The International Hotel Law Review: Denmark

Introduction

The Danish hotel industry is currently undergoing considerable growth, which has been an ongoing trend for several years.2 The growth is evident in both the number of nights booked with Danish hotels as well as the total number of hotel rooms in Denmark.

The number of nights booked with Danish hotels increased by 42 per cent between 2010 and 2017, despite the rental of private homes experiencing considerable simultaneous growth.3

The increase in the number of nights booked at Danish hotels is in part attributable to increased use of digital booking platforms, which create a two-sided market by bringing hotels and potential guests closer together.

Booking platforms have become particularly popular on both sides of the market over recent years due to the fact that they lessen guests' research-related expenses (as the use of the booking platforms are free of charge for guests) and because the booking platforms enable small and medium-sized hotels to reach potential guests across the world, making hotels in this size range better equipped to compete with larger hotels that are typically able to bear the costs of traditional marketing themselves.4

Similarly, the capacity in the industry is undergoing considerable growth, and a 40 to 50 per cent increase in the number of hotel rooms in Copenhagen is expected over the next three years.5

More specifically, HORESTA (the Danish trade association and employer's organisation for the restaurant, hotel and tourism industry) predicts an increase of 6,000 new hotel rooms in Copenhagen alone before 2021.6

Legal structures

A hotel property in Denmark will most often be owned by a Danish company or a foreign company.

Private persons, associations, etc., either Danish or foreign, are also free to purchase hotels in Denmark (subject to certain rules as mentioned above).

Danish legislation does not directly limit nor restrict ownership of hotel properties or operation of hotels to specific types of companies (e.g., with a certain amount of net worth or the like).

When owned by a Danish company, the company is typically a special purpose vehicle (SPV).

An SPV is a subsidiary company created by a parent company to isolate financial risk and is either a public limited company (A/S) or private limited liability company (ApS).

The SPV's legal status as a separate entity makes the SPV's obligations secure even if the parent company goes bankrupt and vice versa. This separation protects the parent company from risks such as bankruptcy and insolvency issues if the SPV goes bankrupt.

An SPV owning a hotel property will typically only have the one function; to own and operate the hotel property.

Transactions involving the purchase of hotels can thus happen by purchasing the entire SPV (that owns the hotel property), buying only part of the SVP, for example, 50 per cent of the shares, or by purchasing the hotel itself from the SPV.

A prerequisite for the establishment of a public limited company (A/S) or private limited company (ApS) is formal registration with the Danish Business Authority and the raising of equity capital at a minimum of €53,700 and €6,700 respectively.

i Recent acquisitions

In November 2019, the Swedish hotel investment company Midstar Hotels purchased Admiral Hotel in Copenhagen from CAH Holding A/S's subsidiary company (SPV), CAH A/S, for around 1-1.5 billion kroner.

In October 2019, Midstar Hotels AB also purchased Marienlyst Strandhotel from Artha Holding A/S' subsidiary, (SPV) Artha Marienlyst A/S.

In January 2019, Deutsche Hospitality purchased the majority of the shares in Zleep Hotels A/S. Zleep Hotels A/S owns 10 hotels in Denmark via its subsidiaries.

Also in January 2019, Pareto Securities purchased a hotel project near Kastrup Airport from Skanska A/S for 670 million kroner.

In late 2018/start of 2019, Pensiondanmark purchased, via a subsidiary, hotel properties in Kolding from Comwell A/S for 475 million kroner.

Leases

Business lease agreements concerning hotels are regulated by the Danish Business Lease Act.

Lease agreements concerning hotel properties represent a unique type of lease agreement as various clauses differ from standard business lease agreements, such as those concerning office spaces.

The determination of rent, the state in which the premises (the hotel) shall be surrendered at the end of the lease, and the fact that inventory is most commonly rented are typical terms that differ from standard lease agreements.

The market rent in Denmark is typically determined by multiplying rent per square metre by the number of square metres. The rent per square metre is negotiated by the landlord and the tenant and will be determined by several factors, such as the general terms in the contract and, crucially, the location of the premises.

Regarding hotels, several factors in addition to the location of the premises, such as the revenue of the hotel, often combined with a square metre price or a fixed price per room, also apply.

Typically, it is agreed that premises should be surrendered in the same state as on the takeover date.

Dealing with lease agreements concerning hotels, however, it is typical that the hotel shall be surrendered well maintained and ready for reletting.

Another typical term in hotel lease agreements is one governing rented inventory and chattels. These are often required to be surrendered in a well-maintained condition, ready for re-letting

Pursuant to the Danish Business Lease Act, a landlord can impose an obligation on its tenant stipulating that the tenant must keep the hotel open and in good operation to the extent customary.

A landlord is entitled to terminate the lease agreement where the tenant fails to comply with this obligation.

Data and hotel tech

i Data protection

The hotel industry is processing vast quantities of personal data, primarily on guests (e.g., name, gender, nationality and other passport-related data) and hotel owners are typically considered data controllers in a General Data Privacy Regulation (GDPR) context.

However, the legal structure of group companies and franchisor or franchisee cases should be examined closely to identify each of the participants' roles (i.e., whether they are acting as data controllers, potentially joined controllers or merely data processors).

Corresponding processor or joint controller agreements must be concluded once the roles of each of the participants have been identified.

It is the responsibility of the data controller to ensure a legal basis exists when processing personal data.

The hotel industry is subject to the GDPR,14 which is fully applicable in Denmark, and supplemented by the Danish Data Protection Act.15

Additionally, the industry is also subject to special (national) legislation, all of which provides for various legal bases on which processing can be based.

Examples of relevant legal bases within the hotel industry include:

  1. a legal obligation to which the controller is subject;
  2. the performance of a contract; or
  3. the controllers' legitimate interest.

However, the processing of special categories of data is typically consent-based. Hotels must inform data subjects about the processing of their personal data using privacy notices.

Cross-border processing is another important GDPR consideration.

Hotel groups and franchisor or franchisee hotels often operate in multiple countries both inside and outside of the EEA, and data being exported between the parties – especially to parties outside the EEA – is something for the hotel industry to be aware of.

The GDPR restricts the transfer of personal data to third countries, which are not recognised as secure third countries with an adequate level of data protection, unless an individual's rights are protected by using methods such as EU Commission standard contractual clauses, binding corporate rules, or if one of a limited number of exceptions applies.

Further, where the transfer is between data controllers, such transfers also require a legal basis for the disclosure.

Data controllers can only process personal data for legitimate purposes and for no longer than necessary to fulfil these purposes.

An important task for data controllers is to make a distinction between collecting data that is 'need to have' from data that is merely 'nice to have', to comply with the GDPR's 'data minimization principle' and 'storage limitation principle'.

Processing personal data digitally requires adequately secured IT systems in line with the GDPR's 'integrity and confidentiality' principle.

In addition, the Danish Data Protection Authority (DPA)16 has set out special encryption requirements for data controllers when transmitting special categories of personal data and confidential personal data in emails via the internet.

Failing to secure encrypted transmission of these special categories of personal data is considered non-compliant and a potential personal data breach that should be reported.

The Danish DPA follows up on reported data breaches to establish whether or not the security breach in question could give rise to a fine.

If data controllers fail to ensure GDPR compliance, they risk facing hefty fines for non-compliance, of up to €20 million, or up to 4 per cent of the global turnover of the preceding financial year.

The highest fine so far (as of November 2019) recommended by the Danish DPA is 1.5 million Danish kroner (approximately €200,717).

The case concerned a furniture company that had failed to comply with the storage limitation principle, by processing the personal data of approximately 385,000 held in their old ERP system without a retention policy in place (no data had ever been deleted in the system).17

The case is currently pending judgment.

ii E-commerce

The field of e-commerce is mainly regulated by the Danish Consumer Contracts Act,18 as well as the Danish E-commerce Act.19

Consumer legislation largely resembles the European Consumer Directive setting out certain requirements for the operators of e-booking platforms.20

As in other European jurisdictions, operators of booking platforms are required to inform the consumer of general information regarding the operator's business. Operators must also provide consumers with terms and conditions that are storable.21

The services offered by operators of booking platforms are required to clearly demonstrate prices when entering into an agreement with a consumer conducting a booking. Additionally, the operator needs to provide the consumer with technical guidance on the process of the purchase, as well as provide confirmation once the booking is complete.22

Contrary to the general rule in Danish law, consumers do not have the right to withdraw from a booking once it has been concluded.23

Hotel owners are subject to rules regarding the use of customers' email addresses for unsolicited marketing purposes; unsolicited communication requires prior consent.24

This applies to both electronic marketing to consumers and businesses. However, the use of email addresses obtained in the context of a sale by hotel owners is permitted because the customer is given the opportunity to refuse the use of their emails.

Franchising of hotels

In Denmark, there is no legal definition of a 'franchise' and the area is not regulated by one specific law, but rather by a number of different laws, including the Marketing Act, the Competition Act and the Product Liability Act.25

Owing to the piecemeal nature of franchise regulation in Denmark and the fact that franchise agreements are initially regulated by the contract, franchise agreements are often subject to lengthy and detailed negotiations.

Furthermore, according to Danish law, franchisees are not considered consumers, and a franchise relationship is therefore regarded as a business to business relationship.

The vulnerability that arises for the franchisee by not being regarded as a consumer further adds to the need for intense pre-emptive negotiations.

While franchise agreements in Denmark are not subject to regulation by one specific law, and while the franchisee is not subject to consumer protection, a 'catch-all' provision is found in the Danish Contracts Act paragraph 36.26

Pursuant to this provision, the Court may disregard any provision in a given franchise agreement wholly or partially if it is deemed unreasonable. This 'catch-all' provision applies to franchise agreements, as well as any other type of contract in Denmark.

Hotel management agreements

As in most European countries, hotel management agreements (HMAs) are popular with hoteliers in Denmark because they allow hoteliers to minimise obligations and responsibilities associated with the daily management of hotel operations.

This is because HMAs, contrary to traditional business lease agreements, are not covered by the Danish Commercial Leases Act, which contains mandatory rules for the protection of both the tenant and the landlord.27

When a hotelier and a hotel operator enter into an HMA, considerable effort should be put into negotiation and contract writing, because although the parties have a shared vested interest in the overall success of the hotel, they may have different motivations owing to their contrasting income and risk profiles.

An example of such misalignment may be found in the fact that an operator's fees usually consist of a percentage of the hotel's sales, while the hotelier also profits from an eventual sale of the hotel as a real estate asset.

Therefore, the operator may be focused on increasing sales, as opposed to profits, which may not align with the owner's strategy of increasing the value of the hotel as a real estate asset.28

Given that HMAs in Denmark are not covered by a specific regulation and that the parties, therefore, have no mandatory protective legislation to fall back on, an HMA should be subject to intense pre-emptive negotiation.

White label operators (i.e., third-party management) are frequently used in Denmark.

An example is Core Hospitality, which is a relatively new white label hotel operator.

Core Hospitality is a sister company to Zleep Hotels, but unlike Zleep Hotels, Core Hospitality is completely independent of brands and is thus able to offer hotel management services to other hotels as well.

Its first project was with the relatively new Marriott hotel branch, Moxy Hotels, which officially opened in Copenhagen in 2019.

Financing

The central and material financing source of real estate in Denmark is mortgage loans, which play an important part when financing real property.

A mortgage loan is a loan granted against a mortgage on real property by a mortgage bank.

The Danish mortgage system is unique as the mortgage loans are based on a principle of matching a loan and the underlying bonds funding it.

The annual interest payment is typically substantially lower in comparison to many other countries in Europe.

The financing structure in Denmark for acquiring an SPV owning a hotel is similar to other financing structures concerning real property in general.

The mortgage loan is combined with other types of security including change of control, negative pledge, subordination of other loans and limitations on dividend distribution, as commercial properties can only be funded with 60 per cent of the value of the property. The rest of the purchase price will normally be funded by equity, or a bank facility with secondary rights to the mortgage loan.

Finally, the security package may well consist of a share pledge on the shares of the SPV owning the real estate, as well as a variety of assignment agreements, in which the operating company assigns certain (potential) claims and other receivables, including, but not limited to, intra-group shareholder loans and insurance agreements.

Employment law

i Employment disputes

HR-related court proceedings are typically settled by the civil courts.

However, HR-related proceedings relating to a collective bargaining agreement are settled by the labour court, or by an industrial arbitration tribunal, depending on the issue.

Employees may act on their own behalf before the civil courts or be represented by counsel.

Employee claims are considered as a normal civil claim and a court fee is payable, dependent on the size of the claim as well as the risk for payment of legal costs to the counterpart (the employer).

Proceedings before the civil court are both time consuming and expensive.

ii Employment types

Danish law overall distinguishes between 'white collar employees' (also referred to as 'salaried employees' if certain requirements to the position are fulfilled, as below) and 'blue-collar employees', both of which are contrary to the category of 'self-employed' persons.

Part-time and fixed-term employees generally have the same status and rights as permanent full-time employees, although some exceptions exist.

Salaried employees working for more than an average of eight hours per week are covered by the Danish Salaried Employees Act that, among other things, provides protection against unfair dismissal after one year of employment and gives the right to a full salary during sickness (without limitation) and statutory notice periods.

In Denmark, the standard working time for a full-time employee is 37 hours per week, which excludes a half hour lunch break per day. An employer must be aware of the '48 hours rule,' which stipulates that an employee cannot work more than an average of 48 hours per week over a four-month period.

Blue-collar employees who are covered by a collective bargaining agreement enjoy protection through the terms contained herein and will also be protected against unfair dismissal after nine months of employment.

Employees who are not covered by the Danish Salaried Employees Act or by a collective bargaining agreement are, therefore, not protected against unfair dismissal, except for the protection provided in the statutory Danish discrimination laws, or if the employee is considered as a specially protected employee.

iii Pay and benefits

There are no legal provisions setting a minimum wage for employees in Denmark.

However, collective bargaining agreements (if present) can set such minimum wages.

Employers typically offer a pension contribution. However, in Denmark there is no legal requirement to offer a contribution, unless the requirement is stated in a collective bargaining agreement.

All employees are covered by the Danish Holiday Act and are entitled to 25 days per holiday year (with pay or holiday allowance if accrued).

All additional benefits are subject to negotiation, unless set out in a collective bargaining agreement.

iv Termination of employment

As stated above, only salaried employees with one year seniority, or employees covered by a collective bargaining agreement that have nine months seniority, are protected against unfair dismissal and can claim compensation following such an event.

The size of the compensation depends of an employee's seniority and age.

However, all employees are protected by the Danish Discrimination laws from the start of their employment, pursuant to which an employee cannot be dismissed on the basis of their sex, pregnancy or leave, age, disability, or on various other grounds listed in the acts.

In addition, there are certain protected categories of employees, such as shop stewards and working environment representatives, who enjoy extended employment protection in redundancy situations and a higher degree of protection against redundancy in general.

There is also a special procedure for mass redundancies.

An employee may challenge a unilateral termination at any time up to five years after (due to statutory limitation rules) and claim compensation payment. The option to reach amicable settlement is always available and recommended.

Dispute resolution and management

There is not a lot of case law in relation to hotels in Denmark, but some of the most prominent recent matters include the following.

In October 2017, the Danish High Court Western Division passed a judgment on whether Booking.com was liable for the fulfilment of a booking of a hotel room made by a guest through Booking.com at a Swedish farm hotel.29

The High Court ruled that Booking.com's terms and conditions had been accepted by the guest. The guest should have understood that he had made an agreement with the hotel and that Booking.com alone acted as intermediary, and that Booking.com by trying to solve the problem after arrival had not incurred a responsibility as landlord.

This ruling shows that booking platforms may not be regarded as a contracting party, with regards to the booking of a hotel room, provided that it is stated clearly in the booking platform's terms and conditions that it is only a facilitator for the agreement between the guest and the hotel.

In such cases, booking platforms are only to be considered as an intermediary, or as a provider of hotel rooms.

Another noteworthy case was the 2014 High Court Case regarding Bella Sky Hotel.30

To accommodate an increased demand from female guests, the hotel had reserved one of it's floors for female guests only.

Following a complaint from a male guest, the Board of Equal Treatment found that Bella Sky Hotel did not have adequate grounds to exclude male guests from the floor. Bella Sky Hotel objected to this decision and the case was brought before the courts.

The High Court Eastern division ruled in favour of the Board of Equal Treatment and found (in a 2-1 ruling) that Bella Sky Hotel had failed to establish that the requirements of equal treatment had not been violated.

This ruling shows that while hoteliers generally are at liberty to accommodate the wishes and concerns of their guests, they remain bound by strict equal treatment regulations that can outweigh even safety concerns, if not adequately substantiated.

Outlook

The Danish hotel industry is currently booming and a high number of foreign investors have recently entered and are operating in the market. Foreign investors should pay particular attention to the potential restrictions pursuant to the Danish Acquisition of Real Estate Act and the Holiday Home Act when entering the Danish hotel market.

Regardless of whether the legal person or entity wishing to partake in the Danish hotel industry is foreign or local, they may do so in a number of different ways, some of which have been touched upon in this chapter:

  1. first, a legal entity can own hotel property typically through an SPV that, by virtue of its function as a subsidiary, is designed to isolate financial risk for the parent company. The most prevalent financing source of real estate in Denmark is mortgage loans;
  2. second, a lease agreement may be entered into. Commercial leases are governed by the Danish Business Lease Act. A lease agreement may be preferable in some cases, at it contains mandatory rules for the protection of both the tenant and the landlord;
  3. third, a franchise agreement may under certain circumstances be preferable. However, it should be noted that the agreement itself represents the main legal foundation, and that the legislation on franchise agreements in Denmark is piecemeal in nature, offering no special protection for either party to the agreement. Franchise agreements should therefore be subject to detailed and thorough negotiations; and
  4. fourth, HMAs in Denmark are, like franchise agreements, not subject to one specific piece of legislation. Therefore, while they may be preferable to other types of agreements as they allow the hotelier to minimise obligations and responsibilities associated with the daily management of running a hotel, HMA contracts should be subject to thorough negotiation.

Regardless of how parties involve themselves with hotel operations or investments in Denmark, several legal areas must be taken into consideration, some of which have been considered in this chapter.

With regards to intellectual property rights pertaining to the hotel industry, these are, to a large extent, regulated by national legislation that supplements the European rules on intellectual property rights protection. In particular, the trade dress of hotels (i.e., the characteristics of the visual appearance of the hotel) in which significant investments have been made, may be subject to not only trademark protection.

In relation to data and tech within the industry, it is of crucial importance to identify the data controllers involved in the operation of a hotel, as data controllers are subject to strict regulation under both the GDPR and national legislation.

Finally, the Danish hotel industry is subject to strict employment regulation, pursuant to which different types of workers may be entitled to different forms of protection. It is also important to note that workers may enjoy rights pursuant to not only legislation on employment, but also to the rules of collective bargaining agreements. Discrimination considerations also weigh particularly heavy in Denmark and may even outweigh some safety concerns.

As for the future of the Danish hotel industry, the aforementioned boom is predicted to continue for the next few years. However, the industry may soon face the issue of overcapacity, as it is predicted that the number of hotel rooms available within the next three years will surpass the expected consumer demand for the first time since 2010.31 This is partly due to the high number of new hotels being constructed and partly due to the growth of private holiday rental sites such as Airbnb.

Footnotes

1 Søren Narv Pedersen, Ted Rosenbaum, Marie Grønlund, Mogens Dyhr Vestergaard, Ted Rosenbaum and Claudia Vindbjærg Mortensen are associates and Claudia Vindbjærg Mortensen is a junior associate at Bird & Bird Denmark.

2 Copenhagen Property Market Report; Sadolin Albæk, 2018, p. 60.

3 The number of nights booked at Danish hotels in 2010 was approximately 9 million, while this number increased to approximately 15.5 million in 2017: Bookingplatforme, hoteller og forbrugere; The Danish Competition and Consumer Authority, February 2019, p. 11.

4 ibid, p. 19.

6 Bookingplatforme, hoteller og forbrugere; The Danish Competition and Consumer Authority, February 2019, p. 17.

7 The Foreign Investment Regulation Review, Fifth Edition, September 2017, p. 67.

8 Ease of Doing Business rankings from The World Bank: https://www.doingbusiness.org/en/rankings">https://www.doingbusiness.org/en/rankings.

10 The Danish Acquisition of Real Estate Act No. 265 of 31 March 2014.

11 This applies to all real estate; not only residential property.

12 The Danish Marketing Practices Act No. 426 of 3 May 2017.

13 The Danish Design Act No. 89 of 29 January of 2019.

14 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data and repealing Directive 95/46/EC (GDPR).

15 The Danish Data Protection Act No. 502 of 23 May 2018.

16 'Datatilsynet' in Danish.

17 The Danish legal system does not provide for administrative fines as prescribed in Article 83 of the GDPR. Therefore, the sanctioning process under Article 83 is instead initiated by the Danish DPA filing a police report. Hereafter the Danish courts may impose a fine taking into account the Danish DPA's recommended level of fine.

18 The Danish Consumer Contracts Act No. 1457 of the 17 December 2013.

19 The Danish E-Commerce Act No. 227 of the 22 April 2002.

20 Directive 2011/83/EU.

21 The Danish Consumer Contracts Act 1457 of the 17 December 2013 § 8.

22 The Danish E-Commerce Act 227 of the 22 April 2002, §§ 8 and 10.

23 The Danish Consumer Contracts Act 1457 of 17 December 2013 § 18, (2) No. 12.

24 The Danish Marketing Practices Act 426 of 3 May 2017 § 10.

25 The Danish Product Liability Act No. 261 of 20 March 2007.

26 The Danish Contracts Act No. 193 of 2 March 2016.

27 The Danish Commercial Leases Act No. 1218 of 11 October 2018.

29 UfR 2018.574V.

30 The High Court Eastern Division's judgment of 25 April 2014 in matter 3rd section No. B-2983-12.

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