62 | Investor Guide to Europe 2014
Î
negotiations
•
The transaction will usually start with negotiations under the
terms of a confidentiality agreement in order to allow access
to various information and documentation related to the
property.
•
The negotiations will generally lead to the signature of a letter
of intent (indicative or binding and exclusive or not).
•
The buyer will then usually carry out due diligence in order to
assess the risks attached to the acquisition.
•
The due diligence will usually cover the following aspects:
legal (including corporate file, ownership title, rights affecting
ownership and guarantees), administrative, tax, environmental,
technical and financial.
Î
Share deal
•
In a share deal (instead of a direct acquisition of real estate),
the company holding the real estate will be acquired through
an agreement on the sale of the shares.
Î
asset deal
•
In an initial phase, the parties enter into an unilateral underta-
king to sell or, most often a preliminary agreement (
compromis
de vente
). Such agreement will bind the purchaser and the
seller and the ownership transfer will be valid between them.
However, such private agreement will not be enforceable
against third parties.
•
Preliminary agreements usually contain specific conditions
precedent (e.g. obtaining the necessary funding or administra-
tive authorisations).
Î
notarial deed of sale
•
Although private deeds are bindings between the parties,
acquisition of real estate assets require a deed according to
which the ownership of a property is transferred from the sel-
ler to the buyer; it is necessarily notarised and is the fulfilment
of the preliminary agreement (
compromis de vente
).
•
There should be no re-negotiation of the terms and conditions
of the sale which have been agreed at the stage of the prelimi-
nary agreement.
•
The notarial deed shall be registered before the registrar of
mortgages (
Bureau de la Conservation des Hypothèques
). The
registration.
CoMMERCIaL LEaSES
Commercial leases relate to premises used for a commercial
activity, which will result either from a contract or from the nature
of the activity.
Under Luxembourg law, leases are regulated by the provisions
of Title VIII, Article 1708 to 1778 of the Luxembourg Civil Code.
Although no specific legal framework exists under Luxembourg
law for commercial leases, Articles 1762-3 et seq. of the Luxem-
bourg Civil Code are specific to leases of properties intended for
the practice of trade.
Î
Length of term
•
Commercial leases are not regulated as to their duration. In
practice, commercial leases are mostly entered into on a 3-6-9
year basis, with a break option for both the tenant and the
landlord at the end of the third and sixth year. However, the
parties are free to agree on a different duration and mecha-
nism of termination.
Î
Rent increases
•
Rents are adjustable each year in line with the cost of living
index. If the parties cannot agree on the amount of the rent
for the renewal period, one or more experts will be designated
by the most diligent party or by the president of the civil court
where the property is located.
Î
Tenant’s right to sell or sub-lease
•
Unless otherwise provided for in the lease agreement, a tenant
has the right to sub-lease or (partially) transfer the lease.
•
Most leases restrict this right by requiring the prior approval
of the landlord. Luxembourg law does however offer protec-
tion under certain circumstances, where businesses (
fonds de
commerce
) are transferred, in order to allow the continuity of
the business operations as a whole.
Î
Right of preferential renewal
•
For business protection purposes, Luxembourg law provides
for a special procedure for preferential renewal. Such right re-
quires that the tenant has operated a business in the premises
for at least 3 years and lasts until the 15
th
year of the lease.
•
Any request for a renewal must be notified at least 6 months
prior to the expiry of the lease and the landlord shall make its
decision within 3 months from notification.
•
Any refusal of the landlord shall be justified by one of the
following grounds: serious complaints against the tenant,
personal occupation by the landlord, no further rental activity,
transformation of the premises or a higher firm offer from a
third party (with a preferential right for the tenant if it agrees
to pay the higher rent).
Î
Repairs
•
Repairs incumbent upon the tenant relate, inter alia, to utilities,
such as water, electricity, gas and fuel oil, minor maintenance
repairs (light bulbs, etc.), regular inspection of heather, mainte-
nance of joints and sanitary installations. As for the landlord, it
is responsible for major repairs (e.g. roof, ceiling, boiler).
TaX
Î
Direct acquisition of a property
•
The acquisition of a property located in Luxembourg - or rela-
ted rights – is subject to registration duties (
droits d’enregistre-
ment
). However, it is in principle exempt from value added tax
(VAT).
•
Registration duties applicable to properties located in Luxem-
bourg are assessed on the higher of the purchase price and
the effective value of the property. In principle, registration
duties are levied at a rate of 6%, subject to exceptions in
specific cases. In respect of construction sites (i.e. land upon
which constructions may be erected under local or municipal
