The Law of 22 October 2008 called the Housing Pact (Pacte Logement) defines a long-term lease (bail emphytéotique) as "a real property right consisting of having the full enjoyment of a building belonging to another, by means of payment of a fee to be agreed between the owner and the lessee."
"The lessee exercises all rights attached to the ownership of the building without under any circumstances diminishing its value." In particular, "the lessee has the ability to transfer his/her right, to hypothecate it and to encumber the building with easements for the duration of the long-term lease."
In Luxembourg, long-term leases regularly include limitations on those rights, particularly the lessee's obligation to occupy the property himself/herself.
What is the validity of the limitation clauses?
The Luxembourg Court of Appeals validated a clause providing that the purchaser who purchased the building but not the land, and was leasing it from an entity that was not the seller, had to occupy the property for 12 years, without being able to transfer or rent it without the seller's agreement, and canceled the agreement faulting exclusively the purchaser, who did not comply with required duration of occupation. The seller had to restitute the price paid in 2005, without any adjustment or reimbursement of the investments in the improvements. The purchaser asserted in vain his fundamental right to develop a private and family life for which the property was no longer adequate. In summary, the Court deemed that there had been the free choice not to sign the agreement.
But are such clauses compatible with the spirit of a long-term lease?
The French Court of Cassation (Cour de cassation) decided that a lease could not be qualified as long-term if it limits the lessee's use of the premises or includes a clause for the entitlement to cancel the agreement in case of non-payment of rent, which for the Court of Cassation was "an uncertainty incompatible with what constitutes a real property right."
The Luxembourg Court of Appeals has held that a lease cannot constitute a long-term lease if it is not characterized by an almost absolute right of disposal, something which is incompatible with prohibiting the lessee to sublet without the lessor's authorization.
Conclusion
Contractual provisions limiting a lessee under an agreement designated as a long-term lease are not invalid or deemed null and void, and do not result in the nullity of the agreement, but may call into question the qualification of the agreement, which would then be considered not a long-term lease, but a simple lease, not conferring a real property right on the lessee.
Originally Published by Law & Legal Counsel column – NEOMAG 36
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.
