In Luxembourg, an inventory is compulsory whenever the landlord requires the tenant to pay a sum of money as rental deposit. The details are laid down in Article 5 of the Law of 21 September 2006.
Unlike French law, Luxembourg law does not distinguish between a ‘caution locative’ (a sum of money or a guarantor to cover any unpaid rent) and a ‘dépôt de garantie’ (a sum to cover damage caused by the tenant during the tenancy). The rental deposit can be used by the landlord to cover any unpaid amount due under the tenancy agreement.
Luxembourg law does not, however, allow the landlord to require any amount whatever as a rental deposit. It is usually calculated as a multiple of the monthly rent, with an upper limit of 3 months’ rent.
A rental deposit can take several forms, and the landlord is required to accept whatever form it may take, even after the tenancy is agreed. However, two forms are most common in Luxembourg: a bank guarantee and a security deposit.
Bank guarantees
Bank guarantees provide the landlord with an indirect rental guarantee, and take two distinct forms:
1) A bank guarantee payable on first demand is a written undertaking entitling the landlord to payment of the whole or part of the guaranteed sum agreed between landlord and tenant. It should be noted that the tenant has no right to object to payment once the amount of the guarantee is determined by the landlord, even if there is a dispute as to the debt.
2) An ordinary bank guarantee is also a written undertaking entitling the landlord to payment of the whole or part of the guaranteed sum agreed between landlord and tenant. The major difference is that the financial institution will not pay the sum claimed by the landlord unless the landlord can substantiate the claim against the tenant by means of either a written acknowledgment by the tenant or a court judgment.
Apart from the pros and cons for both parties as set out above, the tenant should be aware of two key features of a bank guarantee before taking a decision. The amount lodged with the financial institution on the one hand bears interest but on the other hand may incur bank charges which will vary from bank to bank.
Security deposits
A security deposit is a direct guarantee for the landlord, and also takes two common forms in Luxembourg:
1) The more common of the two is a rental deposit by bank transfer. The amount agreed on in the contract is transferred to the landlord’s bank account. It is important to make sure that the bank transfer form states the exact reason for the transfer to the landlord’s account.
2) A landlord may also ask for a cash deposit. Tenants cannot be obliged to accept such a request but, if they do, they should make sure they get a detailed receipt from the landlord when they make the payment.
With security deposits, no ‘management fees’ can be charged by the landlord. By the same token, the amount deposited may not bear interest for the landlord unless there is a specific clause in the contract to that effect.
Finally, as regards the date for the return of the rental deposit, it is advisable to provide for a reasonable time-limit at the outset, in the tenancy agreement. This will avoid any disagreement between landlord and tenant as a result of delays in responding by third parties (for example, an annual statement of expenses in relation to the rental premises, or an estimate by a contractor in the event of repairs).
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