Decennial Building Warranty & Two Year Building Warranty

They are insurance covers that are not subscribed to by the owner or the occupier of the property but by the builder/promoter building it. However they are the insurance policies that the property owner can benefit from if they are properly in place and if there is a defect in the construction, which is discovered after its completion.

The decennial warranty covers for defects affecting the stability and the structure of the building, such as roof, walls and openings. It is valid for 10 years after the completion of the construction.

The two-year warranty is the cover for the defects affecting smaller items as well as brought in pre-built elements such as the heating boiler and the electric shutters. It is valid for two years after the completion of the construction.

Each policy must clearly stipulate how it categorises each building item.

THE MUST HAVE CLAUSES IN A RESIDENTIAL RENTAL CONTRACT

When negotiating your “contrat de bail”, you will find obvious to discuss some clauses such as the rental price. Some other clauses do not seem so critical yet it is essential that you check them all so as to understand thoroughly the contract you are entering into.

Personal details of both parties:

  • Communication is key so make sure to mention full current addresses, telephone numbers and email addresses.
  • If a married couple is renting, both names (and details) should be listed so if one partner dies, the other can stay legitimately as long as the terms of the contract are respected.
  • Co-tenants are co-responsible for complying with all the terms of the contract.

The property:

It is important to specify its boundaries and all that is included in it whether it is a parking space, a cellar in a residence, …

The estate agent will have checked the proprietary rights of the landlord prior to signature.

The price:

The current legislation stipulates that the rent can only be adjusted once every 2 years so there is no need to add anything.

The warranty:

A refundable warranty worth a maximum of 3-month rent is requested on the day of entering the property. This warranty is either paid into the landlord’s bank account or it is held as a bank warranty (it stays in the tenant’s bank account but only the landlord can have access to it and so until he/she releases it back). The landlord can only use the warranty to cover the costs of damages incurred by the tenant; under no circumstances does it replace the payment of rent.

The duration of the contract:

It can be unlimited but usually it is limited to a specific duration. Traditionally the banking contracts ran for 3 years so some landlords still impose such a long rental period. However nowadays a period of 1 or 2 years is more commonly requested.

Termination of contract:

  • It is essential to clearly lay out the terms of the termination and those of its renewal. By law the termination of a contract calls for a minimum notice of 3 months. Some contracts stipulate an automatic renewal but make sure you agree with the implied extended rental period.
  • All expatriate tenants insist on the insertion of a “Clause Diplomatique” as it allows them to break a contract before its determined end. However this only applies when the tenant is sent back to his/her country of origin by his/her employer. The 3-month termination notice must still be given and paid for.

The maintenance of the property:

  • Broadly speaking the tenant is responsible for the general day to day upkeep of the property during the occupancy period and the landlord is responsible at all times for maintaining the structure of the building.

It is advisable to list out who is responsible for maintaining specific items so there are no argument down the road (e.g. who maintains the boiler, who cuts the edges in the garden, should the tenant repaint the property before exiting it?).

Taxes and VAT rates when buying a property

  When the property will be the Principal Residence of the buyer When the property will be, for its buyer, either a Secondary or an Investment Residence
Purchase of land  VAT exonerated – registration tax instead VAT exonerated – registration tax instead
Purchase of an existing building VAT exonerated – registration tax instead VAT exonerated – registration tax instead
Purchase of a – or part of a – building not built yet Super reduced rate of 3% Standard rate of 17%
Renovation work Super reduced rate of 3% applies for some renovation works; otherwise standard rate of 17% applies Super reduced rate of 3% applies for some renovation works; otherwise standard rate of 17% applies

Buying land with a view to build on it – part 1/3

The acquisition of the land:

The authorities distinguish between “existing neighbourhoods” (“quartiers existants”) inside a commune, and “new neighbourhoods” (“nouveaux quartiers”) usually found on the outline of a commune. Outside of these areas, it is impossible to find a site unless you purchase a working farm with the intent of running it.

When buying a piece of land in an “existing neighbourhood”, the site for sale will be an isolated one tucked in between two fully developed sites. Usually all the infrastructures are already all in place.

Some agricultural lands are regularly rezoned as residential sites and then named “new neighbourhoods” so as to accommodate the ever growing housing expansion. When you buy there, you usually come across builders and promoters who acquire the entire neighbourhood for future developments.

Smaller developments such as those on a single site are less attractive to developers as the next administrative and planning steps are lengthy, expensive and more profitable as the site to be developed grows in size.

Fixed rental charges or actualised charges?

Co-rentals do not fall under the general rental legislation of 2006 so quite often the charges are fixed for ease of management. It is up to the landlord to evaluate as accurately as possible what the charges will be. Tenants must be careful that they are not charged outrageous expenses but as it is something they find out before signing a contract, they always have the possibility to say no. The contract must therefore specify that the charges are fixed and not adjustable as a later stage.

Ordinary rentals, however, come with monthly fixed charges which then must be adjusted in relation to the actual costs. Again for ease of management, it is best to ask for a monthly fixed amount. When actual charges are billed to the landlord, he/she has a duty to adjust, ask for an extra payment or reimburse some monies depending on the final balance. The tenant has the right to request copies of actual costs to ensure the billing is correct.

There is one problem though. Bank warranty must be returned to the tenants no later than 6 months if the rental is an apartment (3 months in the case of a house). When the rental is an apartment, it is the management company which receives the invoices and which in turn invoices each landlord. Then the landlord can calculate what is the final balance owed by the tenant. This process is lenghty and the final costs often are known more than 6 months after the tenant has left the property. This explains why landlord are reluctant to release in full the warranty before the due date.

Obviously it is best to remain in good terms with the landlord, especially if a refund is expected. I have come across cases where former tenants were reimbursed by their landlords for over-paid charges a year after their departures. On both sides it is all about honesty.

When a rental property is put on the market

The curent tenant has the possibility to stay and even benefits from a pre-emptive right in the buying process, if he/she has been renting this property for more than 18 years.

If the rental contract was duly completed in writing, the new landlord cannot oppose to it and the contract must run its course until the end of its pre-determined duration. In the instance of an indefinite contract, he/she can only remove the tenant if he wants to move in himself/herself, if he/she wants to move a close relative in or if major renovation work has to take place. A 6 month notice from the landlord is requested.

When the landlord wants to exit the rental contract

This instance is strictly regulated so as to avoid any abuse; when the rental contract has an indefinite duration, the landlord can request the exit if only one of the 3 following reasons can be brought forward and justified:

  • The landlord or one of his/her closed relative wants to move in the rental property; he/she will need to elect it as his/her new domicile.
  • The landlord wants to refurbish the property to such extend that it would be impossible for the tenant to stay in.
  • The current tenant does not comply with the obligations stipulated by the terms of the lease.

The landlord must give 6 month notice.

When the tenant wants to exit the rental contract

If a contract is due to end on a specific date, the tenant is simply obliged to complete his/her duties until that date.

However if the contract is tacitly renewable and if the tenant does not want to stay on, a notification must be sent to the landlord ahead of the 3 months’ notice.

In the instance when the rental agreement is tacitly renewed year on year, the tenant is expected to comply his/her duties until the end of the current contract year regardless of the given notice.

Some landlords are more flexible and will accept an earlier exit provided that the tenant or the appointed estate agent is able to find a new tenant to take over the rental property. This does not mean that the new tenant will “finish off” the existing contract, usually a new one is drafted.

The so-called “clause diplomatique” is often included in the contract. It allows the tenant to leave the property earlier than the set date on the one condition that he/she is relocated to another branch of the company, outside of Luxembourg. It does not apply when changing employer or when being let go. The 3-month-notice rule still applies and if the tenant leaves before the notice is up, payments and obligations must still be met until the end of it.

Overlapping of rental contracts

This is totally forbidden. On one hand, two distinct tenants cannot physically share the same rental property and the landlord cannot receive two rental incomes from the same property for the same period.

Be sure that your rental contract stipulates that the property is free at the time of entering and that the previous rental contract has been terminated.

When a tenant wishes to extend the duration of the rental period, this can only be done if a new rental contract covering the same period as that of the extension, has not been signed yet.

Termination of contract

It is essential to clearly lay out the terms of the termination and those of its renewal. By law the termination of a contract calls for a minimum notice of 3 months. Some contracts stipulate an automatic renewal but make sure you agree with the implied extended rental period.

All expatriate tenants insist on the insertion of a “Clause Diplomatique” as it allows them to break a contract before its determined end. However this only applies when the tenant is sent back to his/her country of origin by his/her employer. The 3-month termination notice must still be given and paid for.