The third friction point after the check-in and check-out inventories process is related to the refund of the guarantee, also known as the caution, security or the rental deposit.

Resizing the guarantee

The rental guarantee's maximum allowable value has been lowered from three month of rent to two months, as per the new law on residential leases of 23 July 2024. , counsel at DSM Avocats à la Cour, and , partner at Elvinger Hoss Prussen, pointed out that the provision does not apply retroactively to old contracts. The maximum amount is set for new or renewed rental contracts (replacing a previous contract) that started from 1 August 2024.

Procedure for the return of the rental deposit

Martin commented that there is now a framework to return the rental deposit at the end of the lease.  Until now, landlords resisted returning the guarantee, arguing that some claims against the tenant were still pending. “The slow process led to litigation,” observed Martin. A repayment timeline has been set by the legislator should the landlord have no claims against the tenant.

Since 1 August 2024, the landlord must restore 50% of the rental deposit within a month after the keys are returned, provided that all rent and charges have been paid by the tenant and that the landlord has not discovered damages beyond wear and tear at the end-of-life/life cycle (usure et vétusté normale) upon receiving the keys during the check-out inventory.

Nickels believes that the landlord must base the cost of the damage on “objectively verifiable” evidence. Mere guesstimates in “a simple Excel sheet or other documents drafted by the landlord have (generally) no probative value” stressed Martin.

After receiving the yearly service charge bills on the previous year, the remaining 50%, adjusted for additional charge deductions, needs to be returned within a month. “Should the residence be co-owned (copropriété), the second half of the rental deposit must be returned within a month after the annual accounts have been approved,” stated Martin.

Not returning a guarantee on time has now a cost

The new law has established a penalty for not returning the caution on time. According to the law, Martin explained that the penalty to the landlord amounts to 10% of the rent for each overdue month when the latter did not comply with the legal timeline requirement to return or release the rental deposit and after the landlord has received a registered letter sent from the tenant with an acknowledgment of receipt of a formal notice (mise en demeure) to pay up.

The [high] penalty has been established to deter landlords from not returning the guarantee on time

Quentin Martin , counsel , DSM Avocats à la Cour

“However, the text is not 100% clear,” observed Martin. He understands that it equals 10% of the monthly rent without charges. It remains an interpretation as no jurisprudence is available on the matter yet.

When does the 10% penalty start running?

As per Nickels’ interpretation of the law, it starts the first day of the month when the formal notice in a registered letter format was sent to the landlord and it ends the last day of the month when the deposit was returned. In other words, if the letter is sent on 15 September and the deposit is returned on 7 November, the penalty runs for three months (September, October and November).

“The [high] penalty has been established to deter landlords from not returning the guarantee on time… as the absence of a timeline in the previous law resulted into excessive delays… it is progress,” opined Martin. He noted that landlords were sometimes keeping it longer than necessary “just in case,” despite a cleared check-out inventory.

Should the landlord have relevant claims against the tenant, they must report them to the tenant with evidence within a month. The landlord should note that a judge could check the cost effectively incurred. Should the landlord do not comply with these requirements, “he is deemed to have accepted [that the flat was returned in the same conditions as when he gave the keys to the tenant] and must return the caution in full,” analysed Martin.

Is the one-month rule and associated penalty applicable to old contracts?

According to Nickels, it appears likely that the new provision (2bis, article 5 from the law of 23 July 2024) on the return of the rental guarantee within a month under certain conditions and its applicable penalty (10%) for non-conformity apply “immediately” to old contracts. Therefore, he thinks that only future jurisprudence will produce a conclusive answer as parliamentary works have not provided any guidance.

Should the tenant not pay the last (two) month (s)?

“The practice should be proscribed,” aptly answered Martin. He explained that the caution does not cover only the monthly rent but all the liabilities of the tenant, including damages cause to the flat by the tenant.

Martin also noted that should the landlord initiate legal proceeding against the tenant because he cannot use the caution as per the contract, the landlord may claim his legal costs to be assumed by the tenant.

Can the tenant execute the repairs on proven damages?

“In principle, compensation in kind for damage constitutes the rule and compensation by equivalent (i.e., the payment in cash) the exception,” affirmed Martin. Consequently, he explained that the landlord cannot, normally, object to the tenant repairing the damage caused himself, unless the landlord can demonstrate that there are legitimate reasons to believe that the tenant will not execute the work, not proceed in a reasonable timeframe or that the relations between the parties have deteriorated so much over time that compensation in kind is no longer appropriate. “This is the main case law on this subject.”

Repairing costs must reflect the true value of the damage

Martin specified that the landlord must be sure to get a quote for the repainting, for instance, that reflects the true cost to repair the damage as a judge may negatively view a “quote of convenience.” He continued: “the law does provide guidance on the proofs that should be provided,” but stated that the landlord must justify his claim with adequate documentation. Should the tenant consider the quote wrong or excessive, they may submit a counteroffer to the landlord. “When there is no agreement, there is no other way than to go to the courts… where a judge is likely to find a reasonable compromise.”

Selling a flat with a guarantee

“Should a rented flat be sold, the guarantee automatically moves to the new landlord,” noted Martin. The provision was absent in the amended law of 2006.

Going to court

Even though the tenant can self-represent at the Court of First Instance (Tribunal de paix) for “these oral procedures,” DSM always recommends hiring a lawyer as discussions in court could get “quite technical.”

It worth mentioning that it could take hours before the start of the hearing. Some law firms charge the waiting times to the client, while others do not.