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New law on commercial leases: Overview of the key changes
12/02/2018

A new law on commercial lease agreements (the “Law”) was adopted on 17 January 2018 by the Chamber of Deputies. The Law takes effect on 1 March 2018 and will apply to any commercial lease agreements, excluding office leases and leases of less than one year. 

The Law amends the commercial lease regime by modifying articles 1762-3 to 1762-8 of the Luxembourg Civil Code and adding articles 1762-9 to 1762-13. 

The key differences between the former and new legislation, which mainly concern reinforcing tenants’ rights, are illustrated in the table below

 

   Former legislation  New legislation
 Scope of the Law

- 'Commercial lease agreement’ was not clearly defined

- The Law defines a commercial lease as any lease of a building used for use of commercial, industrial or artisanal/craft activities (e.g. shopping centres, service stations, etc.).

- The Law does not apply to office lease agreements, lease agreements relating to a liberal activity, banks or commercial lease agreements of one year or less (to protect pop-up stores).

 Duration

- Was not legally defined. 

- Market practice: 3/6/9 years.

- Commercial leases may have a limited or unlimited duration, without a minimum mandatory term.

- If no duration is set by the parties, the contract is concluded for an unlimited period.

 Guarantee

- The guarantee amount was freely determined by the landlord. 

- Market practice: between 6 and 12 months.

- The rent guarantee will be capped at 6 months’ rent. 

- The landlord may also be obliged to accept the rental guarantee in the form of an insurance policy or other type of guarantee (such as a first demand guarantee), provided the amount covered is equivalent to 6 months’ rent. 

 Leasing rights/entry fee ("Pas-de-porte") - Leasing rights were not prohibited.  - Additional rent paid to the landlord or an intermediary on signature of a commercial lease agreement is null and void. 

- The landlord cannot impose on the tenant a specific third-party intermediary for the assignment or sub-letting of the lease. 
 Preferential renewal - The tenant could request the preferential renewal of its lease, provided it had between 3 and 15 years of occupancy.  

- The tenant has a right to renew its fixed-term lease for the first 9 years. 

- However, the landlord can refuse to renew the lease at any time, with a 6-month notice period, if: 

  • in the case of an individual, the landlord or the landlord’s children intend to live in the premises;
  • the landlord no longer wants to lease the premises for activities described in the lease contract; or 
  • the premises require rebuilding or refurbishment.

- The tenant must request the preferential renewal by registered post with acknowledgement of receipt at least 6 months before the lease termination date. 

- After 9 years, the landlord may refuse to renew the commercial lease agreement, but it or a third party must pay eviction compensation to the tenant. 

 Sub-lease/assignment   n.a.

- The landlord must be provided with a copy of any sub-lease or assignment contracts of a commercial lease agreement it is party to. 

- The rent paid by the sub-lessee to the tenant cannot be higher than the rent paid by the tenant to the landlord, except in cases of specific investment by the tenant relating to the sub-lessee’s activities. 

 Termination of the lease contract - A commercial lease agreement could be terminated with a 6-month notice period (except as otherwise provided for in the contract).  - A notice period cannot be less than 6 months, except in the event of the tenant’s breach of its contractual obligation (permitting the landlord to terminate the contract with immediate effect). 
 Eviction compensation   n.a. - The contract may provide for eviction compensation. If not, the judge determines it according to the market value of the business activity. 
 Suspended eviction - Two grace periods of up to 6 months each could be awarded by the court. 

- A single grace period of up to 9 months can be awarded by the court at the request of the tenant or sub-lessee regarding an eviction decision. 

- The judicial decision cannot be opposed or appealed.

- The suspension is subject to two cumulative conditions: 

  • payment by the tenant/sub-lessee of all due rents and common charges on the date of the request; and
  • it has to allow the tenant/sub-lessee to (i) find other premises for continuing its business and to (ii) comply with the obligations liaised to its work employment contracts.
 Pre-emptive right  n.a.

- There is a pre-emptive right for a tenant with a long-term lease (at least 18 years), unless the leased premises are under sale by auction, transferred to a lessor’s family member or subject to free assignment.  

- The pre-emptive right only applies if the tenant has rented the whole building or if the leased premises are governed by co-ownership rules. 

 

Related : CMS Luxembourg ( Mrs. Audrey Berlotti ,  Ms. Agathe Paul )

[+ http://www.cms-db.com]

Mrs. Audrey Berlotti Mrs. Audrey Berlotti
Partner
audrey.berlotti@cms-dblux.com
Ms. Agathe Paul Ms. Agathe Paul
Associate
agathe.paul@cms-dblux.com

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