Residential leases: A draft bill that will do little to improve access to the rental housing market
The 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 is convinced that well-considered and concerted political action is needed to counteract the rise in property prices, the Chamber questions the value of certain provisions in the bill, which are feared to be counterproductive.
The Chamber of Commerce 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. This should be addressed with a view to significantly reducing the ‘effort rate’ required by households to access housing. In this context, the Chamber of Commerce 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. Economic growth is essential to facilitate a flourishing society, and to fund the Luxembourg social model. This requires increased economic investment and a corresponding rise in the size of the workforce which needs to be able to access adequate housing in a dynamic real estate market. However, the relatively minor measures proposed in the bill regarding reform of current legislation on residential leases (the main aim of which is to improve the situation of tenants by reducing the financial burdens imposed on them when they move homes) will not be sufficient on their own to alleviate problems in the housing market.
The three main provisions of the bill are: 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 fears that all three measures will have the opposite of the intended effect. Indeed, the Chamber considers that in a property market where the supply of housing cannot keep up with the increase in demand, these provisions – intended to facilitate access to rental housing – may ultimately fuel the upward spiral of property prices.
The Chamber of Commerce regrets that measures and regulations so far put in place to deal with the housing problem have 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 is proposing 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, to train their staff where necessary, and to adapt their practices and contractual models to the new requirements.
As well as the provisions that the Chamber of Commerce considers to be insufficient to reduce tensions in the national property market and to facilitate access to rental accommodation, the Chamber welcomes 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.
The Chamber has reservations as to the value which would be added by the new provisions of the bill relating to how rent is determined and considers it unlikely that this measure will have a limited impact on the national real estate market.
The full text of the opinion (in French) from the Chamber of Commerce can be viewed on our website in the ‘Avis et législation’ section.