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From 1 January 2017 it is no longer obligatory to register residential/commercial lease agreements, although voluntary registration is still possible (Luxembourg Tax Reform 2017). Here we outline the key points of the new statute regarding registration of lease agreements under Luxembourg Law.
Registration occurs when a written agreement providing for the renting of a real estate property is inscribed in a public register held by the Land Registration and Estates Department (“Administration de l’Enregistrement et des Domaines”, “AED”).
Inscription is complete when one of the original copies of the agreement is filed with the AED and the registration fee is paid.
Any kind of written agreement providing for the renting of a real estate property can be subject to registration. Registration also applies to commercial, residential as well as office lease agreements.
Under Luxembourg law, any transfer or assignment of a lease agreement can also be affected by registration. The same holds true for sub-lease agreements.
As a result of the Tax Reform, any residential/commercial lease agreement/sub-lease/addendum executed after 1 January 2017 is no longer subject to a mandatory registration. The same rule applies to lease agreement/sub-lease/addendum concluded after 30 September 2016 (AED Circular n° 782 of 2 January 2017).
There is also no longer any fine when a commercial or a residential lease agreement, a sub-lease agreement or an addendum is registered more than 3 months after its date of signing. Until 31 December 2016, any residential/commercial lease agreement/sub-lease/ addendum had to be registered within 3 months of being signed. Failing that, the registration fee was doubled.
Parties can, however, register a residential/commercial lease agreement, a sub-lease or an addendum on a voluntary basis. Here is the key relevant information on the applicable process:
Parties can ask the notary to register a residential/commercial lease agreement/sub-lease/addendum written in the form of a notarial deed.
For a residential/commercial lease agreement/sub-lease/addendum written under private seal, it depends on the terms of the contract:
According to the Luxembourg Tax Code, both parties however stay jointly liable for the registration fee, which means that if the party who filed the lease agreement/sub-lease/addendum with the AED for registration purposes does not pay the applicable fee within the fixed time period, the AED has the right to ask the other party for the payment of the global amount.
The Tax Reform has not changed the rates of the registration fee.
If the lease agreement/sub-lease/addendum is subject to VAT, there is a fixed registration fee of EUR 12.00. This fixed fee applies when (i) application of VAT to the lease agreement/sub-lease/addendum has been duly authorized by the AED through the option form (déclaration d’option TVA) and (ii) the lease agreement/sub-lease/addendum is registered on the date it comes into force at the latest.
If the lease agreement/sub-lease/addendum is not subject to VAT, there is a proportional registration fee, which is equal to 0.6% of the accumulated amount of the rent. E.g. for a 3 years agreement with a rent of EUR 1,000.00 per month, the registration fee is 0.6% of (36 x 1,000.00) = 0.6% of EUR 36,000.00 = EUR 216.00.
Lease agreements/sub-leases that are concluded for a period of 3-6-9 years are regarded as 9-year agreements, so that the registration fee is calculated on a period of 108 months.
The registration fee of an unfixed-term lease agreement/sub-lease is calculated on the basis of a 20-year term.
The main benefit of registering a residential/commercial lease agreement/sub-lease/addendum is to give it a specific date so that it can be enforceable against third parties, which cannot then claim to be unaware of the existence of the agreement itself and/or the parties’ rights resulting from it.
Enforceability can be very useful if the real estate property is to be sold. If a lease agreement has been registered before the sale contract, the new owner will not be allowed to ask the tenant to move out immediately even if he had no knowledge about the existence of the registered lease agreement (see Art. 1743 of the Civil Code).
This benefit is however limited regarding residential lease agreements. In fact, Article 12 (5) of the amended Law of 21 September 2006 states that any residential lease, whether registered or not, is automatically enforceable towards third parties.