If you are a landlord wishing to transfer a property, it is important to be aware of the obligation to offer that follows from the Danish Rent Act. The obligation to offer means that in certain situations, the landlord must offer their tenants in the property the opportunity to take over the property on a cooperative basis before the landlord can finally transfer the property to another party, cf. section 100(1) of the Danish Rent Act. A cooperative housing association formed by the tenants may acquire the property at the same purchase price, cash payment, and other terms that the landlord can obtain when selling the property to another party, cf. section 103(1) of the Danish Rent Act. In layman's terms, the tenants must be offered to acquire the property on the same terms as a third party.
If the property is used exclusively for residential purposes and contains at least six residential apartments, the rules on the obligation to offer the property for rent in the Danish Rent Act apply, see section 100(2) of the Danish Rent Act. In the case of properties that are only partially used for residential purposes (so-called mixed-use properties), 13 residential apartments are required for the obligation to offer to apply.
The rules on the obligation to offer do not apply to properties that are divided into condominiums, cf. section 100(3) of the Danish Rent Act.
The Rent Act further stipulates that the obligation to offer must be maintained even if the landlord carries out subdivision, registration, or transfer of land, cf. section 100(5) of the Rent Act. This ensures that the landlord cannot reduce the number of residential apartments on the property and thus avoid being subject to the rules on the obligation to offer in the event of a subsequent transfer of the property.
Furthermore, section 103(1) of the Danish Rent Act stipulates that the terms on which tenants are offered to purchase the property must be capable of being fulfilled by a cooperative housing association. The rules in the Danish Cooperative Housing Association Act are therefore also relevant.
The Cooperative Housing Association Act applies to properties for year-round residence with more than two residential apartments, cf. section 1 of the Cooperative Housing Association Act. It is therefore a requirement that the property subject to the offer obligation is used for year-round residence and consists of more than two residential properties in order for the cooperative housing association to acquire the property.
The following example illustrates a pitfall where landlords must therefore pay particular attention to the rules on the obligation to offer:
- The landlord owns a separate piece of real estate on which 16 terraced houses have been built, all of which are rented out. The owner divides the terraced houses into 16 separate pieces of real estate. The owner then chooses to transfer the divided properties collectively or individually to one or more potential buyers.
Firstly, the landlord (seller) must be aware that the rules on the obligation to offer must be observed even if the property has been subdivided into separate real properties, as the rules on the obligation to offer are maintained despite changes in the land register, cf. above regarding section 100(5) of the Danish Rent Act. This is because the landlord cannot 'subdivide their way out' of the obligation to offer. Secondly, the landlord must be aware that even after a legally completed subdivision, the landlord will not be able to fulfill the obligation to offer the property to the tenants, as the cooperative housing association established by the tenants cannot legally acquire one or more of the 16 independent real properties. The latter is due to the fact that, after the subdivision, only one residential unit is registered on each property, cf. section 1 of the Cooperative Housing Association Act, cf. section 103(1) of the Rent Act. The exact same challenge will also apply if, in addition to the subdivision of the 16 independent real properties, the landlord further subdivides, for example, an independent undeveloped real property with an associated building right from the original property, as a cooperative housing association cannot legally acquire an undeveloped real property.
The above illustrates just one of many legal issues that the owner of a property subject to a mandatory offer must consider before selling the property, particularly if the property is being acquired by the buyer with a view to realizing identified 'potential' untapped development potential. The development potential may quickly prove to be unrealizable or have a completely different value than initially assumed.
