Legal Echoes: Noteworthy Changes In Real Estate Law

In order to fight the effects of inflation, a temporary reduction of VAT rates has been applicable since 1 January 2023 and will last until 31 December 2023. The current rates...
Luxembourg Real Estate and Construction
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Several legislative changes impacting the real estate market in Luxembourg have been recently adopted or are to be expected. This article sheds some light on the most relevant topics.

VAT

In order to fight the effects of inflation, a temporary reduction of VAT rates has been applicable since 1 January 2023 and will last until 31 December 2023. The current rates are reduced by 1 per cent. However, the super-reduced rate of 3 per cent, sometimes applicable to residential real estate, remains unchanged. This change may lead to practical difficulties, especially in the context of VAT taxable leases (where the applicable VAT rate will have to be reduced from 17 per cent to 16 per cent) as well as VAT exempt leases (where the rent effectively due may have to be adapted in cases where the rent is automatically increased by an amount equal to the applicable VAT rate).

Land taxation

On 10 October 2022, a bill of law aiming to reform the current land tax and to introduce two new national taxes was lodged with the Luxembourg Parliament: a land mobilisation tax and a tax on the non-occupation of housing. The main aim of the bill of law is to adapt the unitary values applied for purposes of determining the land tax to be paid by a landowner to today's fair market values. The bill of law is still under review.

Housing lease

On 31 July 2020, a bill of law aiming to modify the law of 21 September 2006 on the housing lease was deposited. The goals are

to improve the situation of tenants notably by promoting access to housing by (i) controlling the brokers fees, (ii) decreasing the rental guarantee from 3 to 2 months, (iii) providing a legal framework to cohousing and (iv) abrogating the concept of luxury dwellings. The bill of law is still under review.

As per a law of 23 December 2022, a tenant who has been sentenced to leave the leased premises can request before a judge the suspension of its eviction from the leased premises until 31 March 2023 if it was not able to find another dwelling within 3 months as from the eviction judgement (to be extended two times with 3 months).

Co-ownership

The law of 30 June 2022, aiming to modify the law of 16 May 1975 on the co-ownership, obliges co-owners of buildings to establish a works fund to anticipate the renovation of buildings, in particular in relation to the realisation of energy-saving works. The works fund is built-up with mandatory annual contributions, the amount of which are decided at the co-owners' general assembly. The annual contributions cannot be lower than the minimum amounts set by the law based on the thermal insulation class of the buildings. This obligation will enter into force on 1 August 2023.

Commercial lease

In a judgment of 23 December 2022, the Constitutional Court declares article 1762-6 (4) of the Civil Code - that prevents a tenant to sub-let its premises with a top-up rent - contrary to the Constitution. The Constitutional Court considers that whilst the fight against speculation aims at protecting the general interest, such prohibition triggers a disproportionate restriction. Pending remedial action from the legislator, the balance between the legitimate purpose of Article 1762-6 (4) and the trade and industry freedom is achieved if the rent under the sub-lease agreement does not exceed the rent paid by the tenant to the landlord increased with tenant's operating expenses relating to the sub-lease and a reasonable profit.

First published by Paperjam

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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