Reform of commercial leases gets underway

(CS) Luxembourg's government council has approved a draft bill on the reform of commercial leases, following the bankruptcy of a series of shops in the capital in September.

The new law is aimed at limiting real estate speculation and was presented by Minister of the Middle Classes Françoise Hetto-Gaasch and approved by the government council on October 4, the government said Monday.

The project received renewed attention after some 20 shops in Luxembourg City were forced to close their doors in September, following the bankruptcy of their holding company.

It had emerged that the owners of the company had used aggressive tactics to push out tenants and sign new leases with property owners, with little protection for the outgoing shopkeepers.

However, the new law is not only aimed at improving conditions for tenants, but also property owners are meant to gain security for better long-term planning.

The cornerstones of the draft bill include new regulations on the minimum duration of leases and rent increases, as well as a legal framework for subletting.

• A minimum duration of commercial leases of nine years, instead of the current regulation of 3+3+3 years, allowing companies better longterm planning. Tenants are given the ability to terminate a contract at each three-year interval.
• During the first two years, the owner of the property can terminate the lease under difficult economic circumstances, to protect their interest in the property, as well as preventing the tenant from going bankrupt.
• Rents can be adjusted every three years under criteria clearly stipulated in the lease.
• More transparency in subletting, by allowing tenants to see what their landlord pays the owners, and thereby making transparent profit margins and preventing speculation.
• A nine month eviction period to allow business transfer and protect employees.
• The tenant has the right to renew the lease twice, except in a case of misconduct on the tenant's part. Should the owner wish to not renew the lease they need to pay compensation to the tenant.
• The payment of a “pas de porte”, a payment by a new tenant to the owner to be allowed to take up a lease, is strictly forbidden. Only a regular deposit can be paid by the tenant.

An additional provision foresees that current contracts, which are satisfactory to all parties, do not fall under the new law until they need to be renewed.

Following the approval of the government council the bill can now be introduced in parliament, where it will have to be examined by a parliamentary commission, as well as undergoing a debate and possibly a review before a final vote.

However, since the Chamber of Deputies was dissolved on October 7 in preparation for the elections on October 20, the new law will, for now, remain in limbo.