Commercial lease law is characterized by a high degree of freedom of contract, and it is thus not a validity requirement that a commercial lease contract be concluded in writing, unless one of the parties requires it. However, a lack of a written contract almost always leads to evidentiary difficulties if (when) there is a disagreement about the contractual basis, in which case it will often be difficult to clarify the content of an oral commercial lease agreement.
In these cases, the parties risk that the declaratory rules of the Commercial Tenancy Act will apply to the commercial tenancy - even though they may have originally assumed/agreed otherwise.
Purpose
This article explains the importance of a written business lease and discusses some areas where it is particularly beneficial to have a business lease in writing.
Written requirements in commercial leases?
The statutory starting point in the Danish Business Lease Act is that a lease agreement and other agreements about the leased premises must be drawn up in writing when one of the parties requires it.
When one of the parties must require written form in a commercial lease agreement, it can be inferred that the non-statutory starting point is that an oral commercial lease agreement is valid and enforceable - just as it is the starting point for other types of agreements.
A commercial lease can be concluded on both an oral and written basis.
If nothing has been agreed or it cannot be proven that there is an oral agreement to deviate from the rules of the law, the provisions of the Commercial Tenancy Act will determine how the relationship between tenant and landlord is regulated.
Below are some examples of why it's beneficial to have a written business lease contract.
Possibility of rent regulation
There are several statutory options for adjusting the rent that the parties do not need to have agreed to make use of. Thus, 4 years after the tenancy came into force, both parties can demand that the rent be adjusted to the market rent if the current rent is significantly higher or lower than the market rent.
In addition, the landlord can demand rent adjustments as a result of improvements made by the landlord. However, rent adjustments that do not follow directly from the Danish Commercial Tenancy Act must be agreed upon if they are to apply to the contractual relationship.
If the rental agreement is only concluded orally, it can be difficult to prove that the parties have agreed on further adjustment options - and this also applies to the most common adjustment clause on adjusting the rent according to the development of the net price index.
The inability to adjust the rent according to the net price index means that the rent stands still and does not develop in line with society. In such cases, the rent can therefore only be adjusted when one of the parties (rightly) demands market rent adjustment, cf. ELL § 13 or improvement increases. This can lead to large jumps in the size of the rent.
Sublease options
Subletting is only possible if there is an agreement to this effect or if the tenant can obtain the landlord's specific consent. This means that the tenant may not transfer the use of the rented property or part of it to others unless there is an agreement to this effect in the commercial lease or the landlord's consent is available in the specific situation.
If the tenant chooses to sublet even though there is no right to do so in a written agreement or consent from the landlord, it may be difficult for the tenant to prove the legality of this sublease, and in the extreme, it may result in the termination of the tenancy, as an unauthorized sublease may constitute a material breach. Therefore, the tenant would be wise to have a favorable contractual term on the right to sublet in writing, just as a consent from the landlord should always be obtained in writing.
Return of the rented item
When the tenant vacates the lease, the basic principle is that the leased property must be returned in the same condition as when the tenant took possession, with the exception of deterioration due to wear and tear, which is not covered by the tenant's maintenance obligation, and defects that the landlord is responsible for repairing.
In practice, this starting point is almost always deviated from, and it is often the case that the tenant in the commercial lease agreement has undertaken to hand over the leased premises in a newly refurbished condition and/or that the tenant has assumed a larger share of the maintenance obligation than the one stipulated in the Danish Commercial Lease Act.
The condition of a lease at the time of vacating is one of the most common causes of disputes between tenants and landlords, and this type of dispute almost always involves an assessment of the contractual terms regarding the condition of the lease at the time of takeover/move-in as well as the ongoing maintenance and terms regarding the condition in which the lease is to be vacated/delivered.
However, in the absence of a written commercial lease agreement, the other party's objection may make it difficult to prove the condition of the lease at the time of occupation or that the maintenance and handover condition has been deviated from (if one or both parties claim this).
This is especially true for commercial leases that are valid for a long period of time. If it cannot be proven that something else has been agreed, the requirement for the condition of the leased property at handover will thus be the statutory requirement for handover in the same condition as at the time of takeover, less normal wear and tear.
Tenant payment of operating and common expenses
It can be validly agreed between the tenant and the landlord that the tenant must pay any operating expenses in addition to the rent. As a general rule, this can be agreed upon verbally, but if the commercial lease was entered into after January 1, 1992, the specification requirement must be met in order for the landlord to claim the expenses from the tenant.
The specification requirement is fulfilled by the landlord stating the expected amount for each individual expense item according to his best estimate. This is a protective prescriptive provision and therefore the landlord cannot deviate from it.
However, if the landlord does not specify the expenses with the necessary itemization, the consequence will be that the landlord cannot charge the expenses to the tenant, as everything is included in the rent.
If there is an oral commercial lease, it is considered very difficult to document that the landlord can and has fulfilled the specification requirement, which is why a written commercial lease must be considered crucial for the landlord's ability to charge the tenant for expenses in addition to the rent.
Conclusion
The above is just a sample of the issues that can arise with an oral commercial lease, but it illustrates that a written commercial lease will often be crucial to prove what has actually been agreed, and it is often beneficial for both parties to get the agreement in writing.
If you have any questions about the written form of a commercial lease or business lease law in general, you are always welcome to contact CLEMENS' specialists at business lease law.
