Real Estate 2020 Comparisons

Last Updated April 14, 2020

Contributed By DLA Piper Denmark

Law and Practice


DLA Piper Denmark has a market-leading real estate offering, with an international multidisciplinary team of lawyers that can serve client needs globally across the real estate sector. The firm has more than 750 real estate lawyers operating in more than 40 countries around the world, serving clients in key real estate markets, with strongly established teams in the Americas, Europe, the Middle East, Africa and Asia Pacific. DLA Piper works with clients through all stages of the real estate life cycle, including planning, acquiring, finding, developing, leasing, completing, trading and divesting. Working through this cycle, it offers the following services: financing; acquisitions and disposals; asset management; construction; cross-border investment; development; fund formation; joint ventures; leasing; litigation; planning, zoning and environmental issues; public-private partnerships; REITs; restructuring; and tax. The team works alongside investors, lenders, developers and managers on every aspect of their real estate activities.

Danish real estate law is influenced by a wide range of regulation and legislation. Like Danish law in general, real estate law is influenced primarily by legislation rather than case law. Danish case law does, however, complement the legislation in many areas.

The regulation of real estate consists of a wide range of special regulations, from the surveying and registration of real estate to area planning and zoning, and the laws governing the rights of tenants and landlords, pollution, construction, etc.

Denmark has one single, digital Land Registry where (almost) all rights over real estate can be registered. Each individual property has its own section, where all registrations may be retrieved, providing absolute transparency when assessing the rights pertaining to a property. By registering a right in the Land Register, that right is protected against third parties and future opposing rights.

When investing in rental properties, the Danish landlord and tenant law is of material importance, particularly the legislation relating to residential leases, which is characterised by a very detailed and strict legal framework.

Denmark, and especially greater Copenhagen, has seen a steady increase in the total number of real estate transactions since 2012, with 2017 being a record-setting year. However, the transaction volume decreased slightly in 2018 and again in 2019.

A declining number of transactions within the residential market is a main factor for the total decline in transactions in 2019. However, investments in office and industrial real estate have significantly increased and several of the largest transactions of 2019 have been offices in prime locations. Investors are beginning to look more towards office and industrial real estate than residential real estate, and this shift could become even more evident, looking forward.

The transactions of large office properties in Copenhagen, such as Copenhagen Towers and Deloitte’s Copenhagen headquarters, are among the most significant deals of 2019 and emphasise the shift from residential to commercial properties. The sale of 3C Odense Erhvervspark from 3C Group to Coop resembles one of the largest transactions related to logistics properties in 2019, and finally, the Danish pension fund, PBU’s sale of two large residential properties to Heimstaden is an example of one of the larger residential deals in 2019.

Foreign investors continue to play a major role in the Danish investment market. In line with previous years, foreign investments accounted for approximately 50% of the total transaction volume. Previously, foreign investors primarily comprised of Scandinavian and Northern European investors, but during 2019, Asian investors have entered the Danish real estate market.

The low interest rates, many years of stable rental growth, a strong and stable economy as well as the unique Danish mortgage credit system allowing for favourable ways of financing real estate, ensure that the Danish real estate market continues to be considered an attractive place to invest.

Denmark is a highly digitalised country and the Danish real estate industry is no exception. It has undergone - and is still undergoing - a gradual transformation whereby it adapts to new technologies as they become relevant. Denmark's land registry system became fully digitalised in 2009, one of the first jurisdictions in the world to do so. Thus, recorded data and documents may be obtained online. Private homes are generally marketed on digital and searchable platforms, and prices are on public record and easily searchable.

New technologies are used in practically all parts of the real estate industry.  SMART buildings are in high demand, and in the construction sector, new technology is utilised in many ways to optimise the construction processes, including via 3D construction and design software, VR aids, robotics, drones, etc.

However, more advanced technologies like blockchain have yet to make an impact, and these are not expected to have a material impact in the short term.

The Danish residential lease legislation sets specific and detailed rent determination principles depending on the type of lease. One of the very common principles for rent determination is rent based on the value of the leased premises, which applies in regulated municipalities to premises that have been thoroughly renovated under certain circumstances, cf section 5(2) of the Danish Housing Regulation Act.

Section 5(2) of the Danish Housing Regulation and the conditions for fixing the rent based on the rental value of the leased premises following a thorough renovation is currently undergoing political discussion and the rule is expected to be changed effective during the course of 2020.

As of today, a political agreement has been concluded and the first legislative proposals have been introduced, according to which the section 5(2) determination principle will, inter alia, be subject to a five-year “waiting” period from each acquisition unless substantial energy improvements are completed.

The main categories of property rights obtainable in real estate are legal ownership (title), right of use (easement) and security rights (encumbrance).

Legal ownership of a property will generally consist of title to the land, including all buildings. It may also concern a building on leased land, although this property type is not very common. Another common property type is properties divided into owner-occupied units. For this type, the owner will have title to the owner-occupied unit(s), whereas the surroundings such as the land, common areas, external of the building etc, are owned jointly by the owners of the units through an owners’ association.

Rights of use will usually be partial and non-possessory – eg, lease of a certain part of the property or a right to use a road on a property. Such rights can be registered as easements or restrictive covenants on the property in the Land Register.

The transfer of title to real estate is generally governed by the principles of Danish contract law, together with the regulation on registration in the Land Register.

The direct transfer of real estate in Denmark is completed according to standard procedures, which are set out in the purchase agreement. The buyer usually makes an escrow deposit or provides a bank guarantee for the full purchase price, after which a digital deed of conveyance is signed and filed for registration with the Land Register. The purchase price will then be released to the seller once clear and final title has been registered.

In order to perfect a transfer of title, the transfer must be registered in the Land Register. The registration of title is not a validity requirement, but merely an act of perfection in order for the buyer to be protected against non-registered, pre-existing rights and registered, future rights.

The Danish Government is liable for faulty registrations and errors in the Land Register. As such, title insurance is neither available nor necessary in Denmark.

When a commercial investor acquires commercial real estate in Denmark, a due diligence investigation of the property is usually carried out. The investigations will most commonly be carried out in the period between the signing of a letter of intent/head of terms and the signing of the purchase agreement, or after the signing of a purchase agreement, conditional upon satisfactory completion of the buyer’s due diligence. 

The due diligence investigations for an asset deal will include general property matters such as title, easements and charges registered in the Land Register, planning and zoning, property taxes etc, together with a review of the lease agreements and lease matters. In addition, a technical due diligence will usually be completed to determine the physical state of the property and consequently the future needs and costs for maintenance. For development properties, the due diligence will extend to the legal basis for future developments, existing permits, construction contracts, etc, and thorough environmental investigations.

For share deals, the investigations extend to a review of the company in question, liabilities, accounting and financial information, and tax and VAT matters, in which case a financial and tax adviser will usually carry out the investigations.

The warranties provided by the seller are defined in the purchase agreement. In an asset deal, the unqualified warranties will generally be limited to fundamental matters such as title, encumbrances, pending disputes and certain material information relating to the leases. Aside from these fundamental matters, the property is transferred “as is”, and warranties with respect to hidden defects, pollution, etc, will be qualified by the knowledge of the seller. For share deals, the share purchase agreement will include further (unqualified) warranties with respect to corporate matters, accounting, taxes and VAT, liabilities and employees.

In the purchase agreement, the buyer’s remedies for breach of warranties will most commonly be limited to financial compensation. For share deals, a threshold, de minimis amount, cap and time limitation will usually be agreed upon with the expectation of certain fundamental warranties, such as ownership/title, taxes and VAT.

Investors would be well advised to take account of the general legal framework for owning and operating real estate assets in Denmark, including the relevant tax aspects.

For commercial properties, investors should understand the basic limitations in the Danish Commercial Lease Act, which includes certain mandatory protections for tenants.

Zoning, planning, environmental and building regulation would be the most important areas of law for investors investing in development properties.

In accordance with the “polluter pays” principle, an owner of land cannot be held responsible for pre-existing soil contamination. However, existing contamination will often result in limitations and obligations with respect to future development and change of use of the property.

The permitted use of real estate is set out in the municipal plans covering the principles and limitations for properties within the municipality, and in local development plans covering minor areas within the municipality. The permitted use of a property is stated in the municipal plan and the local plan, to the extent that these are available for the area in question.

For existing buildings, the permitted use is regulated by the plans in force at the time of the construction of the property. The permitted use of an existing property is therefore not affected by changes in the local planning. For development properties or in cases of reconstructions or changes in the use of existing properties, the permitted use is regulated by the planning in force at the time of issuance of the building permit.

Development agreements between private and public parties are often entered into for major projects. However, a public entity cannot guarantee a certain outcome of a new or revised municipality or local plan when entering into an agreement with a private developer. Adopting or revising local plans must follow normal procedures.

Under the Danish Constitution and the Expropriation Act, the Danish State is entitled to require compulsory purchase of real estate in Denmark, provided that the purchase is necessary for the benefit of the common good of society, authorised by law, and conducted at market value, offering the owner full compensation.

The fee for registration of a deed of conveyance (ie, the transfer of title) for commercial properties is DKK1,660 plus 0.6% of the purchase price or the official property valuation, whichever is higher. The registration fee for the transfer of title is generally paid by the buyer.

An exception to the variable fee applies for transfer of property in certain circumstances, such as transfer as part of a merger, demerger, reorganisation or contribution in kind. For further information on VAT and tax on real estate in general, see Section 8 Tax.

Foreign companies and citizens need permission from the Danish Ministry of Justice to purchase real estate in Denmark. However, companies domiciled within the EU or EEA can acquire real estate without permission, provided that the property is acquired to establish a business in Denmark. As the restriction applies only to direct acquisitions, the rules can be avoided by establishing a Danish subsidiary company and acquiring the property through this legal entity.

The acquisition of commercial real estate in Denmark is usually financed by a combination of equity and mortgage credit financing.

The Danish mortgage credit system is unique, as there is a direct match between the loan and the covered bonds issued by the lender to fund the loan. This provides for a high level of financial stability and forms the basis for transparent competitive loan costs and a flexible early repayment system found nowhere else in the world.

Mortgage credit loans are committed loans providing for a high degree of security compared to alternative bank financing. Committed bank financing is available but margins are usually higher than mortgage credit loans.

The Danish mortgage credit institutions offer three main types of mortgage loans, with credit facilities for up to 30 years: fixed-rate loans, adjustable-rate loans and floating-rate loans (with or without interest-rate caps) – and almost all loans may be combined with interest-only periods for up to ten years, subject to individual credit approval. All mortgage loans are limited to the statutory maximum loan-to-value ratio based on the assessed value of the property: 40% for development properties, 60% for commercial properties and 80% for residential rental properties.

With respect to the financing of a share deal, the debt portion of the financing will usually consist of a bridge credit facility with subsequent refinancing by a mortgage credit loan to be affected after closing (in which case, the prohibition against self-financing rules must be adhered to). To avoid the need for bridge financing, it is sometimes agreed that the seller of a real estate company will procure that the target company takes out a mortgage credit loan (as instructed by the buyer) prior completion of the transaction.

In general, the security package for the financing of acquisition and development projects is tailored to each transaction, depending on the specific circumstances and the risk profile of the borrower.

Security is generally provided through a mortgage deed registered on the property, and, depending on the circumstances, this security will be combined with other types of security, such as a pledge over the shares in the borrower, guarantees, pledge of account and certain covenants.

There are no restrictions on granting security over real estate to foreign lenders, or on payments made to foreign lenders under a security document or loan agreement. However, depending on the applicable double taxation treaty (if any), interest payments may be subject to withholding tax in certain circumstances.

Registration of a mortgage deed in the Danish Land Register is subject to a registration fee, see 8.2 Mitigation of Tax Liability.

When enforcing a mortgage on the property, the lender shall first obtain an execution/lien from the enforcement court, after which a forced sale by foreclosure auction can be initiated. The fee payable for the execution/lien amounts to DKK300 plus 0.5% of the amount above DKK3,000, and the fee for a request for a foreclosure auction amounts to DKK800.

A Danish legal entity may grant valid security, provided the granting thereof:

  • is properly authorised and executed;
  • is in the corporate interest of the company in question; and
  • does not violate applicable financial assistance limitations.

Notably, a Danish limited company may not, directly or indirectly, grant security or other financial assistance for the financing of the acquisition of its own shares.

The security documents and the underlying loan agreements usually include specific details on the process to be followed in the case of default.

As a general matter, a lender will obtain an execution/lien from the enforcement court before it is able to initiate a forced sale of the property. When the lender has obtained the execution/lien, the lender is able to initiate a forced sale by way of foreclosure auction, subject to fulfilment of certain formal requirements.

Existing debt may become subordinated to newly created debt by way of agreement.

If the existing debt being subordinated is intra-group debt, the senior lender will normally also require an assignment of the subordinated debt in order to protect better the subordination in the case of a bankruptcy of the borrowing group, including the subordinated lender. This assignment should be fully perfected. In some cases, this may restrict intra-group cashflows and adjustments will have to be made.

If the existing debt being subordinated is external debt, the subordination is usually achieved by way of a subordination agreement and an inter-creditor agreement.

In addition, new debt may be secured over a property with priority over existing mortgages if the existing mortgagees sign appropriate Land Registry declarations to this effect.

In accordance with the “polluter pays” principle, a lender holding or enforcing security over real estate cannot be held liable under environmental laws.

Generally, commencement insolvency proceedings do not adversely affect a security interest over property, although only the trustee of the estate can implement the enforcement of the security. If the trustee has not applied for the sale of a mortgaged property by foreclosure auction within six months, the lender is entitled to demand initiation of a public auction without further delay.

Security granted and payment made may be avoided in bankruptcy if any of the statutory grounds for avoidance apply. Different hardening periods apply.

Where the reference interest rate in a loan agreement is LIBOR, it is market practice to stipulate how an alternative rate is determined in circumstances where LIBOR is no longer available. This is typically a reference rate based on quotations from reference banks or actual cost of funds. LIBOR-based financings will in many cases follow the LMA-recommended forms of facility agreement.

The Danish planning and zoning system consists of an overall state regulation of framework planning conditions, whereas local planning is the responsibility of the Danish municipalities (municipal plans). Planning is regulated in the Danish Planning Act. Both types of plans are subject to public enquiry and political approval.

Local plans are directly binding, not only on landowners but also on lessees, infrastructure owners and other parties who use properties within the area of the district plan. A local plan can regulate a wide range of issues, including appearance, design, development of the area, designated use of the area, etc.

However, it is important to note that, even though almost anything can be regulated via the planning and zoning system, nothing can be regulated retroactively. Lawful use of an area may continue even though a new local plan has changed the future requirements regarding the area. 

In addition to the regulation following from local planning, the requirements in the Danish Act on Construction and the ancillary executive order "The Building Regulations 2018" setting out the technical requirements for new buildings must be adhered to, both in green-field projects and in major refurbishment projects.

The rules are interpreted and enforced strictly. If a new building or major refurbishment is completed without or in non-compliance with a building permit, the building may be ordered to be changed or demolished, at the cost of the developer.

Both local development plans, which regulate the use of individual parcels of real estate, and building permits are issued by the municipalities.

Local planning is, overall, regulated in the Danish Planning Act, and rulings regarding building permits are to be found in the Danish Act on Construction and the ancillary executive order "The Building Regulations 2018".

A building permit must be obtained from the municipality before any construction work is commenced. When assessing an application for a building permit, the municipality as a whole ensures that the relevant rules and the building regulations are followed. In this way, the building permit will serve as an extension of the planning and the building regulations. However, it is ultimately the developer’s responsibility to ensure that all necessary permissions and exemptions from local plans or other relevant regulations regarding restrictions on construction are obtained.

If a project is expected to affect other parties directly (eg, neighbours), it is likely that any such directly affected parties will be consulted in the approval process, giving them the opportunity to comment on or object to the project.

Local plans, building permits or non-permits, and decisions on exemptions from local planning rules can also be appealed to complaints boards or tried in court by the applicant or any other directly affected parties.

The Danish municipalities are keen on working together with real estate developers, but it is important to note that it is not possible to enter into agreements with a municipality to "circumvent" the planning and zoning system. The adoption or revision of local plans must follow normal procedures, regardless of any development agreements entered into by the public entity.

The municipalities have a duty to carry out supervision of houses and buildings situated in the local area. If the council becomes aware that use of a building may entail a potential health risk or an increased risk of fire, the council has an obligation under the Danish Urban Renewal Act to investigate the matter and to prohibit residential use (condemnation) of the building.

The municipalities also have a duty to carry out supervision of compliance with the planning and zoning regulation, and the municipality can enforce the rules by enforcement or prohibition notice.

Generally, any entity with legal capacity can hold real estate in Denmark. The types of corporate entities of relevance are as follows:

  • public limited company (Aktieselskab – A/S);
  • private limited company (Anpartsselskab - ApS);
  • limited partnership (Kommanditselskab – K/S); and
  • limited partnership company (Partnerselskab – P/S).

The private and public limited company (Anpartsselskab and Aktieselskab) is a limited liability company in which the shareholders' liability is limited to their respective capital contributions. These companies are governed by the Danish Companies Act, with certain rules being applicable only for public limited companies.

The limited partnership (Kommanditselskab) consists of at least one general partner with personal and unlimited liability for the liabilities of the limited partnership, and one or more limited partners with liability limited to their capital contributions. Consequently, the general partner is often a private limited company or a public limited company. A limited partnership is tax-transparent and is not governed by the Danish Companies Act. However, certain provisions of the Act on Certain Commercial Undertakings apply.

The limited partnership company (Partnerselskab) is a public limited company consisting of limited partners (shareholders) and a general partner with unlimited liability. The shareholders’ liability is limited to their respective capital contributions. A limited partnership company is considered transparent for tax purposes. The limited partnership company is governed by the Danish Companies Act, and the applicable rules are similar to those applicable to the public limited company, with necessary adjustments.

The minimum capital requirement for a private limited company (Anpartsselskab) is DKK40,000, while the minimum requirement for a public limited company (Aktieselskab) or a limited partnership company (Partnerselskab) is DKK400,000. There is no minimum capital requirement to set up a limited partnership (Kommanditselskab).

With respect to management, a public limited company (Aktieselskab) and a limited partnership company (Partnerselskab) may have either (i) an executive board and a board of directors, or (ii) an executive board and a supervisory board. A private limited company (Anpartsselskab) may instead choose to have an executive board only.

Unless otherwise agreed, the shareholders have a right to pass resolutions, which is exercised at the general meeting. A general meeting must be held no more than five months after the end of each financial year.

There are no corporate governance requirements for a limited partnership.

Mandatory corporate compliance costs will normally be between DKK10,000 and DKK25,000 annually for a simple small company.

In general, Danish law differentiates between limited rights of use of real estate (easements, such as a right of passage) and general rights of use of the whole or part of the property (such as leases).

Commercial leases – but not the letting of land and of unbounded areas, such as parking spaces - are governed by the Danish Commercial Lease Act (Erhvervslejeloven), which applies to the letting of building premises for any use other than residential.

The Commercial Lease Act contains certain mandatory provisions, mainly to protect the tenant, including formality requirements for agreements on service charges, limitations on fixed-term leases and the landlord’s right to terminate. However, it does give the parties a substantial freedom of contract.

The rent applicable to commercial leases may be negotiated freely.

Length of the Lease Term

Generally, commercial leases are entered into for an unlimited period, with a minimum term during which the lease is non-terminable.

The agreed period of non-terminability generally varies depending on the type of lease and the landlord’s investments in preparing the premises for the tenant. A long period in the Danish market is 20 years. The agreed period is usually twice as long for the landlord. Besides termination for breach, the landlord has very limited rights to terminate the lease upon the expiry of an agreed non-terminability period.

A fixed term is not valid under Danish law unless the fixed term is reasonably warranted by the landlord’s situation.

Maintenance and Repair

Unless otherwise agreed, the landlord is responsible for the internal and external maintenance of the property. The parties are free to agree on the responsibilities with respect to maintenance, and commercial lease contracts usually include detailed regulation with respect to the division, extent and definition of the maintenance obligations.

Frequency of Rent Payment

Unless otherwise agreed, the rent shall be paid monthly in advance. The parties most commonly agree on monthly or quarterly payment in advance.

Determination of the rent for commercial leases is subject to contractual freedom. Retail leases sometimes include agreements on rent determination based on the tenant’s turnover with or without minimum rent. The parties will most commonly agree upon a yearly rent adjustment.

The Commercial Lease Act provides strict formality requirements to be fulfilled for an agreement on payments in addition to the rent to be valid (“specification requirement”). The lease agreement must specify which expenses the tenant shall pay in addition to the rent, including both specification of the type of expense and the estimated amount of each expense. The same rule applies with respect to utility expenses to be paid in addition to the rent.

Unless agreed otherwise, the landlord and the tenant are entitled to demand that the rent be adjusted to the “market rent” if the rent paid is significantly lower or higher than the market rent. According to present case law, a significant discrepancy corresponds to 10 to 15%. The rent may be adjusted to market rent, at the earliest, four years after commencement of the lease.

The market rent adjustment may be derogated from in full or in part, and it is often agreed that the parties are not entitled to market rent adjustments during the tenant’s non-terminability period.

If the landlord has registered the leased premises for VAT (which is often the case), VAT of 25% will be added to the rent. Lease agreements most commonly include a regulation that all payments under the contract are subject to VAT, or that the landlord is entitled to register the premise for VAT, after which all payments will be subject to VAT. If the lease agreement is silent on the matter, the agreed rent is regarded as being inclusive of VAT.

It will most often be agreed that the tenant shall pay a cash deposit at the start of the lease as security for their obligations under the lease agreement – see 6.16 Forms of Security to Protect Against Failure of Tenant to Meet Obligations regarding security. There are no other costs payable upon entering a lease.

If the tenant chooses to register the lease agreement in the Land Register, the fee for that registration amounts to DKK1,660.

The maintenance of common areas used by multiple occupiers/tenants is carried out by the landlord.

It is commonly agreed that the tenant shall pay its share of the landlord’s operating expenses in addition to the rent, such as taxes, maintenance and repair of common areas, common utility costs, insurance premium, etc, in multi-unit properties, to be divided between the tenants in accordance with a pre-agreed percentage allocation.

Costs for telecommunications and electricity are normally paid for directly by the tenant to the supplier. It is usually agreed that other utility costs are paid by the tenant, in addition to the rent. Pure fuel costs will normally be divided between the tenants based on utility meters (if any), and other costs will be divided in accordance with the agreed distribution number, which is usually based on the size of the area leased.

The landlord usually takes out building and fire insurance with coverage for fire, storm, water damage, fungal damage, electrical faults and other risks. It may be agreed that the tenant shall pay a share of the insurance premium costs in addition to the rent – see 6.8 Costs Payable by Tenant at Start of Lease regarding determination of the rent and expenses in addition to the rent.

The lease agreement will normally include a specification of the permitted use of the premises, which is usually narrowly defined in accordance with the tenant’s planned use of the premises. Any changes require the landlord’s prior consent.

Furthermore, the tenant is generally obliged to treat the leased premises with due care, and the landlord will be entitled to terminate for breach in the case of neglect.

A tenant is generally not entitled to alter the leased premises without the prior consent of the landlord, with the exception of certain customary alterations, installations and signage.

Upon termination of the lease, the landlord is entitled to require re-establishment of the premises in accordance with the state of the premises at commencement.

If the tenant has improved the leased premises with the landlord’s prior consent, such improvements are not to be included in any assessment of the market rent. The re-instatement of alterations made with the prior consent of the landlord depends on the agreement.

Residential leases are governed by the Danish Lease Act, together with the Danish Housing Regulation Act for leases in regulated municipalities. The legislation provides strict rules on formality requirements, rent fixation, rent adjustment, maintenance, refurbishment and termination. The rules on rent fixation are particularly important for investors to understand. There are generally three different principles for rent fixation, depending on the type of property:

  • cost-based rent, which is the general rule;
  • rent based on the rental value of the leased premises, which generally applies for premises that have been thoroughly renovated, subject to certain conditions; and
  • unrestricted rent determination, which applies to properties taken into use after 1991.

Another important impact of the residential lease legislation is that rules on mandatory pre-emption rights are applicable in certain circumstances, pursuant to which a landlord/seller is obliged to offer the property to tenants (through the establishment of a co-operative association) at the same price and terms before selling to a third party. The pre-emption right is most commonly triggered in the sale of town houses or older properties where division into owner-occupied flats is not possible.

When a tenant is declared bankrupt, the estate must decide whether to continue or discontinue the lease. If the lease is continued, the estate is liable to pay rent and comply with all terms of the lease agreement. However, the estate is entitled to terminate the lease at any time, with one month’s notice. Regardless of whether the estate continues the lease, the estate’s liability under the agreement can be reduced to three to six months’ payment. Any claims exceeding this period will be treated by the estate as an unsecured claim.

The security to be provided by the tenant is subject to agreement between the parties. It will most often be agreed that the tenant shall deliver a cash deposit, a bank guarantee, or a combination of the two, for an amount corresponding to between three and 12 months’ rent, or alternatively a parent-company guarantee.

In a termination of the lease, the tenant shall vacate the premises upon the expiry of the notice period, and immediately in the case of termination for breach. In a termination for breach, the notification from the landlord will usually include a specific deadline for vacating the premises. For a fixed-term lease, the tenant shall vacate upon the expiry of the lease.

However, if the tenant continues to occupy the premises with the landlord’s knowledge, and without the landlord requesting the tenant to vacate the premises, the lease will continue.

Under the Commercial Lease Act, a commercial tenant is entitled to assign the lease to a new tenant. However, the landlord may reject that assignment, if he or she has substantial grounds for doing so, such as the new tenant’s financial standing or lack of business experience. In practice, it is difficult for a landlord to reject a proposed assignment.

It should be noted that the assignment provisions in the Commercial Lease Act are not mandatory. This means that many leases contain tailored provisions restricting the tenant’s ability to assign or imposing a more elaborate financial test of the new tenant. 

Sub-letting is permitted only if the right to sub-let is expressly granted in the lease.

Subject to an agreed non-terminability period and with the expectation of fixed-term leases, the tenant is entitled to terminate the lease with the agreed length of notice. If a tenant decides to terminate a lease within an agreed non-terminability period, the tenant is liable for rent, etc, during the remaining period; however, the landlord has a general duty to mitigate the loss.

The landlord is entitled to terminate the lease for breach – ie, default in payment, neglect, illegal use of the lease etc. Besides termination for breach, the landlord’s right to terminate is limited to the specific instances in the Commercial Lease Act.

There are no requirements as to form for commercial leases, nor are there any execution formalities. In addition, a commercial lease does not need to be notarised or registered in the Land Registry to be valid. In fact, no written agreement is legally required. This would be unusual, however.

The rights of a tenant under the Commercial Lease Act are always protected against third parties without being registered in the Land Registry. The effect of this is that any such rights may be asserted against any future buyer of the property and will also take priority over the rights of registered mortgages.

However, the rights of a tenant which exceed the rights under the Commercial Lease Act do not enjoy any such statutory protection without registration in the Land Registry. The mechanism to achieve this is to register an extract of the lease in the Land Registry.

The landlord is only entitled to force the tenant to vacate at the expiry of a fixed-term lease or in the event of a (justified) termination. In the case of termination of the lease, the tenant shall vacate the premises upon the expiry of the notice period and immediately in the case of termination for breach. If the tenant does not vacate the property, the landlord can seek a court order permitting the recovery of possession of the premises. This procedure can take up to a year, and sometimes even more.

Generally, third parties are not entitled to terminate a lease. However, the Danish State can terminate a lease in connection with an expropriation case, subject to the payment of compensation.

General Conditions

Most Danish construction contracts are subject to the general conditions for building and construction works and supplies, called AB 92, which is an "agreed document". There are similar general conditions for consultancy services for building and constructions works, called ABR 89, and general conditions for design and build contracts (turn-key projects), called ABT 93.

The agreed documents used for construction contracts, consulting services and turn-key projects have recently been revised; the revised conditions became effective on 1 January 2019 and are now named AB 18, ABR 18 and ABT 18. The new general conditions have led to multiple changes and aim to ensure a closer partnership between contractors, architects and engineers.

The revised versions are expected to be used as part of all tender documents on or after 1 January 2019.

Price and Payments

A construction contract will usually include a total fixed price based on the contractor’s tender. If a total fixed price has been agreed upon, subsequent alterations of the project will result in discussions with the contractor about the exact scope of the changes and resulting additional or reduced payments.

Alternatively, the construction contract will set out unit prices for work, material and/or supplies, either for the entire work or for some parts of the work. The unit prices are usually the contractor’s cost prices plus an agreed contribution margin to the contractor, combined with an open-book principle.

A project is normally laid out by the owner as a project in which the owner maintains full responsibility for the design throughout the construction period (AB 92/AB 18) or as a turn-key project (ABT 93/ABT 18).

In the first case, where the owner chooses to maintain full responsibility for the design, they will typically enter into a contract with a main contractor, subject to AB 92/AB 18.

In a turn-key project, the turn-key contractor will take over the responsibility for the design, and possibly also any initial design team. ABT 93/ABT 18 regulates in detail the parties’ obligations and responsibilities.

The third agreed document, ABR 89/ABR 18, is used for contracts between the owner and the design team, engineers and other consultants. The detailed obligations and responsibilities, especially for the consultant, are laid down in the parties’ contract.

According to the AB 92 and ABT 93, the owner must take out fire and storm damage insurance from the commencement of works until any defects identified at the time of handover have been rectified.

All contractors and subcontractors must take out the usual liability insurance covering any injury or damage they may cause by negligence during their work. The contractors usually take out additional insurances, with the most common, eg, all-risk insurance covering the construction works, general liability insurance, etc. There is no statutory limit on the contractor’s liability to a third party.

The construction works are handed over to the owner by conclusion of a handing-over meeting, where the works are inspected and any claims for defects are listed. Furthermore, inspection meetings are convened one and five years after the handing-over for determination of any additional defects. The contractor is obliged and entitled to rectify any defects discovered in connection with the handing-over, and until five years thereafter. The contractor’s liability for defects generally ceases within five years of the handing-over of the works.

If delays are caused by changes ordered by the owner or by other specific instances regulated by AB/ABT, the contractor will generally be entitled to a reasonable extension of the construction period, including compensation for the costs of upholding the building site during the period of extension.

If the contractor does not complete and hand over the works on the agreed date without being entitled to an extension of time, the owner will be entitled to compensation. The construction contract normally includes provisions for liquidated damages or other special penalties, often in the form of fines imposed in daily units, until the works are completed and handed over.

Security for the performance of the respective obligations of the owner and the contractor under the construction contract is widely used. The performance bond must be in the form of an adequate bank guarantee, fidelity insurance or some other adequate type of security.

Unless the contract states otherwise, the contractor – and under AB 18 also the owner – must provide a performance bond corresponding to 15% of the contract price. The bond is then reduced over a five-year period according to AB 92/AB 18.

In the case of non-payment, the contractor may stop work after having given notice of five working days, or three working days if the contract is subject to AB 18.

Furthermore, the contractor is entitled to stop work immediately if the owner is declared bankrupt or subjected to reconstruction proceedings. However, if the owner provides adequate security for the performance of the remaining part of the contract, the contractor must resume its work. 

Danish law imposes certain requirements in relation to the construction and renovation of buildings. For example, it is required to obtain a building permit prior to the commencement of any construction, and an occupation permit is required before the building can be taken into use – see Section 4 Planning and Zoning regarding planning and zoning.

The owner usually arranges for the necessary approval of the design from the public authorities and pays the associated expenses.

If the contract is a turn-key project, the contractor is obliged to arrange for the necessary approval of the design and to keep the owner informed thereof.

The sale and purchase of real estate is – as a general rule – VAT-exempt. However, commercial sales of new buildings (with or without land), building sites (irrespective of whether they are developed), and built-up sites are subject to 25% VAT. The rules apply to companies as well as individuals carrying on a business activity.

The buyer has the right to recover the VAT charged by the seller if the buyer is a VAT taxpayer carrying out VAT-liable transactions, provided that the real estate activities form part of the buyer’s VAT-liable activities.

Capital gains on transfers of real estate are taxable. For corporate owners (resident or non-resident) the tax rate is 22%. Transfer of title must be registered with the Danish authorities and registration fees are to be paid: a fixed fee of DKK1,660 and a variable fee of 0.6% of the higher of the purchase price and the public assessment value. Corporate entities may, however, reduce their tax liability.

Through the indirect transfer of real estate via a share deal, taxation of capital gains is avoided, as capital gains on shares held by corporate entities are generally tax-exempt. The buyer will most commonly require the deferred taxes on capital gains on the property to be deducted from the share price in full or in part (ie, included as a liability when making up the net equity). Furthermore, by indirect transfer of a property through the transfer of shares, the registration fees for the conveyance and VAT (if relevant) are also avoided.

Real estate is subject to property tax.

The official land value of a property is taxed at a rate between 1.6% and 3.4%, depending on the municipality. The land value is assessed every two years.

Properties used for some commercial purposes may be subject to an additional tax, which is dependent on the decision of each municipality. The charge is levied on the value of the buildings. Each individual municipality is free to choose whether to levy the municipal charge. The rate cannot exceed 1% of the value of the building(s). The charge can be levied on buildings used for offices, shops, hotels, factories, workshops or similar purposes. The object of the municipal charge is to cover the municipality’s expenditure on, eg, roads, overhead lightning, cleaning, parking spaces, fire services, etc.

Income from real estate forms part of taxable income. For corporate owners, any such income is taxed at the corporate tax rate of 22%.

In general, limited partnerships and limited partnership companies are transparent for Danish tax purposes; the members of the partnership become the tax subjects. Members of a Danish partnership domiciled abroad become subject to Danish limited tax liability of the income from the real estate. 

Shareholders domiciled abroad in opaque companies may be subject to taxation on dividends distributed by the company; however, dividends are generally tax-free if the shareholder is a company holding 10% or more of the capital of the dividend-paying company. Tax may be eliminated or reduced under either the EU Parent-Subsidiary Directive or an applicable double taxation treaty.


For individual Danish domiciled shareholders, the rate of taxation on dividends is progressive. Dividends are currently taxed at a rate of 27% for income up to DKK55,300 (2020). Income exceeding DKK55,300 is taxed at a rate of 42%. The threshold is adjusted annually.

For corporate Danish domiciled shareholders, dividends are generally tax-exempt when the shareholder owns 10% or more of the capital of the dividend-paying company.

If the shareholder holds less than 10%, dividends are taxable at the ordinary corporate tax rate of 22%; however, if the dividend distributing company is unlisted, only 70% of the dividend amount is to be included in the corporate shareholder’s taxable corporate income.


Generally, a company resident in Denmark must withhold dividend tax at a rate of 27% when distributing dividends. The withholding obligation applies to the distribution of dividends to all types of shareholders.

Corporate shareholders holding 10% or more of the capital in the dividend-paying company is entitled to receive the dividend tax free. If dividend tax has been withheld, the shareholder is entitled to a refund. The tax-exemption also applies to holding companies in countries that have entered into a double taxation treaty with Denmark.

If a corporate shareholder holds less than 10% of the share capital, dividends may be taxable in Denmark and any refund will depend on the relevant double-taxation treaty.

Individuals holding shares in Danish companies are always taxable in Denmark of the dividend and the dividend-paying company is to withhold the tax. Refunds may be possible under the relevant double-taxation treaty.

Buildings used for commercial purposes are generally depreciable, with certain exceptions such as office buildings, buildings used for financial enterprise, post offices, buildings used for residential purposes, hospitals and clinics. Furthermore, costs for refurbishment and improvements of depreciable buildings are also subject to depreciation. The depreciation is calculated on a straight-line basis, and the taxpayer may determine the depreciation rate between 0% and 4% each year.

DLA Piper Denmark

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Law and Practice in Denmark


DLA Piper Denmark has a market-leading real estate offering, with an international multidisciplinary team of lawyers that can serve client needs globally across the real estate sector. The firm has more than 750 real estate lawyers operating in more than 40 countries around the world, serving clients in key real estate markets, with strongly established teams in the Americas, Europe, the Middle East, Africa and Asia Pacific. DLA Piper works with clients through all stages of the real estate life cycle, including planning, acquiring, finding, developing, leasing, completing, trading and divesting. Working through this cycle, it offers the following services: financing; acquisitions and disposals; asset management; construction; cross-border investment; development; fund formation; joint ventures; leasing; litigation; planning, zoning and environmental issues; public-private partnerships; REITs; restructuring; and tax. The team works alongside investors, lenders, developers and managers on every aspect of their real estate activities.