Property purchase agreement: what to know

What is a property purchase agreement?

A property purchase agreement is the contract that formalises the transfer of real property from seller to buyer. The document establishes the agreed terms of the transaction: price, handover date, what is included with the property, and which conditions apply.

The property purchase agreement is, whether the property is a detached house, a commercial property, a holiday home or a plot of land, the document that legally binds the parties to the transaction.

Property purchase agreement vs. home purchase agreement: The terms are often used synonymously. Home purchase agreement typically refers to private dwellings, while property purchase agreement is the broader term covering all types of real property, including commercial and agricultural properties.

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When are you legally bound?

This is one of the most important questions in a property purchase: when is the transaction binding?

The signature binds: Once both parties have signed the property purchase agreement, the transaction is as a rule binding. This applies whether it is a transaction via an estate agent or a private transaction.

The right of withdrawal: In a consumer purchase of a home (a property mainly intended as a dwelling for the buyer), the buyer has a statutory right of withdrawal of 6 business days after the agreement is entered into, under the Act on Consumer Protection on the Acquisition of Real Property. In calculating the 6 business days, Saturdays, Sundays, public holidays and Constitution Day are not counted. If the right of withdrawal is used, the buyer must pay 1% of the purchase price to the seller as compensation.

The right of withdrawal does not apply to the purchase of commercial property, and it does not apply to the seller, who is bound from signing.

Conditional agreements: Many property purchase agreements are conditional, that is, tied to the fulfilment of certain conditions. Typical conditions:

• Approval of bank financing within a deadline (financing reservation)
• A satisfactory condition report and energy label
• Permission from authorities (for example a soil-contamination certificate, agricultural permit)

If a condition is not met, the buyer can typically cancel the transaction without paying compensation.

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Property purchase agreement, what must it contain?

A property purchase agreement must as a minimum contain:

1. Identification of the parties

Full names, CPR numbers (for private individuals) or CVR numbers (for companies) and addresses of the seller and buyer. If it is spouses or co-owners, all owners are stated.

2. Identification of the property

• Cadastral number and official address
• Type (detached house, flat, commercial property, holiday home, plot)
• Area (plot area, living area, commercial area)
• Land-register information, including existing registered burdens and easements

3. Purchase price and payment terms

• The agreed purchase price
• Deposit (typically 5 to 10% on signing, the rest on the handover date)
• Method of payment, bank transfer via lawyer/agent is standard

4. Handover date

The date for handover of keys and the takeover of the property's rights and obligations, including property tax, insurance and any rent. The risk for the property as a rule passes to the buyer from the handover date.

5. What is included in the transaction

The property purchase agreement should clearly specify what is included:

• Fixtures (for example fitted kitchen, wood-burning stove, awnings, carport)
• Movables (what the seller may want to sell separately)
• Keys, remote controls, manuals

Use the standardised inventory list (løsørefortegnelse), which is part of most standard purchase agreements, to avoid disputes.

6. The condition of the property and liability

• Condition report and energy label: Under the house-inspection scheme, the seller presents a condition report and an energy label. If the buyer has received these and an offer of change-of-ownership insurance where the seller offers to pay half the premium, the seller's liability for hidden defects is significantly limited
• Change-of-ownership insurance: The seller must offer to pay half the premium of a change-of-ownership insurance as a condition of being released from liability for hidden damage
• Area deviation: What happens if the property turns out to have a different area than stated?

7. Conditional clauses

State any conditions for the validity of the transaction: financing reservation, condition reservation, municipal permits, etc.

8. Breach and cancellation conditions

What happens if the buyer does not pay on the agreed date? What happens if the seller does not clear the property? State the consequences of breach.

9. Signatures and dating

Both parties sign with a date. Normally the seller signs first and then the buyer, but both signatures are necessary for the agreement to be binding on both.

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Property purchase agreement in a private transaction (without an agent)

If the property is sold privately, without an estate agent, it is especially important to ensure that the property purchase agreement is drawn up correctly and completely. The estate agent normally handles a range of formalities:

• Obtaining the condition report, energy label and area calculation
• Checking charges, registered burdens and easements
• Calculating the apportionment (tax, insurance, utility charges apportioned on the handover day)
• Depositing the purchase price and key payment

In a private transaction you are responsible for these tasks yourself. Consider using a lawyer to review the agreement, even if it is made on the basis of a template.

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Special considerations for commercial property

A property purchase agreement for commercial property is as a rule freer and typically requires more detailed regulation of:

• Tenancies: Is the property let? What is the rental income, and what is the tenants' legal position after the transfer?
• Due diligence: Commercial transactions normally include a due diligence phase, where the buyer reviews the property's tenants, contracts, permits and obligations
• VAT handling: Certain commercial properties are VAT-registered, and buying and selling can have VAT consequences
• Transfer of employees: If the property has associated employees (for example a caretaker), the rules on business transfer may apply

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Registration

A property purchase agreement is not in itself enough to transfer ownership, it requires registration of the deed. The deed is the official transfer document that is registered in the Land Register and documents that the buyer is the new owner.

Registration typically takes place shortly after handover and is normally handled by the parties' lawyers or a digital deed service.

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Create your property purchase agreement with LegalDock

LegalDock offers a property purchase agreement template that covers the central elements of the private sale and purchase of real property in Denmark. The template is a good starting point for private transactions, but we recommend that you always consult a lawyer before signing, especially for larger transaction amounts.

Note: LegalDock provides legal document templates and general information. The content of this article is not legal advice. Contact a lawyer if you are in doubt about your specific situation.