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Luxembourg:
The Long-term Lease, A Real Property Right Or Illusion?
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The Law of 22 October 2008 called the Housing Pact (Pacte
Logement) defines a long-term lease (bail
emphytéotique) as “a real property right
consisting of having the full enjoyment of a building belonging to
another, by means of payment of a fee to be agreed between the
owner and the lessee.”
“The lessee exercises all rights attached to the ownership
of the building without under any circumstances diminishing its
value.” In particular, “the lessee has the ability to
transfer his/her right, to hypothecate it and to encumber the
building with easements for the duration of the long-term
lease.”
In Luxembourg, long-term leases regularly include limitations on
those rights, particularly the lessee’s obligation to occupy
the property himself/herself.
What is the validity of the limitation clauses?
The Luxembourg Court of Appeals validated a clause providing
that the purchaser who purchased the building but not the land, and
was leasing it from an entity that was not the seller, had to
occupy the property for 12 years, without being able to transfer or
rent it without the seller’s agreement, and canceled the
agreement faulting exclusively the purchaser, who did not comply
with required duration of occupation. The seller had to restitute
the price paid in 2005, without any adjustment or reimbursement of
the investments in the improvements. The purchaser asserted in vain
his fundamental right to develop a private and family life for
which the property was no longer adequate. In summary, the Court
deemed that there had been the free choice not to sign the
agreement.
But are such clauses compatible with the spirit of a
long-term lease?
The French Court of Cassation (Cour de cassation)
decided that a lease could not be qualified as long-term if it
limits the lessee’s use of the premises or includes a clause
for the entitlement to cancel the agreement in case of non-payment
of rent, which for the Court of Cassation was “an uncertainty
incompatible with what constitutes a real property right.”
The Luxembourg Court of Appeals has held that a lease cannot
constitute a long-term lease if it is not characterized by an
almost absolute right of disposal, something which is incompatible
with prohibiting the lessee to sublet without the lessor’s
authorization.
Conclusion
Contractual provisions limiting a lessee under an agreement
designated as a long-term lease are not invalid or deemed null and
void, and do not result in the nullity of the agreement, but may
call into question the qualification of the agreement, which would
then be considered not a long-term lease, but a simple lease, not
conferring a real property right on the lessee.
Originally Published by Law & Legal Counsel column
– NEOMAG 36
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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