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Eversheds Global Estate Management

Denmark

Real Estate Guide

Principles of ownership

Principles of ownership

Freehold/Ownership - ownership of real estate is unlimited by time. The owner may choose to occupy the property him/herself or lease the property to a third party. The property can be subject to restrictions in terms of what type of business can be conducted within the property or requirements with regard to residence or occupation requirements.

Leasehold - not applicable

Common hold/Usufruct - commonhold ownership (andelsbolig) is a form of ownership in which the owners each have a share in a building through a commonhold association (andelsboligforening). The commonhold ownership is typically used for private commonhold ownership and will typically apply to the ownership of a residential flat.

Condominium ownership - a resident owned flat (ejerlejlighed) will entitle the owner to the same unlimited ownership as attained through ownership of real estate. The acquisition of a resident owned flat is subject to the same requirements with regard to registration, transfer of title and the structure of a resident owned flat transaction is similar to the structure of a real estate transaction.

Utilisation right - a utilisation right can be obtained through a commercial or private lease or if the user is entitled to borrow (part of) a property from the owner. Furthermore, a user can have a prescriptive right to use a (part of a) property.

Joint/Co-ownership - is possible in all variations in Denmark, eg two people or two companies can share full ownership of real estate or full ownership of a resident owned flat.

Registration - registration of property is not compulsory under Danish law. However, in order to obtain protection against legal proceedings against the property and in relation to beneficiaries, the ownership rights must be registered. If registration of ownership is not carried out, an earlier right over the real estate may be defeated by a later registered right. Thus, in general, registration is usually carried out. Registration of ownership is achieved by registration of the transfer deed. Registration of lease agreements is not compulsory under Danish law. However, it is also possible to register these agreements. A registration of title can be conducted online. The register is publicly available and provides evidence of title, the identity of the owner.

 

Restrictions on foreign ownership

Restrictions on foreign ownership

There are restrictions on ownership of property in Denmark. A company whose registered office is outside Denmark must seek permission from the Ministry of Justice to acquire real estate in Denmark. Companies which are established within the EU or within a State which has acceded to the agreement on the European Economic Area and which establishes a branch within Denmark is entitled to acquire real estate in Denmark.

Foreign companies can acquire real estate through Danish public and private limited companies (A/S or ApS) without permission from the Ministry of Justice.

There are restrictions on foreign ownership regarding individuals as well. As a general rule, foreigners who do not reside in Denmark and have not done so for a period of five years in total must seek permission from the Danish Ministry of Justice in order to acquire real estate in Denmark. EU-citizens can, subject to different conditions, acquire real estate without permission.

There are special restrictions regarding holiday homes.

 

Title to real estate

Title to real estate

Investigation of title - The buyer/tenant (or their solicitor) will in general carry out research of the public registers regarding the title. A research regarding the general state of the premises, including environmental issues, will also be carried out.

Transfer of title - title to real estate passes to the buyer upon the signing of the purchase agreement. It is however common practice in Denmark that the purchase agreement contains clauses in which the seller will retain title until the buyer has fulfilled certain obligations including payment of the purchase price.

Registration - Registration of property is not compulsory under Danish law. However, in order to obtain protection against legal proceedings against the property and in relation to beneficiaries, the ownership rights must be registered. If registration of ownership is not carried out, an earlier right over the real estate may be defeated by a later registered right. Registration of ownership is achieved by registration of the transfer deed. Registration of lease agreements is not compulsory under Danish law. However, it is also possible to register these agreements. A registration of title can be conducted online. The register is publicly available and provides evidence of title, the identity of the owner and any matters benefiting or burdening the real estate. The register can also be accessed online, but registration and payment of fees will apply.

Information on register - There is a public register regarding title. Please note that registration therein is not compulsory but registration is almost always made.

Commercial leases - lease of a premises can either be for an undetermined time period or for a fixed time period. Provided that the lease agreement contains the relevant clause and is agreed to by the landlord, the tenant is entitled to assign the lease or sublet the premises.

 

Structure of a real estate transaction

Structure of a real estate transaction

Negotiation of terms/Agreement - a seller will typically make use of real estate agents to initiate a sale of real estate. In private real estate sales, the buyer will normally use a lawyer to review the sales agreement and draft the deed. With regards to commercial properties both the seller and the buyer will normally be represented by lawyers, and both contracts and deeds will be drafted by lawyers. There is no obligation to investigate the title under Danish law. However, in practice, the investigation of title is always conducted. The investigation of title will typically be carried out by the lawyer of the buyer.

Heads of terms – Heads of terms are commonly used in the negation phase of the transaction and can under certain circumstances constitute a binding agreement, even if no finalized agreement has been signed by the parties. There are no formal requirements under Danish law concerning the format of (most) agreements and if the heads of terms have been agreed upon (in writing or orally) without any reservations or conditions it may serve as a sufficient basis for an executable agreement, thus leaving the remaining issues (not covered by the heads of terms) to be governed by the basic principles of Danish law. However, in many circumstances it will be self-evident that the heads of terms are subject to finalization and approval of the final agreement by both parties, but to be certain this is often explicitly stated in a side letter or included in the heads of terms as a specific condition.

Investigation of title - The buyer/tenant (or their solicitor) will in general carry out research of the public registers regarding the title. A research regarding the general state of the premises, including environmental issues, will also be carried out.

Purchase deed - the buyer’s lawyer normally prepares and registers the deed. It is also the buyer’s lawyer who releases the deposited purchase price and prepares the completion statement. The registration of the deed incurs a registration fee of DKK 1.660 + 0.6% of the purchase price or the latest taxable valuation if this is higher than the purchase price.

Contracts - it is typically the seller/landlord who drafts the contract.

Completion/closing - the buyer's lawyer releases the deposited purchase sum upon receipt of the registered deed. If agreed between the buyer and seller, the buyer's lawyer typically retains an estimated amount to cover any due payments from the seller based on the completion statement.

Post completion - after the sale and purchase agreement has been signed, the buyer’s lawyer normally drafts a completion statement in which the balance of monies due from the seller or the buyer are stated. The completion statement lists payment due from either the buyer or seller for paid land tax, insurance, service charge, etc.

Leases - they are transferred to the new owner of the real estate.

Transfer of ownership of leased properties (alienation) - if the ownership of a leased property is transferred all lease agreements will transfer to the new owner without any changes. It is possible under Danish law for the parties to agree that the tenant has a right of first refusal.

Language requirement – When dealing with foreign parties, agreements will often be prepared in English (regardless of the foreign party’s nationality) or in Danish with an unofficial translation of the agreement for the foreign party. In the latter cases the foreign party will usually make arrangements for translation through a Danish representative (attorney), but if English is used as the official language version the draft is normally prepared by whichever party that would usually draft the agreement.

Governance of lease signature/administration – There is no requirement for lease agreement to be executed, signed or otherwise facilitated by a local representative in order to ensure the binding effect of the agreement. As for administration of lease agreements it is strongly recommended to use a local property administrator as there are many pitfalls when it comes to day to day administration of lease agreements, specifically regulation of the rent and invoicing of additional costs (such as taxes, heating and operating costs if applicable).

 

Usual commercial lease terms

Usual commercial lease terms

Summary of available lease types - almost all commercial lease types (lease of office space, part of a building, a whole building etc.) are regulated by the Danish Business Lease Act.

Alterations/modifications - unless otherwise specified in the lease, the tenant must seek consent from the landlord, if he/she intends to make major alterations to the leased premises.

Assignment and sub/under letting - a commercial tenant will, under the Danish Business Lease Act, be entitled to assign the lease. Assignment is provided that (i) the new tenant is within the same type of business as the tenant and (ii) the landlord does not have substantiated reasons to oppose the assignment. The right of assignment is however not non-mandatory and it is often agreed that the tenant does not have such right or that the assignment is subject to the approval of the landlord. A commercial tenant does not have the right to underlet/sublet unless this is agreed on between the landlord and the tenant.

Destruction/reinstatement - if the tenancy is destroyed or the landlord wishes to demolish the property the landlord is as a starting point not obligated to offer the tenant a new tenancy. However, the landlord shall offer the tenant a new tenancy where premises of the same category are re-let after the reconstruction or rebuilding.

Disposal/return of the premises - unless otherwise agreed in the lease, the tenant must return the leased premises to the landlord in the same condition in which the tenant took over the premises. If a leased premises was taken over as newly restored, the tenant must return the premises to the landlord as newly restored.

Duration of lease - commercial leases are typically made for an indefinite period, and are normally non-terminable for two to three years. After the period of non-termination has elapsed, the lease may be terminated by either party upon a notice period which is typically between six and 12 months. The main law regulating business leases is the Danish Business Lease Act. Under the Business Lease Act, the right of a landlord to terminate a lease has been restricted, and can only effect termination in very specific cases.

Forfeiture/irritancy - it is stated in the Business Rent Act that the lease can be terminated by the landlord if the tenant is in breach of contract. Furthermore, it is stated in the Business Rent Act that the lease can be terminated by the tenant if the landlord is in breach of contract.

Insurance - the owner of a property is obliged under Danish law to take out fire insurance on the property. The landlord usually recovers the cost of insurance from the tenant.

Service Charges - if a landlord repairs the structure and common parts or provides any services to the tenants, the lease usually includes service charges under which certain costs can be recovered by the landlord from the tenants if this is agreed on between the landlord and the tenant.

Rent review - the landlord and the tenant normally specify in the lease that the rent will be reviewed on a regular basis during the lease term. The rent will normally be an annual percentage increase or in accordance with the net price index. Unless the parties have agreed otherwise, both the landlord and the tenant are entitled to demand that the rent is to undergo review in accordance with the existing market rent. This right can only be demanded every four years and only if the rent is considerably lower or considerably in excess of the existing market rent. A landlord who improves the leased building, may increase the rent so that the cost incurred in connection of the improvement of the building is recovered. A landlord who is party to a commercial lease agreement usually cannot conduct any improvements to a leased building unless previously agreed to with the tenant, or unless required by law to carry out such improvements.

Repair/decoration/furnishing - it is usually the tenant who has the obligation of interior maintenance of the leased premises and the landlord who has the obligation of exterior maintenance of the building.

Tenant’s duties - the main duty of the tenant is to pay rent and other money liability and otherwise comply with the provisions of the lease agreement.

Termination/break clauses - commercial leases are typically made for an indefinite period. The tenant will have the right to terminate the lease with the agreed notice which is typically six to 12 months. The landlord will only be able to terminate the lease in accordance with the provisions of the Danish Business Lease Act. It is possible to agree on a period of non-termination from the commencement of the lease in which period neither party can terminate the lease except when the tenant or the landlord is in default. Further it is possible to agree on specific break clauses in the period of non-termination.

 

Increasing covenant strength

Increasing covenant strength

Lease deposit - the landlord usually requests that the tenant is to pay a deposit which is normally equivalent to six to 12 months' rent. The landlord may use the deposit to draw against any default of the tenant. The lease agreement normally contains a clause stating that the deposit must always be equivalent to six to 12 months rent so will need to be topped up to reflect rent increases.

Surety - a company or an individual can guarantee the tenant's performance of the obligations in the lease agreement. It is not uncommon that a parent company guarantees the performance of the subsidiary in a commercial lease agreement.

Warranty - bank guarantees are less common but can be used if agreed between the parties.

Rent deposit/bank guarantee - the landlord usually requests that the tenant is to pay a deposit which is normally equivalent to six to 12 months’ rent. The landlord may use the deposit to draw against any default of the tenant. The lease agreement normally contains a clause stating that the deposit must always be equivalent to six to 12 months rent so will need to be topped up to reflect rent increases. Bank guarantees are less common but can be used if agreed between the parties.

 

Security of tenure

Security of tenure

Security of tenure - a business tenant does not have a basic statutory right to remain in occupation after the lease expires. If a lease is fixed for a specified period of time, the landlord is not obligated to accept an application for a new lease from the tenant. However, the parties are free to include a right of renewal within the lease agreement.

 

Taxes

Taxes

On sale/acquisition of real estate - upon the acquisition of real estate, a fee registration of title must be paid amounting to DKK 1,660 + 0.6% of the purchase price or the latest taxable valuation if this is higher than the purchase price. Capital gain or loss is included in the revenue of the selling company and subject to income tax.

Immovable property tax - property value tax is solely imposed on private individuals actually residing in the property in question. Property value tax is calculated as 1% of the public assessment value up to DKK 3,040,000 and 3% of the public assessment value over DKK 3,040,000.

Income tax - any profit deriving from property is included in the revenue of owner company, subject to a tax rate of 24.5% (2014). This also includes any capital gain from sale of real estate.

Land tax - land value is subject to taxation by the local municipality in which the property is located. The land value tax is calculated with a percentage rate between 16 and 34 pro mille of the land value. An additional compensation charge can be made applicable by municipal board decision for certain types of property use (eg. office, retail, production, factory, hotel and similar uses). The compensation charge is calculated on the basis of the difference in the value of the public assessment of real property and the land value. It is only applicable if the difference in value exceeds DKK 50,000. The rate of the compensation charge is between 0-10 per mille of the difference in value.

Lease tax - not applicable

Local tax - see "Land tax" for tax payable to local municipality.,/p>

Mortgage - the interest costs of mortgages are tax-deductible in income in the taxation year where the cost is due.

Other taxes - not applicable

Property lease tax - not applicable

Value - from 1 January 2011 value added tax is applied to the following sales: Sale of new buildings with or without appurtenant land and the sale of building lots regardless of their readiness for development. The situation of sale of shares that legally or in fact secure the right as owner or user of a new building and building lot, is also subject to value added tax.