Real estate and construction

Advising on transactions and disputes relating to property is an area where Lett Law Firm is very experienced and highly specialised.

 

Lett Law Firm’s qualifications in this area apply to every aspect of advice that may be required in connection therewith, e.g. purchase of real property, contracting or leases etc.

Danish construction contracts are characterised by being based on agreed documents rather than legislation. As a matter of fact, there is no legislation on this specific subject, except for procedures based on the Public Procurement Directive or the Danish Procurement Law. Both are based on the same legislative principles.

 

Almost all Danish construction contracts are being entered into with “AB 92” contract form as contractual basis. “AB 92” is a set of contract provisions resolved in 1992 by the construction industry. These provisions are considered very suitable for the purpose of entering into construction contracts, regardless of the concerned party’s position as either contractor or developer.

 

The provisions are, in fact, very suitable for the purpose, however, it must be acknowledged that is important to ensure that all aspects not regulated by the provisions are covered by the individual contract. An example hereof is the content of the assignment, which is, naturally, not covered by the standardised provisions.

 

It is remarkable that almost all construction contracts are based on “AB 92” whether the assignment concerns major construction works or small private construction works. This applies regardless of the nationality of the contractors as long as the construction takes place in Denmark even though it can seem expedient to enter the contract on the basis of FIDIC (International Federation of Consulting Engineers) standard forms. FIDIC standard forms are forms specially drafted to comply with the demands of technically very complicated construction work. Hence, the forms are very detailed and regulating, and using the forms may require a great deal of legal advice in the negotiation- and drafting process. Used correctly the forms are, however, very fit for their purpose, which is larger construction assignments which involve parties from different countries and different governing law.         

 

Contracts related to the construction contracts are contracts entered into between the developer and the developer’s technical adviser. This type of contracts is typically based on the provisions of “ABR 89”, which, as well as AB 92 is a set of contract provisions having been resolved by the construction industry as suitable for the purpose of entering into technical contracts, regardless of the concerned party’s position as either technical advisor or client/developer. The provisions’ applicability is very similar to the ones of AB 92. Furthermore, contracts where the contractor gives technical advice or designs the works are often based on “ABT 93”. ABT 93 is very similar to AB 92, however, the contract form contains provisions regarding the contractor’s liability for design.

Commercial leases in Denmark are covered by the rules of the Danish Business Rent Act which reflect that the parties in question are commercial parties. The landlords and the tenants thus have a marked freedom of contract with some significant exceptions, e.g. regarding termination.

 

It is noteworthy that increases in rent due to the Danish Business Rent Act, where no other agreements are made, may only take place if a four year increase period is respected. Based on the “market rent”, the rent increases equally each year during a four year period, until the final increase is reached.  

 

Normally the parties agree to regulate the rent every year based on an index. A rent increase of 3 percent p.a. is not unusual.

 

It is noteworthy that the tenants are protected from new changes for eight years in the event the parties agree on permitting the landlord to require changes made in the terms of the lease and to terminate the contract if the parties cannot agree on these specific new terms.

 

Tenants should consider having their contract, or extracts of their contract, registered with the Danish Land Register in order to protect themselves from the Landlord’s creditors. If registration takes place, the tenant is protected from the subsequent purchasers or creditors of the Landlord.

It must be noted that Denmark has certain rules affecting foreigners’ purchase of real property situated in Denmark. 

 

Foreigners which have not been residents in Denmark for a period of five years may only purchase real property, if they obtain permission from the Danish Ministry of Justice. This also applies to companies, associations etc., public or private institutions, foundations, and foreign public authorities. However, if the purchaser is an EU-citizen, an EEA.citizen or an EU-company, they may purchase real property if certain specific conditions are fulfilled, e.g. the property must serve as the all-year residence for the purchaser or must be necessary for a company in order to perform independent business or to provide public services.

 

It is very often recommendable to carry out a due diligence in connection with conveyance of real property between commercial parties. The due diligence has several purposes, e.g. to disclose the environmental status of the property which may be of a great economic significance. Furthermore, the due diligence also discloses third party rights of the real property, potential disputes etc.

 

When it is agreed to convey the real property, a purchase agreement must be prepared. Normally, the purchase agreement is not registered in the Danish Land Registration system, but a deed of transfer is registered instead covering the main aspects of the purchase agreement’s contents.

 

The Danish Land Registration system contains the registration of every real property in Denmark, without exceptions.

All real properties have an individual registration number together with other identification measures. Lett Law Firm has electronic access to the Land Register.

 

The Danish Land Registration system registers third party rights to the real property and registered rights must be respected by a purchaser. However, if a right is not registered, a purchaser do not have to respect any potential right of the seller’s subsequent purchaser or creditors (with the exception of rights specified in law, e.g. transference of registered rights and usual rights of use). The Danish Registration system is thus very efficient and transparent and provides the purchaser (or lenders) with great safety when his right has been registered.

 

In 2009, the Danish Land Registration system will be completely computerised, but for the time being all registrations are made by filing the documents to the local Land Registry. At the moment, there are 82 local Land Registries in Denmark, but in 2009 the Danish Land Registration system will be centralised and one special Land Registration system will replace the existing 82 Land Registries.

 

It should be mentioned that the Danish Mortgage banks provide good borrowing facilities as it, as a general rule, is possible to achieve mortgaging of up to 80 % of the property, if the property is for residential use.