My finances, my projects, my life
April 20, 2019

Choosing a tenant wisely

  Compiled by myLIFE team myHOME August 22, 2018 214

Are you a homeowner looking to rent out your property, but don’t know how to go about finding a reliable tenant? Worried about missed rent turning into a messy lawsuit? You’re not alone! This is a common concern, but don’t let it put you off – legal disputes like this are rare in Luxembourg and there are several precautions you can take to make sure your tenant will always pay on time.

Non-discrimination

Before we get started, remember that housing discrimination is illegal and punishable under the Law of 28 November 2006 on equal treatment. This states that when choosing a tenant, your decision cannot be based on nationality, religion, age, sexual orientation or ethnicity. The same is true for tenants who are disabled. And of course, it is also illegal to discriminate based on gender.

A landlord may only use objective criteria such as financial stability to decide whether to take on a tenant or not. The Luxembourg government has published a practical guide on this subject for landlords.

The paperwork

It is common practice for landlords to request certain official documents from potential tenants. These can provide useful information about the suitability of a tenant.

  • A copy of the tenant’s ID. There’s no need to go into detail here. You need to know who you might be signing a contract with, and an ID provides formal proof.
  • A certificate of residence from the tenant’s previous address. If you have the tenant’s previous certificate of residence, you can put your mind at ease by contacting their former landlord or agency, who will be able to tell you if they have had any issues with the tenant.
  • A copy of the tenant’s employment contract and latest pay slips. These documents will give you an idea of the tenant’s financial situation and their ability to pay rent. An employment contract provides proof that the tenant has a regular income – the guarantee you need to make sure the rent gets paid each month! Pay slips serve as proof that this income is sufficient to cover the rent.

It really isn’t wise for tenants to dedicate more than 33% of their monthly income to rent.

But what exactly constitutes sufficient income? There’s one easy way to judge your tenant’s financial stability, and that’s by doing the maths. A good rule of thumb is that your income should be at least three times your rent. If you follow this simple guideline, you’ll be able to see from their pay slips whether they have sufficient means to pay. Of course, the final decision is yours to make, but it really isn’t wise for tenants to dedicate more than 33% of their monthly income to rent.

The deposit

A deposit, or rental guarantee, is a form of financial insurance that all landlords can request from their tenants. It is designed to cover the obligations under the rental contract. This cash sum is transferred by the tenant or guaranteed by a bank, and can be used by the landlord to cover damages or unpaid rent.

It can amount to up to three months’ rent paid in advance. It doesn’t matter where the money comes from – that’s up to the tenant. For you, it acts as financial insurance and a guarantee of commitment from the tenant. This deposit can only be requested once the landlord has taken a mandatory written inventory in the presence of the tenant before handing over the keys.

Ask the experts

If you don’t want to look for a tenant yourself, you can always go through an estate agent. They know the process and the paperwork inside out. Their job is to make sure that the tenant is financially stable and to communicate with them directly so you don’t have to deal with any of the red tape. Most landlords choose to go down this hassle-free route.

Some property insurance policies cover you against unpaid rent.

In the event of a dispute, you can initiate proceedings before a magistrate.

Bear in mind that in addition to the deposit, some property insurance policies cover you against unpaid rent. Your insurance provider can tell you more.

Your house, your rules

Ultimately it’s your property, so you have the final say when it comes to who lives there. Don’t be scared to look beyond what’s on paper – there’s a lot to be said for going with your gut feeling. Prefer to rent out your flat to that nice little family, even though the others have a better profile? Well, there’s nothing stopping you! Although it’s important to look at the formal criteria that tenants need to meet, if you get a good (or bad!) vibe from someone, don’t ignore it. Just make sure you’re not breaking the law on equal treatment, as you could land yourself a hefty fine, or – in theory at least – face jailtime.

Choosing a tenant is a subtle compromise: you need to make sure that they meet the objective criteria, but you also have to trust your instinct. And that’s by no means an easy feat. This article should nevertheless give you some guidance about the necessary steps to take, the objective criteria to follow, and how to make sure you’re fully covered. Not prepared to go it alone? Then call up an estate agent – they’re experts and will be able to take care of everything for you. Luxembourg has a healthy rental market, so don’t let this lucrative opportunity go to waste!