My finances, my projects, my life
August 3, 2020

What to know before becoming a landlord

  Compiled by myLIFE team myHOME February 7, 2020 227

Do you have a house or flat to rent out? That’s excellent news! But first, take the time to answer a few key questions, and make sure you’re in compliance with the current legal obligations. You will also need to assemble a set of required documents. Let myLIFE take you through the essentials.

So you’ve decided to start renting out your property for the very first time. The prospect of a new and reliable source of income is doubtless appealing, but you may not know where to begin. What type of rental should it be? Should you go through an agency? How high should you set the rent? What documentation will you need? There is a whole host of questions that require clear and precise answers first. And that’s before you address the issue of taxation, which we won’t have time to cover here.

If you put your property on the market too soon, you will have to repay the full allowance, plus legal interest from the date it was granted.

Before going any further, ask yourself: for the home in question, did you receive a notarial instruments tax credit on the property registration and recording fees? If you did, you must have personally occupied your home while you owned it for at least two years without interruption before you may rent, sell or leave it. If you put your property on the market too soon, you will have to repay the full allowance, plus legal interest from the date it was granted. This tax credit can be for a significant amount (as much as €20,000 per buyer), so be careful! Just as careful as you would be about the state of the property itself.

Sound condition and up to code

As a landlord, you are legally bound to offer rental accommodations in a good state of repair. That means it’s your job to arrange for the necessary renovations and repairs on the property in question. Lease agreements typically require payment of a rental deposit, and thus must also provide for a formal property inspection to be carried out before the lease begins.

To be considered fit to rent, your property must have a habitable floor area of at least 12 m2 for one person and 9 m2 more for each addition person. Naturally, it must also be compliant with the health and safety laws in force (see the Grand Ducal Regulation of 25 February 1979). Specifically, the law requires properties to satisfy the common criteria for a dwelling (with windows, electricity, potable running water, a drainage system, etc.) and respect the safety norms associated with fire, gas and electricity. The standard bathroom amenities must also be freely accessible to tenants, and the rooms they’re in must be heated.

Does your property meet all these requirements? Then you can start thinking about renting it!

There are really four basic options to choose between: furnished versus unfurnished, and seasonal versus year-round.

The type of rental

The most common way to rent a property is to offer it unfurnished, as a primary residence. However, there are really four basic options to choose between: furnished versus unfurnished, and seasonal versus year-round.

Logically, you wouldn’t have the same rental strategy for a property located in a very touristy area, where it might be more lucrative to rent seasonally as a vacation home, as you would for one in a student neighbourhood where a furnished flat would be in demand, or for a primary residence in the countryside. One thing is certain: you will have to give it some thought, as your choice will have lasting consequences. The type of rental you offer will determine the tax rules that apply, how you interact with your tenant, and how much you can collect in rent. Before you choose, take the time to discuss the matter with a professional.

How much to charge

The myLIFE article Renting out your property in Luxembourg: how to pitch the rent at the right level looks at this issue in detail. Suffice it to say that, however tempting it may be, you can’t just do as you please when it comes to charging rent. While there are legal restrictions to respect, it’s also important to be competitive with the other properties available in the area. It’s in your interest to compare your house or flat with the rest of the market so that you can set the ideal rate.

You can also seek help from professionals in determining what potential your property has, and how best to maximise it before you put it up for rent. The addition of clever storage solutions or a few useful amenities not only makes the home more attractive and easier to sell, but it also lets you optimise the return on your investment.

As a landlord, you will need to show a valid energy passport.

Required documents

As a landlord, you will need to show a valid energy passport for your property. If you don’t have this yet or if your old one has expired, you will need to obtain a new whenever you take on a new tenant, or if there is a change of ownership.

Ideally, you should also have a copy of the latest breakdown of annual utilities charges. That’s because it’s the landlord’s responsibility to justify the cost of utilities with reference to invoices and receipts. If your property is in a co-owned building, it’s usually the property management organisation (the syndic in French) that sends out the breakdown of annual charges. You can use it to set the monthly charges for your tenants based on how much of the building you own (measured in units called millièmes, which are thousandths of the co-owned property).

And don’t forget to obtain boilerplate documents beforehand to save yourself trouble down the line. These include the lease agreement itself and the inspection checklist, for example. However, if you have special requirements in this regard, we encourage you to have them drawn up by a professional instead.

Choosing insurance

There is no legal requirement in Luxembourg for landlords to take out liability insurance for their rental properties. Nor is there any such requirement for tenants, who will only be obliged to pay for any damages they cause which fall under tenant liability. That said, it is still good practice for them to have tenant liability insurance, and you can include a provision in the lease agreement requiring your tenant to prove they do by giving you a certificate to this effect.

For you, it may be useful to take out a special insurance policy for owners who do not live on their property (French: propriétaire non-occupant). This will insure you against liability in favour of your tenant. According to article 1721 of the Civil Code, tenants enjoy a guarantee against any defects or faults in the property being rented to them that hinder their use of it, even where the landlord was unaware of these prior to the agreement. If such defects or faults result in a loss to a tenant, the landlord must indemnify them.

This type of insurance can also cover costs generated by your property due to a lack of maintenance or a flaw in construction. This is important, as article 1386 of the Civil Code stipulates that the owner of a building is liable for any damage to it in these cases.

Using an agency

Should you find a real estate agency to rent out your property, and potentially even to manage the lease? It depends on your priorities. While using an agency will certainly eat into the profitability of your investment, it can also save you trouble finding a tenant or collecting your rent. Your time is precious, but time is money after all. It’s up to you whether to spend cash or energy on ensuring your new investment is a success.

Good luck!