Commercial lease: renting business premises

If you rent office space, a warehouse, a shop or other business premises in Denmark, you are subject to different legislation than residential tenants. Commercial tenancies are primarily governed by the Commercial Tenancies Act (erhvervslejeloven), and the freedom to agree terms other than the Act's is significantly greater than in residential letting.

It is a freedom that can work for you or against you, depending on whether you know what you are signing.

What is a commercial lease?

A commercial lease is an agreement to rent premises used for business purposes, office, shop, warehouse, production, restaurant, clinic and more. It differs from a residential lease on a range of central points.

The overall rule in the Commercial Tenancies Act is that the parties can largely agree the terms freely, but within the Act's mandatory rules. This gives landlord and tenant far more flexibility than in the residential market, but it also means that you as a tenant cannot expect the same protective rules you know from residential letting.

Commercial Tenancies Act vs. Residential Tenancies Act, the most important differences

	Commercial Tenancies Act	Residential Tenancies Act
Rent regulation	No, free rent agreement	Yes, partly regulated
Notice from the landlord	Agreed, typically 3 to 12 months	Min. 3 months + fixed grounds for termination
The tenant's right to terminate	Agreed	Typically min. 3 months
Maintenance	Freely agreed	Statutory minimum requirements
Deposit	Freely agreed	Max 3 months
Move-out inspection	Agreed	Statutory rules

What must a commercial lease contain?

1. The parties

State the landlord's and tenant's full legal name, CVR number and address. For the landlord it is important to state whether the landlord is a private individual, a company or a property fund.

2. Description of the premises

Describe the leased premises precisely:

• Address and any floor/unit
• The area in m² (gross and net)
• Which common areas are included?
• Is there access to parking, a basement, a roof terrace?

Note: Area is typically stated as gross area in commercial tenancies, which can include shares of common areas and walls. Have the area statement verified before signing.

3. Lease period

State the start and end date of the lease period, and whether the tenancy:

• Is time-limited (ends automatically on a date)
• Is open-ended (runs until terminated)
• Has a fixed minimum period (for example no termination for the first 5 years)

Many commercial tenancies have an initial lock-in period in the landlord's favour, and during that period the tenant cannot terminate. Check carefully what you are committing to.

4. The rent

State the monthly rent and the payment terms. Commercial rent is as a rule free, there is no ongoing rent regulation as in residential letting, and the landlord can agree the market rent.

Describe:

• The rent amount (excluding or including VAT, note that letting business premises is only VAT-liable if the landlord is voluntarily VAT-registered)
• Payment deadline (typically the 1st of the month)
• Index regulation: is the rent adjusted on an ongoing basis in line with the net price index (NPI)?
• Market-rent revision: can the rent be demanded adjusted to the market rent at certain intervals?

5. On-account contributions and operating costs

Does the tenant pay, on top of the rent, an on-account contribution to cover:

• Electricity, water, heating
• Refuse collection
• Insurance
• Maintenance of common areas
• Administration fee

Describe clearly what is included in the rent and what is settled separately. Require a specification of what is included in any on-account contributions, and when the annual settlement takes place.

6. Deposit and prepaid rent

The Commercial Tenancies Act sets no limits on the size of the deposit. 3 to 6 months' rent is typical. Describe:

• The size of the deposit
• The conditions for repayment
• The deadline for return after move-out

7. Maintenance, interior and exterior

In residential letting the maintenance obligations are governed by law. In commercial letting the allocation is freely agreed. Typical models:

• "Shell and core": The landlord provides the shell, the tenant fits out and maintains everything internally
• Split maintenance: The tenant maintains the interior, the landlord maintains the building's structure and common areas
• Full service: The landlord maintains everything, and the operating costs are reflected in the rent

State clearly who is responsible for:

• Roof, external walls, technical installations (plumbing, electricity, ventilation)
• Windows and external doors
• Interior surface treatment (paint, floors)
• Equipment and installations put in by the tenant

8. Alteration and fit-out

If the tenant wants to alter or fit out the premises, the landlord's prior written consent is typically required. Describe:

• Requirements for consent
• Who bears the costs?
• Must the alteration be reinstated on move-out?

9. Termination terms

The Commercial Tenancies Act as a rule gives the landlord the right to terminate the tenancy, but with limitations in certain cases (a non-terminable period, protection of the tenant against termination). The parties can agree terms that give the tenant more protection.

Describe:

• The notice period from both sides
• Is there a period where the tenancy is non-terminable from the tenant's side? From the landlord's side?
• On what grounds can the landlord terminate?

The tenant's right to terminate: A commercial tenant can terminate on the agreed notice, unless there is a lock-in period the tenant has accepted.

10. Transfer and subletting

Can the tenancy be transferred to a new tenant, for example on the sale of the business? Does this require the landlord's consent? The Commercial Tenancies Act as a rule gives a commercial tenant a certain right to assign the tenancy to someone who continues the same type of business (right of assignment), unless otherwise agreed.

Adjustment to the market rent

A special feature of commercial tenancies is the option to demand the rent adjusted to the market rent (the value of the leased premises). Under the Commercial Tenancies Act, each of the parties can as a rule demand the rent adjusted to the market rent, but no more often than every four years, unless otherwise agreed.

If the parties cannot agree on the market rent, the matter can be brought before the housing court (or an agreed arbitration scheme), which sets a binding market rent.

It is an option that can surprise tenants who are not aware of it, the rent can suddenly rise to market-rent level, even though it has otherwise only been index-adjusted.

Move-out and return

On move-out it is typically agreed that the tenant must hand back the premises in the same condition as on takeover, cleaned and with all their own installations removed. If reinstatement does not take place as agreed, the landlord can demand the costs covered from the deposit.

It is strongly recommended to carry out a takeover and move-out inspection, document the condition with photos and state the agreement on inspection in the contract.

VAT on commercial leases

Letting real property is as a rule exempt from VAT, but the landlord can voluntarily register for VAT for the commercial tenancy. If the landlord does so, 25% VAT is charged on the rent.

As a VAT-registered tenant you can deduct the VAT paid as input tax. If you are not VAT-registered (for example a dentist or a business with VAT-exempt activity), premises subject to VAT are more expensive in net cost.

Check the VAT status before you sign, and state in the contract whether the rent is inclusive or exclusive of VAT.

Frequently asked questions about commercial leases

Is there a standard form for commercial leases?

There is no statutory standard form for commercial leases, unlike residential leases, where there is an authorised standard lease (typeformular A). The commercial lease is a private-law agreement that the parties draw up freely.

Can I as a tenant demand the rent reduced?

The Commercial Tenancies Act does not give the tenant a general right to a rent reduction (unlike certain rules in residential letting). However, the tenant can demand adjustment to the market rent if this is agreed or follows from the Act, and the market rent is lower than the agreed rent.

What is a non-terminability period?

A non-terminability period is an agreed period during which the tenancy cannot be terminated, by either tenant or landlord. It gives both parties security: the landlord is assured payment, and the tenant is assured access to the premises during the period. Typically 5 to 10 years for larger tenancies.

Must commercial leases be registered?

Registration is not a requirement for validity, but it secures the agreement priority over subsequent registered rights (for example charges). For long-term or large tenancies, registration is common.

Can we use a residential lease for a commercial tenancy?

No. A residential lease governs tenancies intended for dwelling and gives the tenant a range of rights that do not fit commercial letting. A commercial lease should always be adapted to the rules of the Commercial Tenancies Act.

Conclusion

A commercial lease is a complex agreement with major financial consequences. Rent, operating costs, maintenance, termination terms and VAT are all topics that require thorough clarification before you sign. Use a professional template, and read the contract thoroughly, especially the sections on lock-in, market-rent revision and move-out obligations.

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The content of this article is for guidance only and does not constitute legal advice. Consult a property lawyer for advice on your specific situation.