Entry into force of the new regime for commercial lease agreements in Luxembourg
A new law on commercial lease agreements (the “Law”) was adopted on 17 January 2018 by the Deputies’ Chamber modifying articles 1762-3 to 1762-8 of the Luxembourg Civil Code.
The Law is effective as of 1st March 2018, and shall apply to any existing and future commercial lease agreements having a duration exceeding 1 year, with the exception of sublease provisions for which a transitional period of 1 year has been granted.
The Law introduces new rules increasing the protection of the tenants.
- A clearer scope of application
The Law applies to any lease of a building intended for commercial use, industrial use or artisanal/craft activities (excluding office lease agreements, lease agreements relating to liberal professions or bank activities).
The Law provides that the commercial lease agreement may be concluded either for a limited duration (without any minimum duration) or for an indefinite period.
- Introduction of a prohibition of leasing rights, entry fees and other commissions
Any rent supplement paid to the landlord or an intermediary upon the signature of a commercial lease agreement shall be null and void.
- Introduction of a cap on rental guarantee
The amount of the rental guarantee can no longer be freely determined by the parties and a guarantee shall, as from today, not exceed an amount equal to 6 months' rent.
- Change in the rules concerning the renewal of the commercial lease
Following the entry into force of the Law, the tenant now has the right to renew its fixed-term lease during the first 9 years.
The landlord may nevertheless refuse the tenant's right to renew the lease in the following cases: for the purposes of personal occupation by the landlord or his first-degree descendants; in the event the landlord no longer wants to lease the premises for activities described in the lease agreement; or in case of rebuilding or refurbishment of the rented building. In any event, the landlord is also entitled to terminate the lease if the tenant fails to fulfil its contractual obligations.
- Grace period for eviction
Multiple grace periods are now replaced by a single grace period of up to 9 months (previously limited to two successive grace periods of 6 months each), which could be awarded by the court, without possible extension, provided that the following cumulative conditions are met: all rents and common charges due must have been paid by the date of the suspension request; and the suspension may be granted only for the sole purpose of enabling the tenant or the sub-lessee to find other premises for continuing its commercial exploitation, or to fulfil its legal obligations under employment law.
- Introduction of an eviction compensation
In the case of an eviction, the landlord will now bear an obligation to pay to the tenant an eviction compensation which amount may be freely determined by the parties or, in the absence of contractual provision, by the judge on the basis of the market value of the business.
- Introduction of a pre-emptive right
The new set of rules contained in the Law introduces a pre-emptive right (right of first refusal) on premises leased to the tenant whose lease has run for at least 18 years. The pre-emption right does not apply if the premises are: sold by auction; or assigned to landlord’s family member; or
subject to a free transfer.
For further information please speak to your usual Linklaters contact.