In a buoyant commercial letting market, investors and asset managers endeavour to optimise the value of their property assets, with only the tenants left to foot the bill.
One would normally believe a square metre to be a quite well-defined measure, but that is by no means the case. In Denmark, practices are changing – and not for the benefit of tenants.
As a general rule, Danish Consolidation Act no. 311 of 27 June 1983 (“DCA 311”) on the calculation of residential and commercial floor areas is referred to for a description of how space is to be measured and allocated. According to the Danish Business Lease Act, compliance with these principles is not mandatory, however, leaving the parties free to determine how floor area and rent are to be calculated.
It is therefore of the utmost importance that tenants are aware of how floor areas are calculated.
DCA 311 reads as follows (in our English translation): “Areas relating to “ancillary space” situated away from the dwelling or the business premises – such as laundry rooms, boiler rooms, boxrooms, bicycle and pram storage rooms and similar facilities – are not included […] and “Areas relating to roofed-over terraces, open balconies, open entrance areas and gateways are not included.”
In recent years, landlords have increasingly tended to include the property’s technical control rooms in the calculation of floor areas to be allocated. Mainly basement control rooms are now included as part of the lettable floor area, often in agreement with the land surveyor who would in such case note: “The principles in DCA 311 are used for calculating the floor area of the premises, except for …”. This in effect means that the floor areas are not allocated according to the DCA 311 principles.
Landlords typically argue that the floor area in question is part of the building area. As equipping modern office buildings with technical installations is often a costly affair, such installations should also be included in the rent, they claim.
Of course, one is free to decide whether to sympathise with these arguments. It is a fact, however, that the practice is gaining ground, driving up the rent to a higher level than before, for the same areas. Tenants usually tend to use the rent quoted per square metre as a benchmark when comparing lease premises. Here, the snag is that you often do not compare the same square metres, and you are therefore easily “tricked” into accepting an overall rent that is much higher than before.
In this connection, we should add that the areas in question are not included in the built-up area. They typically represent no real site value. Development sites are generally paid for according to building rights above ground, and the landlord has therefore not paid for the site area of the basement.
In most places, the landlord will determine the rent of basement areas at “basement rent”, for office lease premises traditionally corresponding to 40-50% of office rent, depending on useability, but we increasingly see landlords factoring in technical space when summing up the total gross office space. As a result, the tenant may easily be charged DKK 1,500 to DKK 2,000 per sq m in central Copenhagen for basement space that cannot be used by the tenant but serves only to hold the property’s technical installations.
The tenant is landed with the outcome that the office rent has suddenly increased by 10-15% from the level it would have been, had the floor area been calculated according to Danish Consolidation Act no. 311 of 27 June 1983, which stipulates that technical space is not included. Tenants renting a floor area of 1,000 sq m at an annual net rent of DKK 1,600 per sq m, will therefore be charged DKK 160,000 to DKK 320,000 p.a. more than they should be.
It has therefore become even more pertinent for tenants to have advisors that understand the basis on which the rent has been determined.
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