Rent deposits: how to choose the right one for you!

Did you know that there are different types of rent guarantee and that subject to certain conditions, you may be eligible for financial assistance from the government to finance it?*

When you rent a home, the landlord almost always asks for a rent guarantee or “deposit” to cover your obligations under the lease (rent payments, charges or damage to the property). The deposit may be as much as two months’ rent (charges excluded), and can only be requested once the landlord has taken a mandatory written inventory in the presence of the tenant before handing over the keys.

In view of the size of the amount that the deposit often represents, there are five options available to you.

Deposits paid in cash or by bank transfer

This first solution consists of paying the amount of the rental guarantee to the landlord in cash or by bank transfer. Highly appreciated by landlords, these two payment methods can, however, sometimes make it difficult to return the full or partial amount of the guarantee in the event of a disagreement during the exit inventory.

Note that a landlord can never demand payment of the deposit in cash. If this solution appeals to you, remember to ask your landlord for a detailed receipt. Whichever option you choose, that kind of deposit never earns interest for the tenant unless it is expressly stipulated in the lease.

A bank guarantee is probably the most commonly used option in Luxembourg because it offers advantages for both parties.

Bank guarantee

A bank guarantee is probably the most commonly used option in Luxembourg because it offers advantages for both parties. It consists of blocking the amount of the guarantee in a bank account belonging to you, for the entire duration of the lease (renewable period). This way, the landlord has the assurance that the money is blocked in your account and, on your side, despite possible bank fees, you earn interest on the immobilized sum.

In Luxembourg, you will generally be offered a “first demand guarantee”. Under this formula, the landlord can demand all or part of the deposit frozen on your account from your bank, without your prior agreement and without having to justify his request.

Rental guarantee insurance

Strictly subject to the agreement of the landlord, this option consists in obtaining a guarantee from an insurance company. As the tenant you take out an insurance policy, and in the event of non-payment of the rent or damage to the property the insurance company compensates the landlord directly, up to the sum insured.

The advantage of this option is that you do not have to tie up a large sum of cash in the deposit. However, as you will never get the insurance premiums back, this solution is expensive and is only suitable for short-term leases. Also, if the insurance company compensates the landlord for unpaid rent, it may then pursue you for the compensation paid. This is something to bear in mind.

If you are unable to finance the deposit, you can apply for financial assistance from the Housing Support department at the Ministry for Housing.

 Government-backed guarantee

If you are unable to finance the deposit, you can apply for financial assistance from the Housing Support department at the Ministry for Housing. You then commit to saving the amount of the rental guarantee over a period of 3 years. In return, the State acts as guarantor for the amount due. Note that if the landlord requests payment of the guarantee, you will have to reimburse the corresponding amount to the ministry.

Obtaining this assistance is subject to several conditions, including:

• • you are over 18 at the time you apply;
  • you are neither the owner, co-owner, usufructuary, emphyteutic lessee, or holder of a surface right to more than one-third of another dwelling in the Grand Duchy of Luxembourg or abroad;
  • you have not already paid the amount of the rental guarantee to the landlord;
  • you have concluded a tenancy agreement for a primary residence in respect of a property in the private property market of Luxembourg that will be your principal permanent residence;
  • you have entered into a conditional deposit agreement with a financial institution, which you must pay into on a regular basis (by standing order) until the assets frozen on the conditional deposit are equivalent to the amount of assistance granted;
  • you have a regular income for at least 3 months
  • you are required to commit to saving the total amount of the rental deposit over a period of 3 years;
  • your income is below the statutory limit;
  • under no circumstances may the rent exceed 50% of the household income.

The application must be submitted to the Housing Support Department of the Ministry (service des aides au logement) via a dedicated form. You can carry out a simulation to estimate the amount of financial assistance you may be eligible for on the guichet.lu website.

How to recover the rental guarantee?

At the end of the lease contract, an exit inventory must be carried out with the landlord. This document will determine whether you can recover the amount of the rental guarantee or if it will be withheld (in whole or in part) to cover any potential costs. To find out more about the return of the rental guarantee, consult the myLIFE article on the subject: Getting your rental deposit back.

* Content translated from French by the BIL GPT AI tool