LEASE OF PREMISES IN DENMARK
The statute applicable to business leases is the Danish Business Lease Act, and it is in general made to protect the tenant. However, the parties are to a large extent free to agree on the terms of the lease. A lease agreement may be entered into for either a specified or an unspecified term. The majority of business leases in Denmark run for an indefinite period of time. Furthermore, the landlord is only entitled to terminate the lease if the termination is based on one of the specific reasons listed in the Business Lease Act.
BUYING AND SELLING REAL ESTATE IN DENMARK
Please find below a brief description of the typical process involved when buying and selling a real estate situated in Denmark, including the costs and tax issues involved and the most common types of precautionary measures normally taken in connection therewith.
THE TRANSACTION IN DENMARK
INVESTIGATIONS
Usually, a transaction commences by the purchaser conducting a due diligence on all relevant information regarding the real estate in question. The key types of legal information are information from the Danish land registry, lease agreements and rent levels, searches conducted by local authorities, and information on the insurance policies taken out on the real estate.
The seller normally prepares a “sales package”, containing the usual documents required by the purchaser. Depending on the real estate in question, an environmental report and a building survey may be essential in order for the purchaser to establish whether there are any specific problems which should be taken into consideration when drafting the sales and purchase agreement or which could otherwise affect the decision to go through with the transaction.
COMPLETION OF THE REAL ESTATE TRANSACTION
When the parties have agreed on a transaction of the real estate, the terms are laid down in a sales and purchase agreement and a digital deed of conveyance is prepared, usually by the purchaser’s legal counsel. The digital deed of conveyance will be in Danish and make reference to certain of the main terms of the sales and purchase agreement, including, among others, the date of completion and the purchase price.
In order to secure the title to the real estate against creditors and bona fide contracting parties, the deed of conveyance is required to be registered with the Danish land registry. When the deed of conveyance has been digitally signed by all parties, the deed of conveyance will therefore be submitted to the land registry for registration, accompanied by the registration fee. This is usually handled by the purchaser’s legal counsel.
In addition to the above documentation, a completion statement is prepared. This is a statement of all expenses to be refunded between the parties in connection with the sale of the real estate. Real estate tax is for example usually paid in January, covering the first six months of a calendar year. If the date of completion is 1 March, the purchaser will need to refund the seller an amount corresponding to the period 1 March to 30 June. Furthermore, the completion statement will handle any deposit and lease income paid by tenants, etc. The completion statement is usually drafted by the purchaser’s legal counsel based on information received from among others the Seller.
Depending on the agreement between the parties, the purchase price of the real estate will normally be deposited on an escrow account and will only be released from this account, with possible reductions in accordance with the completion statement, when the purchaser has obtained unconditional title to the real estate according to the land registry. The release of the purchase price will usually take place between one and three months after the actual entering into possession of the real estate by the purchaser.
COSTS AND TAX IN DENMARK
CAPITAL GAIN TAX
Any gain from the sale of land and buildings in Denmark is taxable as income for the seller (for companies at a rate of 22% (2015 level)), subject to certain deductions. Sale of tax depreciable buildings will lead to taxation of recaptured depreciations.
REGISTRATION FEES
The registration fee for registration of the deed of conveyance with the land registry is a base fee of DKK 1,750 plus 0.6% of the highest value of the purchase price or the public value of the real estate. In some geographical parts of Denmark (Sealand) this stamp duty is usually divided equally between the parties, while it in other parts of Denmark (Jutland) is borne by each of the parties by half. Basically, this is subject to negotiations between the parties.
Depending on the corporate structure of the seller of the real estate, the possibility of carrying out the transaction as a sale of the corporate body owning the real estate - Special Purpose Vehicle - instead of an asset sale should be considered. No registration fee is payable if the object of the transaction is a limited company already being the owner of the real estate. Such structure of a transaction is therefore often considered in order to minimise the registration fee and capital gain tax. In these transactions, security in the real estate itself may, however, not be possible due to Danish financial assistance law.
VAT IN DENMARK
Sale and purchase of real estate is as a main rule not subject to Danish VAT. However, some exemptions are applicable to commercial transfer of real estate.
Commercial transfers of new buildings are subject to VAT in Denmark. The transactions subject to the new rules include:
transfer of new buildings with or without land;
transfer of building sites, irrespective of whether they are developed or not; and
separate transfers of built-up sites.
It is possible to register a building for VAT purposes in order to obtain VAT deduction on construction and repair of buildings. Building for private housing can, however not be registered for VAT. If the building is registered for VAT purposes, the buyer will need to assume the obligation to adjust the VAT that has already been deducted. If the future use of the real estate is subject to VAT, the obligation to adjust is usually assumed by the purchaser. A transaction of a real estate will only trigger the VAT adjustment obligation if a real estate registered for VAT prior to the transaction will not be used for a purpose liable to VAT after the transaction.
Furthermore, an enforcement notice may be held in force in respect of subsequent owners of a polluted property subject to the following conditions:
- if the property is a company in operation, i.e. it has not closed down,
- if prior to the takeover of the company, notice had been given that an enforcement notice would be served - or an enforcement notice had been served and the enforcement notice had not been complied with
if the seller had not complied with enforcement notices issued, irrespective of an injunction or a restraining order,
if at the time of the takeover of the company, the buyer knew or should have known that notice had been given of the issue of an enforcement notice or that an enforcement notice had been issued, and
if the buyer has taken over the company from someone who was or might become obliged to comply with an enforcement notice.
