Denmark: Real Estate

The lawful use and enjoyment of properties in Denmark is determined by way of public regulation. In general, the Danish legal framework regarding transactions involving commercial real estate is characterised by a high degree of freedom of contract and a reliable public, electronic system for registration of rights to real estate (including title registrations).

In terms of leasing of commercial real estate, the landlord and the tenant are free to agree the terms of a business lease, however subject to a number of mandatory restrictions in favour of the tenant.

In contrast, residential tenants in Denmark enjoy a high degree of legal protection rights which cannot be mitigated or deviated from by way of agreement.

Ownership of commercial real estate is mainly governed by the Danish Land Registration Act (in Danish: tinglysningsloven) as this act sets out the regulation regarding title registration and other issues related to ownership of real property.

Real estate ownership is first and foremost proved by the inter partes purchase agreement between a seller and a buyer of the property.

In order to be protected from third-party rights, ownership of real estate must be registered with the Danish Land Registration Court (in Danish: Tinglysningsretten). Registered ownership of real estate situated in Denmark is proved by a transcript from the Danish Land Registration Court IT register, Tingbogen. Such transcript contains information on the registered ownership of real estate, mortgages, easements, profits á prendre and restrictive covenants registered on the real estate, such as negative pledge undertakings.

Real estate can as such be owned by any legal entity, be it either private individuals, companies or organizations, as long as such entity has legal rights and obligations.

There is, however, restrictions in the Danish Act on Acquisition of Real Property (in Danish: erhvervelsesloven) which means that persons who are not residents of Denmark and who have not previously been permanently established in Denmark for a period of minimum 5 years must obtain permission from the Danish Ministry of Justice in order to acquire real estate situated in Denmark. This also applies to non-Danish legal entities. However, EU citizens as well as legal entities established in EU member states or countries that have acceded to the Agreement on the European Economic Area (e.g. Iceland, Norway and Liechtenstein) can under certain circumstances acquire real estate (except for vacation homes) without permission from the Danish Ministry of Justice.  Due to the above restrictions, it is customary for non-Danish real estate investors  to establish a Danish legal entity SPV to acquire and hold real property, which requires no permission even though the Danish legal entity has been established for the sole purpose of acquiring one or more Danish real properties.

Only one type of proprietary interest can be created in real estate, i.e. actual legal ownership of real estate. In addition, it is possible to lease real estate to a leaseholder and mortgage real estate to a mortgagee.

Typically, ownership of real estate and ownership of the buildings on it is not separate. It is not possible to sell either the buildings or the land, if land and buildings are owned by one party. However, it is possible that the buildings and land from the onset are owned separately but it is a requirement that two different persons or entities own the buildings and the land, respectively. This is, however, most common in respect of certain holiday houses, harbour areas and farms. In such cases, the owner of the building typically enters into either a ground lease that automatically expires in 20 or 30 years or a ground lease with an indefinite term and a notice period of 20 or 30 years. Under Danish law, a lease in respect of a part of a property may not be legally binding on the owner of the property for a period of more than 30 years.

Commercial real estate is typically owned by legal entities. When a commercial property is owned by a legal entity, a transfer of such property can (directly or indirectly) take place as an asset or a share sale. In Denmark, commercial real estate is often owned by limited liability companies such as “aktieselskaber” or “anpartsselskaber” or by tax transparent companies such as “kommanditselskaber” (limited partnership) or “partnerselskaber” (limited liability partnership).

Ownership structures are often motivated by tax considerations, as transfer of real estate triggers capital gains taxes and certain fees, whereas transfer of shares as a main rule does not. Depending on the number of commercial and residential leases in the property, ownership may be structured in a holding structure so that the commercial property is owned by a property company which in turn is owned by a holding company. According to current case law, this allows the owner of the holding company to transfer shares of the property company (and, thus, indirectly the real estate) without triggering the tenants’ statutory right of first refusal to acquire the property as well as title registration fees.

Such right of first refusal is otherwise granted the residential tenants of a property that has 6 or more residential tenants (or 13 or more residential tenants if there are also commercial tenants in the property) in case of a transfer of the property or the shares in the property company.

It is customary for a buyer to carry out a legal as well as financial, tax, technical and environmental due diligence reviews before acquiring a property. In most transactions of a material size, the parties will enter into a non-binding term sheet in order to outline the parties’ commercial understanding and to determine the time frame available for the buyer’s due diligence review. It would be customary that the buyer is granted exclusivity in the period agreed for due diligence review. For such purposes, the seller would collect and establish a virtual data room containing relevant documents for the buyer’s review. Usually, the buyer submits requests to the seller based on material uploaded to the data room. In general, a seller has a duty to disclose material information and documents to the buyer (duty of loyal disclosure) unless such information is already available to the buyer.

After the due diligence review has been completed, the buyer’s legal advisors prepare a due diligence report to the buyer and the conclusions will be used for the purposes of negotiating the terms and conditions of the asset or share purchase agreement (as the case may be).

In case of a transfer of shares, it is difficult to obtain a high level of comfort regarding the company’s current and potential liabilities if the seller is unwilling and unable to provide due information and documentation or if the seller has no knowledge of such liabilities (i.e. an estate in bankruptcy). In these situations, a buyer would normally assess whether an asset transfer would be possible instead in order to mitigate substantially claims from third parties originating from the seller’s ownership period.

In general, there is freedom of contract when transferring commercial real estate. Usually, the parties enter into a purchase agreement (either asset or share, see question 11 below) following the buyer’s completion of the due diligence. In respect of asset transfers, the parties typically agree that the buyer must provide a bank guarantee until the takeover date (closing) at which the buyer must ensure that the purchase price is deposited in an escrow account with the seller’s bank. The parties appoint an attorney to be in charge of the completion of the transaction (most often  buyer’s attorney) and such attorney is responsible for preparing the electronic conveyance deed that must be filed and registered with the Danish Land Registration Court IT system. Once the conveyance deed and thereby the transfer of ownership has been registered by the Danish Land Registration Court, the attorney in charge of the completion of the transaction will use the purchase price amount (as deposited with the seller’s bank) to repay any loans, mortgages or other encumbrances registered on the property in question and, once the conveyance deed is registered without annotations (i.e. buyer’s title is clear and conclusive), release the remaining part of the purchase price to the seller.

As for share transfers, the purchase price is normally released to the seller at closing and, depending on the transaction, the property company’s debt, if any, is either re-paid or assumed at closing (usually by way of lender’s consent). Once the transfer of the property has been completed, either the buyer or the seller (as agreed by the parties) drafts a completion statement that documents the transaction. Following closing the purchase price will usually be subject to adjustments based on accounts finally agreed between the parties.

In asset as well as share deals, the parties may agree that the buyer is entitled to withhold a part of the purchase price (or that a part is deposited in an escrow account) as security for any claims that the buyer may have against the seller under the terms of the asset or share purchase agreement (as the case may be).

Transfers of real estate in Denmark are effected by way of share transfers as well as asset transfers. The parties are free to decide and negotiate whether the transfer is to be effected by share or asset transfer.

Typically, the transaction structure is determined by factors such as the current and potential liabilities of the property company, title registration fees payable, VAT and other property taxes and whether the statutory right of first refusal granted to the tenants (if relevant – see below) will be triggered by the transaction.

A share transfer does not trigger title registration fees, VAT (if applicable) or other property taxes. An asset transfer does trigger title registration fees, taxes and for certain new properties VAT. However, deferred taxes in relation to the property are usually considered in share transfers and the purchase price will usually be adjusted accordingly.

Transfer of properties with a specific number of residential units (see question 6 above) will trigger a statutory right of first refusal, whereby the residential tenants are granted a right to acquire the property on the same terms as the buyer. This statutory right of first refusal applies if the property in question is transferred or if shares in the company that owns the property is transferred. According to current case law, the statutory right of first refusal does, however, not apply in case of transfers of shares in the parent company of the company that owns the property.

Yes, in case of sale of freehold interests in land (i.e. transfer of ownership of real estate) all benefits under occupational leases are automatically transferred to the buyer.

In general, all rights and interests relating to real estate can be created or attach over real estate. This includes ownership rights, mortgages, encumbrances, liens, easements, profits á prendre and restrictive covenants and other private or public restrictions in respect of the real property.

Any such rights are protected against third-party rights by registration with the Danish Land Registration Court. The registration of such rights must be filed electronically with the Danish Land Registration Court IT system and certain fees apply (see for instance below under question 22 in respect of registration of mortgages).

The concept of trust is not recognized under Danish law, and Denmark has not acceded to the Hague Trust Convention (but see question 21 in respect of security agents). It is, however, possible to establish a private foundation (in Danish: fond) to which legal ownership of real estate may be transferred. Such private foundations may operate for the benefit of certain persons, entities or organizations as specified in the articles of association of the foundation.

All Danish companies must register information about the natural persons who are the company’s ultimate beneficial owner(s). Thus, public disclosure is required. As a general rule, a beneficial owner is defined as a natural person who ultimately owns or controls a company through direct or indirect ownership of more than 25 % of the company, however a person owning less than 25 % may be considered a beneficial owner in other cases, i.e. if such person holds the right to appoint members of the management of the company.

If real estate is owned by a non-Danish company public disclosure is governed by the relevant national authority regulation.

Main taxes on commercial real estate are land tax (in Danish: grundskyld) and, depending on the municipality and the nature of the business carried out from the property, municipality charge (in Danish: dækningsafgift). The land tax is based on public valuations of the property in question. The municipality charge is imposed on commercial properties used for certain business purposes to cover expenses that the municipality has relating to the property. Each municipality decides whether to impose such charge.

Main taxes associated with the transfer of commercial real estate are property gains tax (in Danish: ejendomsavancebeskatning) and VAT in relation to certain new properties.

Further to the above mentioned taxes, title registration fees applies in respect of asset transfers of real estate.

Furthermore, pursuant to a political agreement between the Danish Government and various political parties it is expected that new rules regarding taxation of balance sheet property gains (“inventory tax”) will be introduced during 2023. According to the agreement, the taxed properties will include investment properties and property companies with values exceeding DKKm 100. According to the agreement, domicile properties as well as properties that are not purchased for investment purposes will not be subject to the inventory tax scheme.

The Danish Business Lease Act (in Danish: erhvervslejeloven) governs most business leases regarding buildings. As an important exception, ground leases without buildings fall outside the scope of the Danish Business Lease Act. The Danish Business Lease Act is in general considered to be well balanced. Landlords and tenants are in most instances free to agree on the terms and conditions in respect of a business lease and, accordingly, the parties are entitled to amend and modify rights and obligations imposed on the parties originating from the Danish Business Lease Act, e.g. the size of the rent and other payments, maintenance obligations etc.

However, there are certain mandatory provisions protecting business tenants which cannot be deviated from by way of agreement. Most notably, a landlord can only terminate a lease under certain specified reasons. Such valid reasons are few, listed in the Danish Business Lease Act and cannot be expanded by way of agreement.

Valid reasons for termination include (among other things) the landlord’s own use of the buildings and demolishing or substantial construction works on the buildings.

The use of real estate can be regulated both publicly and privately by way of agreement. Under the Danish Planning Act (in Danish: planloven), all areas of Denmark are divided into either rural, urban or holiday-house zones. The planning system is decentralised as each municipality is responsible for the detailed local planning and permits for construction works.

It follows from the Danish Planning Act that the planning, use and development of land take place at four administrative levels, in which regulation laid out at a higher level must be complied with. The administrative levels are (starting with the highest level):

1. National planning
2. Regional development planning
3. Municipality planning
4. Local planning

Through local planning, the municipalities will regulate the use and the development of a limited part of the municipality, for example certain areas of the municipality or a single plot. Local plans are the only plans creating binding restrictions on landowners. In general, the provisions of local plans are quite detailed and will regulate the lawful use, size, design, preservation of current buildings, outdoor areas, constructions, roads and access ways etc.  

Additionally, private restrictions may be imposed through easements, profits á prendre and restrictive covenants registered on the property with the Danish Land Registration Court.

As a general rule, the contaminator is liable for environmental contamination of real estate. The public authorities may issue an enforcement notice for the contaminator to remove the contamination and re-establish the property to its state prior to the contamination. To the extent that the owner of the real estate is not identical to the contaminator, the owner must grant the contaminator access to the property and allow the contaminator to clean the property. Prior to acquiring a property, a potential buyer must, however, make sure that an enforcement notice has not been filed and not yet complied with, as a new owner may otherwise under certain circumstances be liable to comply with such enforcement notice.

Private property, including real estate, may be expropriated under certain circumstances. It is a general principle under Danish law that rights in and to private property are in-violable, as stipulated by the Danish Constitution. However, if the general public interest (in Danish: almenvellet) requires it, private property, including real estate, may be subject to expropriation. Expropriation must, however, always be based on a law passed by the Danish Parliament to this effect, and the owner of the expropriated property must be fully compensated for any financial loss suffered because of the expropriation.

It is possible to create mortgages over real estate. All mortgages are perfected by registration of the mortgage with the Danish Land Registration Court. Mortgages not registered with the Danish Land Registration Court may under certain circumstances be set aside, for instance in case of bankruptcy.

As mentioned above, mortgages over real estate must be registered with the Danish Land Registration Court. This registration is a perfection requirement. A fixed fee in the amount of DKK 1,730 (approx. EUR 220) and a variable fee equivalent to 1.45% of the amount secured by the mortgage is payable in connection with the registration of the mortgage. There is no upper limit on the variable fee.

The value of mortgages that have already been registered on the real estate in question may under certain circumstances be set off against new mortgages to be registered on the real estate in connection with refinancing.

The concept of trust is not recognized under Danish law, and Denmark has not acceded to the Hague Trust Convention. However, Danish law does recognize the concept of security agents holding and administrating securities on behalf of beneficiaries in accordance with section 18 of the Danish Capital Markets Act (in Danish: kapitalmarkedsloven).