Rental guarantees: how do they work in Luxembourg?

So, you’ve found a property to rent and are ready to sign the rental agreement? Your landlord will probably ask you for a rental deposit. Learn all about rental deposits as well as what assistance is available in Luxembourg to help with the costs.

What is the purpose of a rental deposit?

Also known as a “security deposit”, a rental deposit may be required from you by the landlord when you sign the lease agreement. Its purpose is to protect the landlord in the event of damage to the property or non-payment of rent.

As a general rule, a rental deposit involves three parties:

the landlord;
the tenant;
the bank issuing the rental deposit.

In Luxembourg, a rental deposit may not, under any circumstances, be more than two months’ rent (previously three months) and the landlord cannot refuse a deposit offered in the form of a bank guarantee.

If your landlord requires a rental deposit, they must organise a “check-in inspection ”, i.e. before you enter the property, no later than the day you move in. Otherwise, they will not be able to use the rental deposit to cover any material damage.

How much is a rental deposit?

By law, a rental deposit cannot exceed two months' rent (excluding utilities) in total.
For example, if your rent is EUR 1,800 (excluding utilities), the landlord may ask you for a deposit of up to EUR 3,600.

Previously, rental deposits could amount to up to three months’ rent. But a new law pertaining to residential leases dated 24 July 2024 has lowered the maximum amount a tenant can be asked to provide. It should be noted that this new measure does not apply retroactively to old contracts, with those signed before 1 August 2024 continuing to be governed by the old law (maximum three months' rent).

Three ways to pay your rental guarantee

You can provide your landlord with a rental deposit by:

setting up a bank guarantee through your bank;
transferring the amount into your landlord's bank account;
providing the money in cash.

Solution 1: rental guarantee issued by the bank

This solution is a secure option for both parties. It involves blocking the deposit amount in one of your bank accounts.

The money will remain in a bank account in your name for the duration of the lease, and may, in some cases, generate interest if it’s being held in a savings account. If no money needs to be taken from your deposit at the end of your lease, the funds will be released following the final statement of charges, and they will be at your disposal again.

This rental guarantee can be set up:

with a deposit: you deposit the money and the bank blocks the amount in one of your bank accounts, which can generate interest for you;
without a deposit: if you’re under 30 or are a newcomer to Luxembourg, you don’t need to deposit any cash (subject to conditions); the bank can act as your guarantor towards the landlord by offering a rental deposit.

This is known as a “first-demand” guarantee, which means that the bank must pay the deposit amount immediately upon request from the landlord, in full or in part, without the landlord having to provide any justification.

Good to know : how a rental guarantee works

When a rental guarantee is issued by a bank, that bank draws up a document certifying that it will act as guarantor up to the amount stated in the lease agreement (with or without a deposit in return). This guarantee is a first-demand guarantee, which means that if the landlord calls in these funds in writing, either in part or in full, the bank is obliged to pay the required amount (with or without justification). Any disputes must be resolved between the landlord and the tenant themselves. If the landlord calls in all or part of the bank guarantee, it will be deducted from the amount blocked. To cancel the bank guarantee or return it to the tenant, the landlord must send the bank either:

the original bank guarantee letter;
or another supporting document waiving this guarantee.

It is the responsibility of the tenant (and not the bank) to ensure that the landlord returns this letter.

Solution 2: payment of guarantee via credit transfer

If you have the money, you can opt to transfer the deposit to your landlord’s bank account. Remember to keep proof of the transaction, as it could be useful in the event of any issues when you leave the property.

Solution 3: cash payment

You can also provide your landlord with a cash deposit. If you choose this option, make sure to ask your landlord for a signed and dated receipt.

What can I do if I don't have the funds I need for my rental deposit?

It's not always easy to cover the expense of a rental deposit – especially when you also have to pay the first rent instalment and any other agency fees. In Luxembourg, two options are available to you:

state aid to help finance your rental deposit;
a deposit-free rental guarantee from BGL BNP Paribas.

State aid to finance a rental deposit

If you can’t afford to pay the deposit required by the landlord, you can apply for government assistance to finance this guarantee.

If you meet the requirements, the Ministry of Housing and Spatial Planning will act as your guarantor. In return, you must commit to saving the total amount of the deposit over a period of three years. You will have to reimburse the ministry if the landlord calls in the deposit.

To qualify for this aid, you must:

be over 18;
be recorded in the national register of natural persons and have the right to reside in Luxembourg for more than three months;
not own a home (either in Luxembourg or abroad);
have a regular income for at least three months.

Other conditions must also be met regarding the property to be rented, the rent amount, the rental deposit and your income.

Deposit-free rental deposit from BGL BNP Paribas

If you don’t have the necessary funds to cover a rental deposit, another solution is to reach out to BGL BNP Paribas. For clients under 30, the bank offers to act as guarantor to cover the costs of their rental deposit – up to a maximum of EUR 5,000 and subject to certain conditions. This offer also applies to newcomers to Luxembourg during their first year in the country.

How do I get my rental deposit back in the case of a bank deposit?

Luxembourg’s law regarding rental deposits has changed in favour of tenants recently.

As done when you first moved in, you must end your lease agreement with a check-out inspection, to be completed with your landlord. If everything is in order, and rent and charges are fully paid-up , the landlord must return 50% of your money within one month after handing back the keys of the property. The remaining 50% must be returned within one month after receiving the annual statement of charges.

If the owner of the property does not respect the legal deadline for returning the deposit, you can send them a letter of formal notice via recorded delivery. They will then be penalised 10% of the rental amount for each month's delay from the date they received the letter.

In the event of a dispute between landlord and tenant, you will need to file a petition with the magistrate’s court after sending a registered letter to the landlord setting out your complaints.

Conclusion

Finding your new home is an important step in your journey to settling into a new country. BGL BNP Paribas would like to welcome you to Luxembourg and hopes that this article will help make finding a rental property a stress-free experience.

Frequently asked questions

What’s the term of the rental guarantee?

The rental guarantee is blocked in the renter’s account for a fixed or indefinite term. Generally, this period corresponds to the initial term of the lease agreement, plus a few months. It can also be renewed.
How do you get your rental guarantee back?

When the lease expires or is duly terminated, the tenant recovers the security deposit amount blocked in their bank account. To do this, the first step is to arrange a meeting with the landlord, in order to complete an end-of-lease inspection. If the property is returned in good condition, the rental guarantee must be cancelled. To do this, you must ask the landlord to send the original rental guarantee to the bank. If it has been lost, they must return a release, i.e. a signed letter stating that they waive the guarantee in question.
What is a newcomer to Luxembourg?

A newcomer to Luxembourg or an expatriate is someone who has arrived in Luxembourg for the first time and is settling here either to study or to work.

⁽¹⁾ The rental guarantee service is a paid service.
⁽²⁾ Offer subject to Bank approval of your application.