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September 18, 2020

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

  Compiled by myLIFE team myHOME August 24, 2017 10765

Did you know that there are five 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, if any). The deposit may be as much as three months’ rent, 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 four options available to you.

Deposits paid in cash or by bank transfer

Both of these options consist in paying the deposit out of your own funds. These options are popular with landlords but sometimes make it difficult to get all or part of the deposit back in the event of a dispute when it comes to the check-out inventory.

Note that a landlord can never demand payment of the deposit in cash. If this option appeals to you, remember to ask for a receipt. Whichever option you choose, the 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. The landlord has the reassurance that the amount of the deposit is frozen on your account for a period (usually the term of the lease plus a few months) that can be renewed. The advantage for you is that you earn interest on the sum frozen as a guarantee, although there may be bank charges.

Here again there are two options.

  • First demand guarantee. This option is highly advantageous for the landlord as he 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.
  • Simple bank guarantee. This guarantee is fairer as the bank can only pay the amounts requested by the landlord if the landlord can produce evidence of your debt (in the form of a written agreement/acknowledgment from you, or a court order).

Rental guarantee insurance

Strictly subject to the agreement of the landlord, this option consists in obtaining a guarantee from an insurance company. The tenant takes 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.

Whether “first demand” or not, 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 and medium-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. This assistance is subject to certain conditions:

  • you are over 18 at the time you apply;
  • you are authorised to legally reside in the Grand Duchy of Luxembourg (for at least three years) and are registered with the population registry office of a commune in Luxembourg;
  • you are neither the owner nor the beneficial owner of another home in the Grand Duchy of Luxembourg or abroad;
  • you have concluded a tenancy agreement for a primary residence in respect of a property in the Grand Duchy 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 until the assets frozen on the conditional deposit are equivalent to the amount of assistance granted;
  • you have authorised the financial institution, in the event the landlord calls in the guarantee from the government, to deduct from the conditional deposit the sum equivalent to the amount of assistance paid by the government to the landlord and to pay this sum to the government immediately on request;
  • your income is less than 2.5 times the gross amount of the minimum guaranteed income;
  • your monthly rent corresponds to less than one third of your income, and cannot exceed EUR191 at base 100 on the consumer price index (currently EUR1,517.60).