The Real Estate M&A and Private Equity Review: Denmark

Overview of the market

The Danish real estate market is mainly dominated by property funds and real estate companies, of which the majority are privately held. The market for office properties is dominated by institutional investors, property funds and real estate companies seeking secure cash flows offered by the long leases usually attached to such properties. The residential segment is particularly dominated by property funds, whereas private investors, property funds and institutional investors contribute the main part of investments in retail properties.

While the office and residential segments have been predominant in recent years, investments in the logistics segment have recently begun attracting increased interest from investors following some years with slow activity. Transactions with hotel properties have generally been increasing over the years, particularly with institutional investors, domestic and foreign, being interested in this segment typically only investing in hotel property and not the associated operations. The hotel industry has been severely impacted by the outbreak of covid-19 as travel bans have been adopted across multiple countries. While this remains to be seen, it is expected to have an effect on real estate investments in hotels.

Domestic institutional investors have a significant presence in the Danish real estate market, where Danish pension funds in particular are increasing their investments in real estate. Pension funds are not only investing indirectly through property funds but are, to a large extent, investing directly in properties, including development projects, or providing financing by other means through various types of loans or bonds for acquisitions and the development of real estate.

Recent years have seen an increasing number of foreign investors entering the Danish real estate market, and in 2017 foreign investments surpassed investments from Danish investors for the first time. In 2019, Danish investments slightly surpassed foreign investments. In the past couple of years, foreign investments have mostly been concentrated in Copenhagen. The number of deals involving solely parties originating outside Denmark is also on the rise. Investors from Germany, Scandinavia, the US and the United Kingdom in particular are investing in Danish real estate, with Swedish real estate investors especially being active in the Danish market.

Foreign investors are mainly active in the office segment, focusing primarily on office properties located in prime locations, and the residential segment (mainly larger portfolios). However, they are increasingly interested in both hotels and logistics properties. In 2019, foreign investments accounted for the majority of the transaction volume in hotel properties.

International investors tend to stipulate requirements to a transaction documentation that deviate from what has previously been customary in Denmark. Transactions involving properties with significant commercial operations, such as hotel or retail properties, require bespoke solutions, which often entail a certain level of complexity as well as a need for thorough preparation. These transactions resemble M&A transactions more than ordinary real estate transfers in terms of structure, complexity, timing and process.

Recent market activity

i M&A transactions

Among the notable transactions in 2019 was the US-owned real estate company Bostad's acquisition of four turnkey residential projects consisting of 553 units from Danish Birch Ejendomme at a price of 1.1 billion Danish kroner. The four projects are located in Jutland in the cities Kolding and Vejle (both in the Triangle Region) and Silkeborg. In 2019, the Swedish-listed real estate company Klövern acquired the office property Kalvebod Brygge 32 (currently under development), located in Copenhagen, from Swedish Genesta at a price of 1.42 billion Danish kroner. In the hotel segment, the largest acquisition in 2019 was Swedish hotel investment company Midstar's purchase of Copenhagen Admiral Hotel (currently under refurbishment) at a price of 1.4 billion Danish kroner. The previous owner was a group of private investors.

Recent years have seen several transactions involving larger residential property portfolios, with Swedish real estate company Heimstaden AB being by far the most active investor. In 2018, Heimstaden, among numerous other acquisitions, acquired the TG Partners III fund from Thylander Gruppen at a value of 1.52 billion Danish kroner. The portfolio consisted of 25 properties divided into 1,400 flats, 50 commercial leases and almost 1,000 parking spaces located in, inter alia, Esbjerg, Arhus and Kolding, which are larger Danish cities. Another notable transfer took place in 2018 when Heimstaden acquired three properties from FB Gruppen at just under 1.2 billion Danish kroner. The properties are located in Copenhagen and comprise 489 flats, of which 189 are student flats. The flats were ready for occupancy at the end of 2019.

ii Private equity transactions

The largest residential transaction in 2019 was Axa Group's acquisition of a portfolio of four residential properties located in Ørestaden from the private equity investment firm Solstra Capital Partners at a price of 1.3 billion Danish kroner. Three of the acquired properties were newly constructed, whereas the last property is under construction with an expected completion in the summer of 2020. The four properties consist of 397 flats and have a total of area of 12,100 square metres.

In 2019, Swedish-based Niam acquired Copenhagen Towers, located in Ørestaden, from Solstra at a price of 1.75 billion Danish kroner. The Copenhagen Towers consist of three towers. Two of the towers are used for office purposes and one is a hotel. Another notable office property transaction in 2019 was Norwegian real estate company Langebro Eiendom's divestment of an office building located at Weidekampsgade 12-16 in Copenhagen at a price of almost 1.1 billion Danish kroner. The building has a total area of 26,104 square metres. In recent years, including in 2019, the Danish real estate syndication company Koncenton has been one of the largest players in the Danish real estate market for residential properties. Koncenton was involved in 23 transactions in 2019 with a total value of 3.7 billion Danish kroner.

Foreign investors have also focused on residential properties in the private equity market, with transactions involving larger portfolios. US private equity company Blackstone has been increasingly active in the Danish residential property market, and acquired residential properties at a total value of over 2.5 billion Danish kroner in 2018.

Real estate companies and firms

i Publicly traded REITs and REOCs – structure and role in the market

Currently, REIT structures are not used in Denmark, but there are a number of publicly traded real estate companies of varying size. The largest by some distance is Jeudan A/S, with a market capitalisation of approximately 14.77 billion Danish kroner, total assets of 26.7 billion Danish kroner and annual revenue of 1.57 billion Danish kroner.

Jeudan owns both commercial and residential properties in the Copenhagen area. Its portfolio primarily consists of commercial properties, including mainly office properties but also some retail properties in central locations in the Copenhagen area. Jeudan's business strategy is to continue investing primarily in office properties in Copenhagen with a long-term investment horizon.

Besides Jeudan, only smaller real estate companies are traded publicly, none of which have a market capitalisation exceeding 800 million Danish kroner, revenue exceeding 340 million Danish kroner or total assets exceeding 3.1 billion Danish kroner. These smaller companies do not play any significant role in the real estate M&A market, and only Jeudan is of a large enough size to engage in larger transactions. However, Swedish public real estate companies – mainly Heimstaden, Castellum, Akelius Residential Property AB, Fastighets AB Balder, Klövern and Wihlborgs Fastigheter – are very active in the Danish market and are able to carry out large investments.

In 2018, US investment firm Castlelake made a conditional tender offer through its Danish subsidiary for the shares in BoStad A/S with an advance commitment from Kvalitena Danmark AB, which owned 52.9 per cent of the shares and 63 per cent of the voting rights. Castlelake acquired the majority of the shares and voting rights in BoStad A/S through the conditional tender offer. In 2020, Castlelake's Danish subsidiary announced that it would be exercising its right to demand the redemption of the remaining shares in BoStad A/S from the minority shareholders in accordance with the Danish Company Act. Under the Company Act, a shareholder holding more than nine-tenths of the shares may demand that the other shareholders have their shares redeemed. BoStad A/S was subsequently delisted from the Danish stock exchange.

ii Real estate PE firms – footprint and structure

The real estate private equity market in Denmark is dominated by a few local players together with a group of foreign private equity firms. The main local players are Solstra Capital Partners, NREP and Core Property Management, which are all based in Copenhagen. In recent years, NREP has become a pan-Nordic player. In 2018, NREP announced a new fund, raising €900 million from mainly pension funds, insurance companies and sovereign wealth funds from the Nordic countries, Europe, the US and East Asia, making it the largest property fund in the Nordics to date. In 2020, Novo Holdings, part of the Novo Nordisk Trust, announced its investment of approximately 1 billion Danish kroner in NREP's newest fund.

The Danish operation of German fund Patrizia has also been very active in recent years both in the retail and residential segments. Among the UK-based firms involved in recent major transactions are Coller Capital, Aberdeen Standard Investments, M7 Real Estate and M&G Real Estate. Swedish firms Niam and Svea Fastigheter have recently been party to significant transactions. Finland's CapMan has also been increasingly active in the Danish market during the past couple of years. Furthermore, non-European players are active in the Danish market, including, among others, US-based Blackstone and Hines.


i Legal frameworks and deal structures

Typically, a real estate transaction in Denmark is structured either as a direct investment in the form of an asset deal or through a limited liability company or limited partnership in the form of a share purchase. However, the limited liability company is most frequently used for investments in real estate in Denmark as a result of the advantages attached to this structure.

The choice of deal structure depends on various factors, with tax or registration duty aspects being predominant, and which structure is most preferred depends on the circumstances of each specific transaction.

When structured as a share purchase, all the assets and liabilities in a company are transferred to the buyer by way of a transfer of the shares in the company. In contrast, when structured as an asset purchase, only the assets and liabilities that comprise the purchase agreement are transferred. The consequence of this is that any latent liabilities and risks, including pollution of the property, are, as the principal rule, not transferred to the buyer. However, in an asset purchase, the transfer of any contract requires consent from the contracting party, which is not necessary in the case of a share purchase, with the exception of contracts containing change-of-control clauses. The consent requirement in asset deals can be prevented by way of a partial demerger of the assets and liabilities to be transferred, as the Companies Act prescribes mandatory debtor substitution in such cases. Subsequently, the demerged company can be transferred as part of a share deal.

As a result of these factors, a deal's structure will often involve a prior corporate restructuring in the form of a demerger or contribution of assets, where the relevant property or portfolio of properties is transferred to a separate entity.

A share purchase requires consent from the selling shareholders, whereas an asset purchase can be resolved by the management of the selling company – typically the board of directors – without involving the shareholders. This is presumably the case even if the property in question is the only substantial asset of the company.

An important aspect when structuring a transfer involving residential properties is the tenants' mandatory right of pre-emption according to the Danish Rent Act. For properties with a minimum of 13 residential tenants, or six residential tenants if the property contains only residential tenancies, the tenants have a pre-emption right. Thus, unless the property has been divided into owner-occupied flats according to the Rent Act, the owner must offer the property to the tenants on a cooperative basis before disposing of it to a third party. The tenants must be offered the opportunity to purchase the property on the same terms as any outside purchaser has offered.

The right of pre-emption applies both when a property is transferred, including by merger, and if there is a change of control of the limited liability company owning the property. However, a change of control of a parent company (the holdco) to the property owning company (the propco) will not trigger the tenants' pre-emption right. The shares of the holdco may thus be transferred freely, whereas transfer of the shares in the propco triggers the pre-emption right if there is a change of control (i.e., the majority of the voting rights are transferred). It is a requirement for triggering the pre-emption right that the majority of the votes must be transferred to the same transferee. According to case law, a transfer of all the votes in a propco to three or more separate transferees, whereby none of them acquire control of the company, will thus not trigger the pre-emption right.

A different right of pre-emption applies when transferring residential properties reserved for senior citizens. Such properties must be offered to the municipality prior to a transfer to anyone else, but this pre-emption right does not apply to a transfer of shares in a limited liability company owning a property.

Another important factor in the choice of deal structure is registration fees. Registration fees are payable on the registration of a change of ownership and security rights over real estate. A transfer of the property in question will thus trigger a registration fee of 1,750 Danish kroner plus 0.6 per cent of the purchase price for residential properties. For other properties such as commercial properties, the variable registration fee is 0.6 per cent of the highest amount of the purchase price or the latest public property value. Registration of a mortgage triggers a registration fee of 1,730 Danish kroner plus 1.45 per cent of the mortgage sum; however, it is generally possible to make deductions corresponding to the value of the mortgages being replaced. By way of contrast, a share transfer of a limited liability company owning a property does not trigger any registration fee. In a change of ownership as part of a corporate restructuring (i.e., merger, demerger, transfer of assets or exchange of shares), the registration fee is reduced to a fixed amount of 1,750 Danish kroner. Hence, the variable part of the registration fee can be avoided by transferring the property in question to a separate company (a special purpose vehicle (SPV)) by way of a demerger or transfer of assets and, subsequently, transferring the shares in the SPV instead of transferring the property directly. This is commonly referred to as the dropdown model and is widely used. However, the use of dropdown should always be subject to an individual assessment in each case.

If a transaction involves a real estate company with securities listed on a regulated market in Denmark or another EU Member State, the company may have a duty to disclose the transaction to the market in accordance with the EU Market Abuse Regulation. The duty to inform the market arises if information about the transaction constitutes inside information.2 If information on a real estate transaction constitutes inside information, the company is required to inform the public as soon as possible of the information, but with an option to delay disclosure subject to certain conditions being met.

ii Acquisition agreement terms

Generally, it can be noted that agreements in Danish real estate M&A and private equity transactions are becoming more detailed and thorough. This is probably due to the influence of an increasing number of foreign investors in the Danish real estate market. Further, there is to a large extent no law regulating such transactions, thus requiring a more thorough description of each party's rights and obligations within the agreement itself.

Consideration is typically a cash payment and, if relevant, the buyer's payment of any intercompany loans provided by the seller to the target company. The types of representations and warranties vary to a certain degree depending on whether a transaction is a share deal or an asset deal.

A share purchase agreement will usually contain a number of representations and warranties regarding various corporate matters. These will typically include representations and warranties relating to, inter alia, the parties' capacity to enter into the agreement, title to the shares, and that the shares are freely transferable and not subject to any encumbrances.

In respect of a property, a share purchase agreement will usually contain a representation and warranty to the fact that the company owns and has full and unrestricted title to the property in question. Similarly, an asset purchase agreement usually contains a representation and warranty to the fact that the seller has such ownership and title to the property.

Both share and asset purchase agreements generally contain representations and warranties with regard to a property. Typically, these include that the seller represents and warrants that the property is free from all material encumbrances, easements and mortgage deeds other than as set out in the purchase agreement. Further, they may require that all due payments relating to the properties have been paid at the time of closing, including property taxes, and that all lease agreements relating to the properties have been disclosed and are legally binding.

With respect to the property in question, it is customary for the seller to represent that, to the seller's knowledge, its construction and utilisation is in accordance with applicable law and also that it is built in accordance with all regional and local development plans applicable to the property as well as easements registered on the property, and that there are no hidden defects.

Other representations and warranties by the seller may concern property insurances, lease agreements, pending cases or environmental matters relating to the property, and that there are no agreements or rights for sale, options or rights of pre-emption affecting the property other than the purchase agreement.

Closing conditions will typically include the buyer's obtaining of the necessary external financing, either fully or partially, as well as both seller and buyer documenting board approval of entering into and execution of an agreement. In a sale and leaseback transaction, conditions precedent to closing may include execution of a lease agreement pertaining to the property in question. The terms of the lease agreement will typically be agreed as part of the purchase agreement.

A mutual closing condition relating to a transaction involving residential properties may be that the tenants of the residential property in question do not exercise their pre-emption right according to the Rent Act. When transferring a portfolio of residential properties, the pre-emption right applies to each individual property. Hence, the purchaser will normally require a contractual right to stand down from the entire agreement or benefit from a price reduction if the pre-emption right is exercised for one or more properties.

The purchase agreement may contain an indemnification clause requiring a party to an agreement to hold the other party harmless from and against any loss subject only to the limitations set out in the agreement. The clause may preclude claims regarding consequential and indirect losses, including loss of goodwill, business, anticipated profits and similar losses. Typically, the loss would be determined in accordance with the general principles of Danish law, including the principles regarding mitigation of loss and limitation of losses resulting from acts by the party bringing the claim.

Liability may be limited in regards to both time and amount (de minimis, basket and cap) and exclude liability for certain claims, such as defects in a property, environmental and pollution matters, and the accuracy of particulars registered with the public authorities.

It is becoming more and more common in larger Danish real estate M&A transactions that a warranty and indemnity (W&I) insurance is taken out in favour of the buyer regarding the potential liability of the seller for breaches of the warranties given in the purchase agreement. This is in line with a general trend in the Danish M&A market where W&I insurance is becoming increasingly popular. As a consequence, it is typically agreed in the purchase agreement that the purchaser may only direct a warranty claim against the insurer, and only in the event of wilful misconduct or fraud may the claim be made directly against the seller. The premium of the W&I insurance will often be borne equally by both the purchaser and seller, but the purchase agreement may stipulate that either the purchaser or seller is to pay the full premium.

iii Hostile transactions

Hostile transactions rarely occur in Denmark. This is also the case for public real estate companies.

The last hostile bid for a public real estate company was William Demant Invest A/S' (WDI) tender offer to purchase all the shares in Jeudan in 2012. The tender offer was a consequence of WDI obtaining control of Jeudan, thus triggering the mandatory bid rule requiring the acquirer to make an offer for all the shares in the company. Hence, WDI had no intention of acquiring all the shares in Jeudan and made the tender offer only because it was legally obliged to do so. Therefore, the offer was not at a premium to the market price, and it was thus only hostile in the sense that the board of directors of Jeudan was recommending that the shareholders not accept the offer. Under these circumstances, the result of the tender offer was that WDI further acquired an insignificant number of shares in Jeudan, bringing its total holding to 41.6 per cent of the share capital.

iv Financing considerations

The prevailing way of financing real estate transactions is by way of loans secured by mortgages over the property in question. However, there are certain limits as to how much of a transaction it is possible to finance through mortgage loans. With regard to commercial properties, including office and industrial properties, it is only possible to finance up to 60 per cent of a property's value with mortgage loans according to the Danish Act on Mortgage Loans and Mortgage Bonds. The limit is 80 per cent for residential properties and 40 per cent for other properties, including undeveloped properties. The Danish mortgage system offers very low lending costs compared to the rest of Europe, making it desirable to leverage investments in real estate, which is particularly attractive for property funds.

The rest of the transaction value must be financed in other ways. This will often be through either equity contributions or ordinary second-tier bank financing on less favourable terms than mortgage loans but still with security in the property. Seller financing is also a possibility but is less often used as a way to finance transactions. In addition to security in the property, lenders may also require other security instruments such as negative pledges, account pledges, share pledges, assignments of receivables and springing mortgages (mortgages initially not registered with the Land Register to save registration fees), but this depends on the will of the lender.

When structuring a transaction as an asset purchase, the buyer may legally provide the property as security to the lender that is providing the financing for the transaction. However, this is not necessarily a possibility in the case of a share purchase. Under Danish law, a limited liability company is subject to limitations in terms of financing an acquisition of shares in the company itself. According to the Danish Companies Act, a limited liability company may not, directly or indirectly, provide, inter alia, security for a third party's acquisition of shares in a company or its parent. Thus, the target company cannot put up the property as collateral for the buyer's financing of the acquisition. However, subject to certain conditions, the target company is allowed to provide financial assistance. Such legal financial assistance requires shareholder approval and must be provided at arm's length, and the board of directors of the target must issue a statement ensuring that the recipient is credit-rated. Finally, the financial assistance may not exceed the funds that can be distributed as dividends, and it must be reasonable having regard to the target company's financial position.

Because of the limitations in a target company's ability to provide financial assistance, the financier of a share purchase will often obtain security in the shares in the target company. Such pledging is not subject to limitations according to the Companies Act.

v Tax considerations

There are significant differences in the tax aspects of a transaction depending on the deal structure.

In an asset deal, the seller, whether domestic or foreign, is taxed on the profit of the sale of the property and there is a right of deduction for losses incurred in this respect; however, the deductibility is generally limited to other profits on sales of properties, with the possibility of carrying the loss forward to subsequent income years. Furthermore, the seller is taxed on any recaptured depreciations. However, if the seller is considered a professional real estate trader, typically due to multiple investments in real estate with a short holding period, the deduction of losses is not limited to profits on sales of real estate, but may be deducted from any other profits. In a share deal, the seller is not taxed on any profit of sale of the property and, consequently, incurred losses are not deductible. Furthermore, a transfer of shares will generally not trigger any capital gains tax on the shares if the seller is a Danish limited liability company and the selling company holds at least 10 per cent of the shares in the transferred company. If these conditions are not met, the capital gain is taxed at the corporate tax rate of 22 per cent if the seller is a limited liability company.

If the seller is a foreign shareholder not subject to full tax liability in Denmark, any capital gains from the sale of shares will not be subject to taxation in Denmark. This is because capital gains from shares are not subject to limited tax liability under Danish tax law.

As a general rule, interest related to commercial activity in a company is tax-deductible, but interest deductions may be limited by three sets of rules: the thin capitalisation test, the asset test and the earnings before interest and taxes test. If these rules apply, it may be preferable to make a direct investment or invest through a tax-transparent entity, such as a limited partnership.

Corporate restructurings, including a demerger or transfer of assets, made prior to a transaction can be tax-exempted, and generally either with or without permission from the Danish tax authorities. However, certain conditions will apply to the tax-exempt restructuring, including a ban on selling the shares in the demerged or receiving company within three years of the restructuring. In general, it is possible, however, to obtain permission to carry out a tax-exempt restructuring without these conditions, provided that the contemplated transaction is commercially justifiable. Furthermore, it is worth taking into consideration that a tax-exempt restructuring may render tax losses carried forward from previous income years inapplicable as deductions against future income.

Generally, a transfer of property does not trigger any VAT; however, a sale of building land or newly constructed property is subject to VAT at a rate of 25 per cent of the transfer sum. VAT is not levied on such a transfer if it is part of an entire or partial transfer of business (going concern), for example, an ongoing rental business. Generally, no VAT is due on the sale of shares in a company owning real estate, and a share deal does thus not trigger any VAT.

vi Cross-border complications and solutions

Denmark has purchasing restrictions on foreigners' investments in real estate. These restrictions may make it difficult for many foreign investors to directly invest in real estate in Denmark without obtaining permission from the Danish Ministry of Justice. It is generally unlikely that such permission will be granted if a targeted property is purely an investment.

It is possible for citizens and companies from certain countries in the European Union to acquire properties in Denmark (e.g., if the purchase of the property is necessary for a company to conduct its business in Denmark).

However, these purchasing restrictions do not apply to Danish legal entities owned by foreigners. Hence, foreign investors generally choose to invest in Danish real estate through a Danish company or subsidiary. This can be done even if the sole purpose of the establishment of a company is to acquire the property in question.

Corporate real estate

There has been a slight trend to separate corporate real estate from operating companies by way of opco/propco separations. This has primarily been done by companies owned by private equity firms. In real estate-heavy companies, such as those in the retail and hotel sectors, private equity-owned companies have tended to separate a company's real estate from its operating company to divest either the propco or the opco, or as part of a complete exit from the investment through sales of both to different acquirers. Typically, the separation takes place by way of a demerger or a transfer of assets.

Furthermore, sale and leaseback transactions are becoming increasingly popular, with a significant growth in volume in recent years. Several of the largest Danish companies have engaged in sale and leaseback transactions disposing of domicile properties to release capital tied up in real estate and focus resources on their core business with the potential to generate a higher return on capital. The acquirers are typically institutional investors and private equity firms. Sale and leaseback transactions are expected to continue at a relatively high level.

In 2017, for instance, the industrial company Vestas Wind Systems A/S sold its newly built headquarters to Solstra Capital Partners and Danish pension fund Sampension. The Danish mortgage credit company Jyske Realkredit A/S also sold its headquarters to the Danish pension fund PFA at a price of 640 million Danish kroner in 2018, and in 2019, Deloitte sold its office building located in Copenhagen to the Norwegian investor KLP Ejendomme for 1.4 billion Danish kroner.


In the first part of 2020, the Danish real estate market was like most other real estate markets globally affected by the outbreak of covid-19. The government has tried to curb the spread of covid-19 with the enactment of quarantine measures that, among other things, have caused businesses, in particular within the retail and food and beverages segment, to shut down temporarily. The outbreak of covid-19 has had a significant negative impact on the Danish economy, and the transaction volume across all segments of the real estate market, as investors generally have been more cautious.

However, despite the covid-19 outbreak, the Danish real estate market remains attractive to both foreign and domestic investors (e.g., due to the possibilities for financing by way of mortgage loan). At the end of May 2020, the transaction volume seemed to be returning to the levels seen prior to the outbreak of covid-19 as society and businesses began to reopen. The long-term consequences of covid-19, and its impact on the Danish economy and the real estate market, remain to be seen, but investors are generally positive, and most expect the market to fully return to pre covid-19 levels around the end of 2020 or early in 2021.

The retail and hotel segments could potentially experience lower investor demand in times to come, whereas the office and particularly the residential segments may appeal more to investors due to, for example, residential rent levels typically remaining more stable even in periods of economic contraction.

It is expected that the focus on M&A and private equity transactions in the real estate market will continue. Additionally, the number of foreign investors in the Danish real estate market is expected to remain at a high level in the form of both private equity firms, property funds and real estate companies.

The Danish legislation on residential rent regulation has recently gained political and public awareness due to an investment scheme used by investors. Under the investment scheme, an investor acquires old residential properties (erected before 1991), typically located in Copenhagen, and thoroughly refurbishes the flats within them, as this allows for a higher permissible rent when re-letting the flats. In 2020, several amendments to the Danish Rent Regulation Act were enacted to limit property owners' possibilities of charging a higher rent for thoroughly refurbished flats. Under the new provisions of the Rent Regulation Act, investors can, inter alia, not charge a higher rent for flats that have been thoroughly refurbished within the first five years after the acquisition of a property.

Other material changes to the Rent Regulation Act include an amendment of the provisions on the permissible rent rate after flats have been thoroughly refurbished. Under the old scheme, the higher rent for said flats was permissible as long as it did not materially exceed the rent value under the Rent Regulation Act (a special rent regulation scheme that generally sets the permissible rent at a lower rate than the market rate rent). This has been changed, meaning that the (previous) common practice of setting the rent 10 to 12 per cent higher than the rent value under the Rent Regulation Act (this was broadly considered to be within the materiality threshold) is no longer permissible. The amendments to the Rent Regulation Act also introduce increased energy requirements for thoroughly refurbished flats, as well as extensions of tenants' rights (e.g., in connection with rent increases).

In general, the amendments to the Rent Regulation Act will have a negative impact on the level of rent charges, and thus the valuation of flats that are or could be thoroughly refurbished. We do not expect this to have a significant impact on either foreign or domestic investors' willingness to invest in Danish residential properties. The amendments are, however, likely to cause a period of some uncertainty regarding the valuation of the concerned properties, and sellers especially will probably have to get used to adjusted yield demands from buyers compared to those seen in past years.

The political agreement that formed the basis for the recent amendments to the Rent Regulation Act also contains contemplated changes to the Rent Act that may affect residential properties. The contemplated changes may involve a possible expansion of tenants' mandatory right of pre-emption under the Rent Act.

Institutional and private equity investors are, in both the short and the long term, expected to increase their focus on the development of new properties, or value adding through the development of existing properties. This has been the trend for the past couple of years, and it is expected to continue. The focus on property development may entail a greater risk for investors, but also a greater return, which is increasingly important as the returns on existing properties are at low levels due to recent significant activity in the property market and a lack of supply of relevant properties. The conversion of cooperative housing properties to privately owned properties may also attract increased attention from residential investors due to the above-mentioned amendments to the Rent Regulation Act.



1 Alexander Troeltzsch Larsen and Michael Wejp-Olsen are partners at Gorrissen Federspiel. The authors would like to thank Simon Bronka, junior associate at Gorrissen Federspiel, for his assistance in the preparation of this chapter.

2 Inside information is non-public information that would be likely to have a significant effect on the price of a company's securities.

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