Commercial lease for business premises

When do you need a commercial lease?

Use the template when a new lease is needed for business premises in Denmark: a shop, office, clinic, warehouse, workshop or restaurant. In a business sale it is particularly relevant when the buyer is to have his own lease directly with the landlord instead of taking over the seller’s, or when the old lease is so incomplete that the parties would rather start again.

It is not the right document if the buyer is simply taking over the seller’s existing lease. That is usually an assignment («afståelse»): the lease continues, but with a new tenant. The Danish Commercial Leases Act (erhvervslejeloven) generally gives the tenant a right to assign the lease in certain situations, such as the sale of the business, but the landlord may be entitled to object to the new tenant, and the lease may have departed from or extended the statutory rules. Read the existing lease carefully, and talk to a lawyer before the purchase agreement is signed.

If someone else is to run the business in the premises without a sale, the business lease agreement is the right starting point.

What the template contains

• The premises and permitted use: address, floor area, how the area is measured, and what the premises may be used for.
• Commencement and non-terminable period: when the lease starts and for how long each party cannot terminate it.
• Rent and rent review: a choice between indexation to the net price index and stepped rent, plus the statutory rules on adjustment to market rent.
• Deposit and prepaid rent: how many months’ rent is provided as security.
• Running costs, utilities and VAT: which costs the tenant pays on top of the rent, and whether the lease is voluntarily VAT-registered.
• Maintenance and fit-out: who maintains what inside and outside, and what the tenant may alter.
• Subletting and assignment: whether the tenant may sublet or assign the lease, for example on the sale of the business.
• Moving in, moving out and termination: inspections, handover, reinstatement, notice periods and breach.
• Special terms, annexes and signature: for example a restriction on competing tenants, signage and house rules.

Points to watch

The Commercial Leases Act is based on freedom of contract. Most terms can be agreed freely, and where the lease is silent, the Act’s default rules apply. A few rules, however, cannot be departed from to the tenant’s detriment. In practice the lease should therefore deal with the important questions rather than leave them to the Act.

• Non-terminable period: a long period for the tenant gives security to someone investing in a fit-out, but it also ties him in. On a later sale, a long period during which the landlord cannot terminate is often a plus, because the buyer gets security for the premises.
• Rent review: net price indexation and stepped rent are the usual models. The rules on adjustment to market rent can lead to a significant increase. Work out what the rent could become over the term of the lease.
• Maintenance: allocate responsibility for the roof, façade, installations and ventilation clearly. Ambiguity here becomes expensive, especially in a restaurant with an extractor hood and grease separator.
• Reinstatement on exit: agree the condition in which the premises are to be returned, and make an entry report with photos. Disputes over condition at the end of a lease are a classic.
• Competing tenants: a clause preventing the landlord from letting to a competitor in the same building can be valuable for a shop or café.
• Permitted use and authorities: check the local plan (lokalplan) and any permits. Letting premises for restaurant use does not mean they may lawfully be used for it.

The lease in the sale of a physical business

For a shop, restaurant or clinic, the lease can be the business’s most important asset. A good location at a reasonable rent with a long, secure term is often a large part of what the buyer pays for as goodwill. Conversely, a lease that can soon be terminated, or that gives no right of assignment, can reduce the price or stop the deal. The buyer should therefore review the lease in due diligence, see the due diligence checklist, and the purchase agreement should be conditional on the lease being transferable or a new lease being signed, see the asset purchase agreement.

For online businesses the lease is rarely decisive, but an office or warehouse may still be included. More on physical deals is in the chapter on physical businesses, and you can browse shops and restaurants for sale.

How to use the template on Sitavo

The commercial lease template is available to you if you have an active or pending listing or an ongoing deal on Sitavo. You fill in the fields with the editor in your account, can edit the wording directly and download the lease in Word or PDF. The lease text itself is in Danish, as Danish law governs it. If you need help with the premises and the deal, you can find a commercial property broker, and if you want to know what the business is worth with its lease, start with a valuation.