part of an estate or expropriation in the public interest).

The purpose of the registration of real estate rights is to inform potential buyers of a building or land who the owner of such building or land is and whether or not there are encumbrances in rem affecting the real estate property. The registrar (“Conservateur des hypothèques”) makes this information available to the public in a specific format.

Since the registration requirement does not create or otherwise affect any real estate rights, one cannot see it as a state guarantee system.

Non-registered mortgages will not bind third parties.

3.2.1 Formalities for execution

Mortgages must be executed by notarial deed, otherwise the mortgages are null and void.

The mortgage must also be registered with the Luxembourg mortgage register in order to be enforceable against third parties.

3.2.2 Costs relating to execution

The notary fee varies depending on the principal amount lent and is determined according to the applicable notarial tariff.

Registration duties are generally due upon transfer of ownership of real estate (and not upon creation of a mortgage). The cost of property registration is 6% of the property value. 

An additional 1% mortgage tax (transcript tax) is also required.

If the real estate is located in the municipality of Luxembourg, a municipal surcharge corresponding to half of the registration duty (thus 3% of the property value) is due to any dwelling that is not for personal use, with the exception of future sales or future sales in a state of completion (“vente future en l’état d’achèvement” – VEFA). Other costs may apply in other municipalities. 

Some of these costs may be reduced under conditions, one of which is that the buyer undertakes to make the purchased real estate his/her principal residence and to live there for 2 years.

Finally, an annual property tax (“impôt foncier”) is due in various municipalities.

Contractual mortgages are frequently general types of security interest over real estate.

Contractual mortgages are valid for ten years and must be renewed before that period expires to continue to be valid for another ten years.

Mortgages must be enacted by notarial deed (“acte authentique”) and registered with the “Administration de l’enregistrement et des domaines” and the Mortgage Office in the judicial district where the real estate is situated.

The legal possession of the immovable property lies with the mortgagor during the lifetime of the mortgage. There is no transfer of ownership to the mortgagee or to an agreed third party.

Luxembourg security interest cannot exist without a secured obligation. Difficulties may arise when the third party holding the security interest as trustee does not itself have a claim against the issuer.

Luxembourg is a member state of the Hague Convention on the law applicable to trusts and their recognition.

Hence, trust settlements subject to foreign laws will be recognised as such in Luxembourg.

The modification of the lenders’ security system relies upon the method used for such modification.

Therefore, if the transfer is made by novation of the creditor or by delegation of the creditor, while novation or delegation between lenders does not result in the transfer of a claim, it creates a new relationship of obligations between the debtor and the new creditor. Thus, the new creditor has a new claim, which extinguishes the old claim by the effect of the novation. The extinction of the old obligation extends to all its accessories, including the mortgage, except if otherwise provided for in the new agreement. Then, according to normal practice, the parties have to be notified that the existing security remains in place and bears the same priority rank. If they develop a more complicated system, the documentation for the transfer will contain provisions enabling the new lenders to take over the rights (including security) granted to the former lenders. In this event, the mortgage agreements will only be modified to show the replacement of the former mortgagee.

Loan agreements secured by mortgages over Luxembourg real estate must be registered according to Luxembourg law. Consequently, any subsequent change must be registered.

The parties are generally free to determine contractually the conditions under which the lease may be assigned or sublet, and commercial leases usually contain restrictions on transfer by the tenant.

For commercial leases, any assignment, sublease or partial sublease must be notified to the lessor together with a copy of the relevant agreement, and the lessor may refuse the sublease or assignment, subject to the provisions of Article 1762-6 of the Civil Code (as introduced by the law of 18 February 2018). 

The lease may not prohibit the assignment of the lease together with the transfer of the business (“fonds de commerce”). The original tenant generally remains jointly and severally liable with the assignee or sublessee unless released by the landlord.

For residential leases (law of 21 September 2006), assignment and subletting are subject to stricter statutory rules. The lease may require the landlord’s consent, and subletting is generally only allowed if it does not result in a rent exceeding the main rent and if the dwelling remains used as a residence. Unlike commercial leases, there is no statutory right to assign the lease, and contractual restrictions are generally enforceable.

Unless otherwise agreed, the landlord will usually retain a claim against the original tenant after an assignment, unless the landlord expressly releases the tenant from its obligations.

Luxembourg law generally allows the parties to choose the jurisdiction of foreign courts or arbitral tribunals, even if Luxembourg parties are involved, if the dispute in question does not involve:

1. immovable property located in Luxembourg;
2. insolvency proceedings of Luxembourg companies which fall within the exclusive jurisdiction of Luxembourg courts;
3. matters for which Luxembourg courts have exclusive jurisdiction under applicable law or international instruments;
4. cases where the choice of foreign jurisdiction would be contrary to Luxembourg public policy or mandatory provisions of Luxembourg law.

Luxembourg is a member of the Brussels I Regulation, therefore recognition and enforcement of foreign court decisions from European Union members will be granted automatically, provided that:

1. the decision is not contrary to Luxembourg public policy;
2. the necessary requirements and guarantees have been given to the defendant so he/she can defend himself/herself, such as the serving of documents in sufficient time, unless the defendant has failed to commence proceedings to challenge the judgement when it had the opportunity to do so;
3. the decision is not contrary to a judgement given in a dispute between the same parties in Luxembourg;
4. the decision is not contrary to an earlier judgement given in another member state or in a third state involving the same cause of action and between the same parties, when the earlier judgement fulfils the conditions necessary for its recognition in the member state addressed.

Luxembourg is also a party, through the European Union, to the Convention on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters signed in Lugano on 30 October 2007 (Lugano Convention), which remains applicable between Luxembourg, Switzerland, Norway and Iceland. Judgements rendered in those states may be recognised and enforced in Luxembourg in accordance with the Lugano Convention.

Where the parties have agreed to an exclusive jurisdiction clause falling within the scope of the Hague Convention of 30 June 2005 on Choice of Court Agreements, judgements rendered by the chosen court may be recognised and enforced in Luxembourg in accordance with that Convention.

Recognition and enforcement of foreign judgements may also fall within the scope of the Hague Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgements in Civil or Commercial Matters, to the extent that the Convention is in force between Luxembourg and the state where the judgement was rendered at the relevant time.

In the absence of an applicable European regulation or international convention, foreign judgements may be recognised and enforced in Luxembourg through exequatur proceedings before the Luxembourg courts, subject in particular to verification of jurisdiction, due process and compliance with Luxembourg public policy. In such case, Luxembourg courts will verify in particular that: 

1. the judgement is final according to the law of the state where it was rendered;
2. the court that rendered the judgement had jurisdiction to do so;
3. the judgement can be enforced as a matter of law in the state of the court that has rendered the judgement;
4. the right to seek enforcement of the foreign judgement has not expired under Luxembourg laws;
5. the courts of the country that has rendered the decision will reciprocally enforce Luxembourg court decisions; and
6. there is evidence that the legal proceedings have been properly served in accordance with the laws of the state where the decision was rendered. Luxembourg courts are willing to recognise and enforce arbitral awards and/or foreign judgements, subject to the applicable European regulations, international conventions or, in their absence, Luxembourg procedural law. 

Arbitral awards are recognised and enforced in Luxembourg in accordance with the applicable international conventions, in particular the New York Convention of 1958, and Luxembourg procedural law, subject to the usual grounds for refusal such as lack of jurisdiction of the arbitral tribunal, violation of due process or incompatibility with Luxembourg public policy.

A mortgage is an enforceable security right over real estate, the enforcement of which requires judicial proceedings.

Therefore, Luxembourg courts will order the enforcement officer or a (private) bailiff to take possession of the real estate owned by the judgement debtor. As a general rule, private appropriation is not possible and enforcement is carried out under court supervision. Thus, recourse to Luxembourg courts is generally necessary when enforcing mortgages over Luxembourg real estate.

The mortgagee can apply to the court to obtain the enforcement order and directly enforce the mortgage on the basis of an enforceable title, without re-examination of the underlying claim.

Luxembourg judges will attach the enforcement order (‘seal’) to the judgement and the court’s enforcement order will be delivered to a court enforcement officer or a (private) bailiff. The real estate subject to the mortgage will be sold through public auction and the mortgagor will have to reimburse the mortgagee’s enforcement fees.

The outcome of the enforcement procedure is that the mortgagor loses title to the mortgaged property. The title to this property is then either:

1. transferred to the mortgagee only if permitted by the court in accordance with the enforcement procedure; or
2. transferred from the mortgagor to a purchaser as a result of the sale of the mortgage property by public auction.

If the lender takes title in the mortgaged property, it will be bound to meet all obligations attached to that property.

However, the position is not clear where the lender takes possession of the mortgaged property in order to sell it by public auction. Normally, in such circumstances, the mortgagor would remain liable for those obligations until the title in the relevant property is transferred.

There are certain concerns of general interest regarding enforcement of security (whether real or personal).

Specifically:

1. enforcement of a mortgage in Luxembourg is subject to Luxembourg procedural laws and has to be carried out under Luxembourg court supervision;
2. there are certain spoiling tactics the borrower can use, such as (i) opposition to enforcement, (ii) application to open insolvency proceedings and (iii) starting fiscal enforcement proceedings; and
3. under Luxembourg law, insofar as the loan is accompanied by a mortgage, which required the intervention of a notary, the notarial deed may constitute an enforceable title. As such, a Luxembourg bank can directly apply to enforce the claim documented in the writ of execution without any examination by the court on the merits of the claim. However, it is not clear whether a loan agreement governed by a foreign law and documenting a loan granted by a foreign bank to a Luxembourg borrower would be recognised as a writ of execution in Luxembourg. Therefore, there is the possibility that examination by the court on the merits of the referred claim is required before it will be enforced in Luxembourg.

In Luxembourg, real estate is held regularly by vehicles incorporated as public limited liability companies (société anonyme – S.A.) and private limited liability companies (société à responsabilité limitée – S.à r.l.). We highlight below the specific issues that arise in the context of enforcing a security interest taken over the shares of a Luxembourg real estate company.

Security over the shares in a Luxembourg company can be granted to foreign lenders.

Second ranking security over shares in a Luxembourg company can be taken. A second ranking security over shares is registered in the shareholders’ register of the company.

A security over shares must be perfected by way of its registration in the shareholders’ register of a public limited liability company (S.A.). Registration in the shareholders’ register of a private limited liability company (S.à r.l.) is not mandatory and not a perfection requirement.

The privilege will only remain on the pledged collateral if such collateral has been and has remained or shall be deemed to have remained in the possession of the pledgee or an agreed third party. If financial instruments are pledged, the transfer of possession of such financial instruments from the collateral provider and the enforceability of the pledge against third parties may be effected as follows: The transfer of possession of book entry financial instruments will be validly effected by (i) the conclusion of a pledge agreement if the custodian of such financial instruments is the pledgee; (ii) an agreement between the collateral provider, the pledgee and the custodian or by an agreement between the collateral provider and the pledgee notified to the custodian according to which the custodian will act in compliance with the pledgee’s instructions relating to these financial instruments and without any further agreement of the collateral provider; (iii) the book entry registration of these financial instruments to an account of the pledgee; (iv) the book entry registration of these financial instruments, without number specification, to an account maintained by a custodian in the name of the collateral provider or a third party to be agreed acting as third-party custodian, the financial instruments being designated, in the custodian’s books, individually or collectively, by reference to the relevant account in which they are registered as pledged.

The enforceability of the security over shares in a public limited liability company is subject to its registration in the shareholders’ register of the company. This entry in the register concerns the creditor’s lien and only determines the enforceability of the pledge contract against third parties. It does not affect the conclusion or validity of the pledge.

To the extent the word “execution” means “enforcement” and not “signing”, then upon the occurrence of an event of default, the pledgee is immediately able to enforce the security over the shares without any prior notice to the pledgor or other formalities. There are, therefore, in principle, no particular costs for the execution of the security over the shares in Luxembourg. However, in the event of public auction, the costs and fees of the auctioneer may be borne by the pledgee, the debtor or the pledgor.

A security over the shares of a Luxembourg company is a charge allowing direct appropriation by the lender in the event of the borrower’s default. Therefore, the creation of such security does not require any transfer of title to the lender or its nominee.

According to Article 11 of the Law of 5 August 2005 on financial collateral arrangements, if an enforcement event occurs, the pledgee may, unless otherwise provided for, without prior notice:

1. appropriate the pledged collateral or have the pledged collateral appropriated by a third party at a price determined, before or after their appropriation, by the agreed valuation method; or
2. assign or cause the pledged collateral to be assigned: (i) by private sale in a commercially reasonable manner; (ii) on a trading venue on which it is admitted to trading; or (iii) by public auction; or
3. cause a judgement to be issued ordering that it retains the pledged collateral as payment up to the amount of its claim, in accordance with an expert valuation; or 
4. proceed with netting in accordance with Part V “Netting and insolvency proceedings”; or
5. appropriate the pledged financial instruments or have the pledged financial instruments appropriated by a third party: (i) at the market price, where such instruments are admitted to trading on a trading venue; or (ii) where they are units or shares of an undertaking for collective investment, at the price referred to in point (i) or at the price of the last net asset value published by or for this undertaking for collective investment, provided that the last publication of the net asset value does not exceed 1 year; or
6. request the redemption of the pledged units or shares of an undertaking for collective investment at the redemption price in accordance with the instruments of incorporation of this undertaking for collective investment; or 
7. exercise all the rights arising under the pledged insurance contract, including, in the case of a life insurance contract or a capital redemption operation, the right to surrender, or request the insurance undertaking to pay any sums due pursuant to the insurance contract.

Note that, according to case law, the surplus amount obtained from the sale of the shares shall be retained as funds available for any second-ranking creditor or treated in accordance with the law, without ever being returned to the grantor. Any surplus would be analysed as a penalty clause sanctioning the non-performance of the secured obligation.

Under Luxembourg law, loans from shareholders are not automatically subordinated. Also, it is common practice that deeds of subordination are entered into between the borrower, its shareholder(s) and the lender(s) of a facility agreement providing subordination of the shareholders’ loan(s) to the loan granted by the lender to the borrower. The parties may decide contractually to waive or write off such loan(s) from shareholders as part of an enforcement of a share pledge, but this is not currently common practice in Luxembourg.

Under Luxembourg law, three main types of lease must be distinguished:

1. leases governed by the general provisions of the Civil Code,
2. commercial leases governed by Articles 1762-3 to 1762-13 of the Civil Code, and
3. residential leases governed by the law of 21 September 2006.

Under Luxembourg law, the duration of a lease is in principle freely agreed between the parties. The Luxembourg law provides that commercial leases (Civil Code) and leases for residential use (law of 21 September 2006) may be concluded for a fixed or indefinite period. Commercial leases are usually concluded for a period of 9 years.

There are in principle no provisions under Luxembourg law with regard to maximum/minimum length of a lease, subject to the general prohibition of perpetual undertakings. It should however be noted that the specific regime applicable to commercial leases does not apply to leases concluded for a duration of 1 year or less, which would thus remain governed by the general provisions of the Civil Code.

Under Luxembourg law, statutory rules on renewal and termination depend on the type of lease (residential, commercial or lease governed by the Civil Code).

1.3.1 Residential leases (law of 21 September 2006) 

A residential lease may only be concluded in writing.

Upon expiry, the lease is in principle automatically extended for an indefinite period unless the lessor validly terminates it for one of the statutory reasons (personal occupation, breach by the lessee, or other serious and legitimate grounds). 

The notice period is generally 6 months for the landlord and 3 months for the lessee, unless a longer period is agreed. 

The lessee may apply to a justice of the peace for an extension of the notice period, which may be granted for a limited period if justified by the circumstances. In addition, the court may grant a stay of eviction for a limited time in order to allow the lessee to find alternative accommodation. 

There is no strict automatic right to renewal, but the statutory extension mechanism provides strong lessee protection.

Finally, if the property is acquired by a new owner who intends to occupy the premises themself or through a relative up to the third degree, the termination notice must be given within 3 months following the acquisition, and the lessee must vacate the premises at the latest 12 months after the notice has been sent.

1.3.2 Commercial leases (Articles 1762-3 to 1762-13 of the Civil Code)

A fixed-term lease normally ends at expiry, but the lessee has a statutory right to request renewal at least 6 months before the end of the lease, and any clause excluding this right is void. 

The lessor may refuse renewal only in the cases provided by law (in particular personal occupation, reconstruction or legitimate grounds). 

In addition, after at least 9 years of occupation, the lessor may terminate the lease or refuse renewal without justification, subject to payment of eviction compensation. 

In any case, the notice period for termination may not be less than 6 months. 

The court may grant a temporary stay of eviction (commercial stay) in order to allow the lessee to relocate its business. 

In the event of the sale of a leased property, a tenant whose lease has been running for at least 18 years has a right of first refusal (subject to conditions).

1.3.3 Other leases governed by the general provisions of the Civil Code 

Renewal and termination are primarily determined by the contract, subject to the general prohibition of perpetual undertakings. Where a lease is concluded for a fixed term, it normally ends automatically at expiry unless tacit renewal applies.

For all leases, the lessee has two main obligations: (i) to use the leased property as a good father of the family (“en bon père de famille”), and according to the purpose given to it in the lease, or according to the purpose presumed according to the circumstances, in the absence of an agreement; and (ii) to pay the lease price on the agreed terms. 

If, during the term of the lease, the leased property is completely destroyed by an act of God, the lease is automatically terminated. 

If the lessee uses the leased property for a purpose other than that for which it was intended, or which may result in damage to the lessor, the lessor may, depending on the circumstances, terminate the lease. If the repairs are of such a nature as to render the property uninhabitable for the lessee and their family, the lessee may have the lease terminated. 

Also, the lessor may terminate the lease with immediate effect if the lessee fails to perform their contractual obligations. 

Under Luxembourg law, a fixed-term lease cannot in principle be terminated before its expiry unless the contract provides otherwise or a serious breach justifies termination.

As a general principle, early termination may be justified in particular in case of non-performance by the lessor of its obligations (Article 1719 Civil Code), destruction of the leased property, or impossibility to use the premises for their intended purpose.

1.4.1 Residential leases (law of 21 September 2006) 

These are subject to mandatory provisions, but these do not give the lessee a general right to terminate a fixed-term lease at any time. Early termination is only possible if provided for in the lease, if the parties agree or if justified by a serious reason. 

Where termination is allowed, the tenant must in principle respect the statutory notice period (generally 3 months, unless a longer period is agreed), and the lessee may request an extension of the notice period or a stay of eviction from a justice of the peace.

1.4.2 Commercial leases (Articles 1762-3 to 1762-13 of the Civil Code) 

These are mainly governed by the contract, subject to mandatory statutory protections (in particular renewal rights and the possibility of a court-ordered stay of eviction). 

Early termination by the tenant is generally only possible if provided for in the lease or in case of serious breach by the other party.

Under Luxembourg law, certain statutory provisions may limit the landlord’s ability to recover possession of the premises or to obtain market rent, depending on the type of lease.

Residential leases are subject to strong tenant protection, including statutory extension of the lease, limited grounds for termination, mandatory notice periods, possible judicial extension of the notice period, stay of eviction and statutory rules limiting the rent that may be charged.

Commercial leases are subject to mandatory renewal rights, minimum notice periods, possible eviction compensation after 9 years of occupation, a statutory right of first refusal after 18 years and the possibility for the court to grant a temporary stay of eviction.

Furthermore, even where the lease has validly expired or has been terminated, if the lessee does not vacate the premises voluntarily, recovery of possession usually requires court proceedings, and the eviction of the tenant may only take place after a judicial decision and expiry of the applicable time limits, which may delay the landlord’s ability to regain possession.

In addition, under general civil law principles, a tenant may in exceptional circumstances invoke the exceptio non adimpleti contractus in case of serious breach by the landlord and seek suspension or reduction of rent. However, Luxembourg courts interpret this remedy restrictively, and it is generally not admitted where the tenant retains at least partial enjoyment of the premises or where the breach does not seriously affect the use of the property.

Luxembourg law does not generally impose specific payment intervals, and the due dates and payment terms must be agreed contractually between the parties. Rent is usually paid monthly or quarterly in advance in accordance with the terms of the lease agreement.

The periodicity of rent reviews is generally determined by the lease agreement, as Luxembourg law does not provide for automatic rent adjustments. Any indexation or rent review mechanism must be expressly agreed by the parties.

In residential leases, rent indexation is not permitted. The rent may only be revised in accordance with the law of 21 September 2006, which limits increase and provides that the rent may not be adjusted more frequently than every 2 years. In case of dispute, either party may refer the matter to the rent commission or to a justice of the peace.

The basis of rent review is generally determined by the lease agreement. In practice, commercial leases often provide for indexation linked to the Consumer Price Index, usually on an annual basis and frequently on an upward-only basis. Step rent mechanisms or progressive increases may also be agreed, in particular at the beginning of a lease or where the tenant has carried out substantial fit-out works.

In residential leases, indexation is not allowed. Rent adjustments are governed by the law of 21 September 2006 and are subject to statutory limits and procedures, including the possibility to review the rent in order to align it with the legally permitted rental value.

Statutory rent control only applies to residential leases. Under the law of 21 September 2006, the rent is subject to legal limits and may not exceed a return of 5% of the capital invested in the property. Rent increases are regulated and may not occur more frequently than every 2 years, and any increase may not exceed 10% at a time. In case of dispute, the rent may be reviewed by the rent commission or a justice of the peace.

Commercial leases and other leases governed by the Civil Code are not subject to statutory control as to the amount of rent or the level of increases, which are determined by the lease agreement.

The landlord has the legal obligation to deliver the property in a good state of repair. During the term of the lease, the landlord must carry out all necessary repairs, except those which are the responsibility of the tenant. They must also ensure urgent and necessary repairs of the leased premises in order to maintain the property in a condition suitable for the use for which it was let.

However, in the absence of specific contractual provisions, the exact scope of these obligations may be difficult to determine, as Luxembourg law allows the parties to allocate maintenance and repair obligations in the lease agreement, subject to mandatory rules applicable to certain types of leases. In general, the landlord is responsible for major repairs, such as structural works, the heating system, repairs to the roof and repairs resulting from force majeure or normal wear and tear.

The tenant must use the premises with due care and diligence with regard to the leased premises and is responsible for routine maintenance and minor repairs resulting from the use of the premises, unless otherwise agreed. In principle, tenants are not responsible for repairs caused solely by normal wear and tear, obsolescence or force majeure. 

See point 3.1. As a general rule, external maintenance and repairs affecting the building as a whole are borne by the landlord, unless otherwise agreed in the lease agreement. 

The landlord is bound by law to ensure the peaceful enjoyment by the tenant of the leased premises. Therefore, as a general rule, the landlord is under obligation to carry out structural repairs. However, Luxembourg law allows the parties to allocate repair and maintenance obligations in the lease agreement.

There is no general statutory obligation to insure, but lease agreements usually require the tenant to take out insurance covering fire and rental risks, while the landlord typically insures the building, unless otherwise agreed.

The Luxembourg Civil Code provides for the tenant’s presumption of blame in case of fire or of degradation or losses occurring during their enjoyment of the premises, unless it proves it is not their fault. 

In principle, leases are exempt from VAT. However, this exemption is not applicable to specific leases, such as those for hotels, parking spaces, machines and tools.

Subject to the conditions set out in VAT legislation, the landlord may opt to subject the rent to VAT, in particular where the tenant uses the premises for activities giving rise to a right of deduction. The application of VAT therefore depends on the fulfilment of the statutory conditions and cannot be decided freely by the parties.

In the event that the tenant and the landlord opt for the VAT option, the standard VAT rate of 17% generally applies, subject to the applicable VAT legislation and the nature of the leased property.

See point 3.1. In addition, lease agreements usually provide that the tenant bears operating costs and charges relating to the use of the premises, such as utilities, maintenance costs, common charges and municipal taxes, to the extent permitted by law and agreed in the lease.

For residential leases, only certain expenses expressly provided for by law can be claimed from the tenant. These are expenses that are attributable to the tenant due to the use of the rented property. Expenses that are related to the enjoyment of the dwelling are to be borne by the tenant (energy consumption, routine maintenance of the dwelling and common areas, minor repairs, taxes and fees related to the use of the dwelling), while those with a conservatory character are to be borne by the landlord.

For commercial/professional leases, the allocation of charges between the landlord and the tenant results exclusively from the agreement of the parties, and the landlord may recover operating costs, service charges and management costs from the tenant if this is expressly provided for in the contract.

The Luxembourg courts recognise and enforce the terms of a lease agreement in accordance with contractual freedom, and provided that it complies with mandatory legal provisions.

There is no general requirement under Luxembourg law that an appraisal be prepared by a locally regulated or certified valuer in order to be recognised by the courts. The court freely assesses the evidential value of any appraisal report submitted by the parties.

A report prepared by a foreign or RICS-qualified valuer may be produced as evidence, but it is not binding on the court. Where necessary, the court may appoint a judicial expert in accordance with the applicable procedural rules.

Access to any registers and lists of environmental information established and maintained under Luxembourg law and held by the public authorities is provided upon request.

The above-mentioned access to information includes the distribution of held environmental information, free on-site or online consultations, supply of copies and a report’s publication.

The establishment of an energy performance certificate (“certificat de performance énergétique” – CPE) is mandatory when selling, leasing, renovating, extending or constructing a residential building. The CPE for a residential building must be requested from construction experts such as (i) architects or (ii) engineering consultancy firms; or (iii) experts approved by the competent Ministry. The persons authorised to establish CPEs for residential buildings, and who have taken the specific training course (optional) organised by the relevant Ministry, are indicated in a public list.

As a general rule, holding or enforcing a mortgage over real estate does not, in itself, give rise to environmental liability for the lender. However, liability may arise in exceptional cases, for example if the lender takes possession of the property or becomes involved in its management or operation.