Renting out your home – The best guide
What does being a landlord actually mean?
Being a landlord means that you own a property and choose to rent it out to another party. For example, you may have to be abroad for a certain period of time or wish to live elsewhere.
You can only rent out your home if you are the actual owner of it. If you are a tenant in a home or live in a cooperative dwelling, then subletting regulations apply, and these are different. So, please be aware of whether you are RENTING OUT A HOME or SUBLETTING A HOME.
One of the first things to consider when renting out a home is the level of rent. The first thing to consider is whether the property was constructed before or after 31 December 1991. If it was constructed after December 1991, you are generally free to determine the level of rent you want. However, the rent must not be unreasonable vis-à-vis the market.
If the property was constructed prior to 31 December 1991, the provisions of the Housing Control Act apply. You have probably heard about rental board of appeals cases. Don’t worry. Renting out your home does not have to be complicated or dangerous.
The value of the rented property is about determining rent on the basis of a comparable principle. For an in-depth definition see: The Danish Rent Act Sections 47 to 49. In practice, it simply means that you can determine your rent at a price comparable to the area in which you live. Check, for example, what rental properties there are on the housing portal that are similar to your home – on homeconnector.dk for example – or on other major rental housing portals. Note that the rent for the property to which you are comparing yours must be cost-related (relatively low rent v. market rent). You can read more about this below.
By similar rental properties, we literally mean that your home must be like the one you are using for determining your rent. For example, if you have a house of 150 m2 in Næstved, on a quiet residential street and with new elements, then the property you compare yours with should not be located in Hellerup on the waterfront, even if it is also 150 m2 and with new elements etc. Get the point?
If your tenant complains about the rent, the basis of comparison will be other similar rental properties, which however are covered by cost-related rent (low rent, in many municipalities approx. DKK 1,000 per annual m2). A housing tribunal will thus not compare your house with other ‘small houses’, but only with those that are ‘subject’ to the cost-related rent (as mentioned, approx. DKK 1,000 per annual m2). (Formula: 1,000 x m2 / 12 months = your rent)
Your reasoning must be very accurate in any housing tribunal, and the person who wins is generally the one who comes up with the best comparative rental properties.
You can read more about the Housing Control Act here.
The market rent is basically the rent you set for your home. If your home was built after 31 December 1991 (there are also a few other ways you can achieve the market rent, but these are not described here), then rejoice. Your rent cannot be slashed by a board of appeals (unless your rent is unreasonable).
Your tenant must pay for utilities during the rental period and this can, for example, be done on account (an on-account payment is a fixed amount paid in advance, the final account being settled at a later stage. The amount is thus an approximate amount, paid on the basis of an average calculation: for example, for one year’s utilities). Use your existing utilities figures in the lease: i.e. what you pay for your utilities. You read the meters on the move-in day for water, heating, electricity etc. and again when the tenant moves out. Remember that, as a landlord, you must submit a statement once a year. A statement/reimbursement helps balance the utilities. If your tenant has consumed more than the estimated utilities bill, he/she must pay the difference. You can only charge advanced payment for water/heating if there are individual meters in the rental property.
The most normal practice is for the tenant to register with the electricity company. (You can see a list of electricity companies here) When renting out a house (Read also Renting Out Your House), the tenant can usually sign up directly for water and heating too.
Another thing to consider when renting out your home is whether to rent it out furnished or unfurnished. If you are going to be posted abroad in connection with your job, it is sometimes easier to simply leave the furniture, especially if it is for a relative short period of time. You can allow yourself to request a bit more rent for a furnished home. However, that should not be a determining factor either way, since what you earn from furnishing is minimal compared to the wear and tear. If you rent out your home furnished, you should also bear in mind that you are entrusting your belongings/furniture to other people, which of course carries the risk of misuse. For your information, at Home Connector we are witnessing a trend, in which several of the companies to which we rent out homes choose to pay ‘shipping’ for their employees, which means they have their own furniture with them while overseas.
Risk is a strong word and, indeed, if you do not structure your home rental in a legally correct way, renting your home can entail an element of risk. The rental process usually goes quite quickly. The rental market is under pressure and demand is greater than supply, especially in the larger Danish cities such as Copenhagen, Aarhus, Odense and Aalborg.
Another risk is that your tenant (after a possible irrevocability period) has 3 months’ notice. That means you risk having no tenant for a period of time, if your tenant leaves the property before the end of the rental period. This is also costly.
Renting out to a ‘stranger’ is also a risk. You can, of course, take precautions to find the right tenant, but there is always a risk associated with renting out your home to someone else, since unforeseen damage to the property can occur.
List of fixtures and fittings
It is a good idea to consider making a list of furnishings and fittings to give to your tenant before they move in. This is, of course, most relevant in the case of furnished properties. But it is also a good idea if you are renting out an unfurnished flat that has the likes of curtains or lamps. Thereby, both you and your tenant have a list of what in the home belongs to you.
Being aware of your obligations when renting out your home is very important. One of the most important factors is the fact that you are responsible for making sure that all the technical installations etc. are working upon occupancy. It also your responsibility to take care of the upkeep of technical installations throughout the rental period. For example, if the refrigerator breaks during the rental period and it is not due to the tenant’s misuse, it is your duty to repair/replace it.
Renting out your home to other people can be a very emotional issue, so it is important to keep a sense of perspective when your tenant contacts you about defects in the property. If, as mentioned above, a refrigerator is not working and your tenant contacts you, it is important to understand and accept that it is not to moan or put down your home.
Fixed-term v. indefinite rental
It is important to consider whether you want to rent out your home for a fixed-term or indefinite period of time.
Fixed-term home rental
Many landlords choose to rent on a fixed-term basis. They thereby have a specific time for the tenant to vacate the property. The landlord always has 12 months’ notice of tenancy. Consequently, many opt for a fixed-term rental, since the rental period thereby ends without further notice at the end of the rental period: cf. Section 80 of the Danish Rent Act. However, there is not always the option of renting out your property on a fixed-term basis, since there has to be a plausible reason for this. If you are to be posted abroad for a certain period of time, it is possible to rent out on a fixed-term basis, as you do not have the option of living in your home yourself.
If, at a later point, you wish to sell your home, this can also justify fixed-term rental. It is important to specify why the home is being rented out for a fixed-term period in Section 11 of the lease, since housing law can otherwise override the fixed term: cf. Section 80, para. 3 of the Danish Rent Act.
Please note that if your tenant, with your knowledge, lives in the property for more than 14 days longer than the agreed time period, the rental period will continue indefinitely and in accordance with the provisions of the Danish Rent Act.
The 2-year rule
Every day, people ask us about ‘the 2-year rule’. Landlords believe that they are only allowed to rent for a maximum of 2 years, otherwise they may risk the tenant staying forever. In brief: the 2-year rule does not exist – at least not if you own the home you are renting out.
The reason people think there is a 2-year rule is because it exists for subletting. Therefore, if you yourself are a tenant of a home and rent it out to a third party, you may only rent out the home for 2 years, and only if the tenant’s absence is temporary and is due to illness, living abroad, studies etc.: cf. Section 70 of the Danish Rent Act.
So, for anyone who owns the home they are renting out, the 2-year rule does not apply. Thus, in theory, you can rent out your home on a fixed-term basis for 10 years, if that is the length of time you know you are going to be away. The basic rule for fixed-term rental is simply that the reason for a fixed-term period must be justified and plausible.
The other option you have is to rent out for an indefinite period of time. If you just want to rent out your home without a plausible reason for a period, you only have the option of renting out on an indefinite basis. In this case you have the same termination options. That is, you can terminate the tenancy with one year’s notice, but ONLY on the grounds that you yourself are moving back. If not, the rental period continues until the tenant gives notice of termination. A tenant always has 3 months’ notice of termination: cf. Section 86 of the Danish Rent Act.
Advantages and Disadvantages of Renting
- Transition period: You may need to be abroad for a limited period of time, or you may be planning to sell your home at a later stage. In these contexts, renting out is an excellent solution, since very few people can afford to leave their home idle for several years.
- Continuous income: Renting out your home can provide you with a permanent monthly income. Of course, the rent your tenant pays must cover the expenses you have on the home, but it also provides you with some extra income. Read the tax regulations for home rental below.
- No loss: If you rent out your home from the planned relocation date, you will not suffer any loss on the home. If you are selling your home, depending on the state of the market, you risk not getting the price you had expected. By renting out, you do not lose anything, since the monthly expenses of the home are covered by the rent.
- If you want to move back: Renting out is also a really good solution if you plan to return and live in the flat/house yourself. Selling your house can be a big step, and both costly and time-consuming, if you know you are only away for a certain period of time. Therefore, many people choose to rent out their home, since this avoids the hassle and cost of selling the home.
- Wear and tear: When renting out your home, you risk getting it back in worse condition than when you handed it over, since tenants can of course cause wear and tear. In the old rent law, you could demand refurbishment, if the home was newly refurbished at the time of occupancy. In other words, if you handed over a newly-refurbished flat (freshly painted, freshly-varnished floors etc.) you were entitled to get it back as good as new, when the tenant moved out. This is not possible under the new Danish Rent Act, in which you can only demand what is referred to as ‘normal refurbishment/repair’. In other words, the new Danish Rent Act states that the home must be handed back in the same condition as at the time of occupancy, with the exception of deterioration caused by wear and tear: cf. Section 98 of the Danish Rent Act. You cannot require the a flat to be handed back in better condition than upon takeover.
- Long termination: As a landlord you always have 12 months’ notice of termination, and you can only terminate the contract on the grounds that you have to return and live in the home: cf. Section 86, para. 2 of the Danish Rent Act. The termination rule is absolute, so you cannot reduce the period of notice, whatever it says in the contract. In other words, you are faced with a long notice of termination, and you have to wait a whole year from the moment you give notice to the moment you can move back.
Once you have decided to rent out your home, you need to start advertising.
You have several options when renting out your home. You can choose to do it all yourself on a housing portal: e.g. Boligportal.dk. In this context, you are responsible for photos, advertising, showings, contract, occupancy etc. This can be somewhat time-consuming and stressful at an already stressful time.
Another option is to use a home rental company. In this case, you pay the company a specified fee. In turn, you do not have to take care of all the practical issues yourself. The company takes care of advertising, showings, contract and occupancy. You thereby avoid the hassle of having to rent out your home yourself.
The good advertisement
The most important thing is not to oversell your home. If it is an old home, it is no use trying to market it as new and fabulous, if it is not. It is important to be honest in your advertising. If you oversell, you will end up with lots of tenants showing up, but none will be interested, because the flat does not live up to their inflated expectations.
In this context, it is important to take photos that reflect the qualities of the home. It is definitely advisable to get a professional to take the photos, so you do not end up with blurred, dark pictures in your ad. Make your home look as good as possible by showing its qualities!
It is also important to have all the formalities in order. Be clear about the length of time you are renting out your home, how many m2 your home is, how many rooms there are and how much the tenant has to pay in advance. It can be misleading and you can lose your tenant if you set too low an advance payment and then, when it comes to signing the contract, the amount is suddenly doubled. In addition, provide as much information as possible about the home, so you do not end up with a misinformed tenant.
When renting out your home, you need to show it to potential tenants. You can opt either to show it to potential tenants one at a time, or to have a joint showing – a kind of ‘open house’.
Of course, prior to a showing, it is important for the home to come across as clean and tidy. If the weather is dark, it may be a good idea to switch on some lights inside. If the home has been empty for a while, it is also a good idea to air it if it is warm, or to turn on the heating if it is cold. This creates a better first impression. Otherwise, just prepare for any questions that may arise.
So whom should I choose?
It is important to consider which tenants you want. Should they be families with children, expats, may they have pets etc.?
If, following the showings, several people are interested, you have to choose whom you want to rent to. The most important advice is to trust your gut feeling. Who gives you peace of mind?
Of course, it is important that your tenant can and will pay on time, so you also need to look at things like the person’s job title and employer. Once the ‘hard stuff’ has been sorted out, it is important to choose the tenant who impresses you the most. Someone might be rolling in money, but a real pain of a tenant who complains about everything. So, choose a tenant with whom you click. It will make you happier during the rental period and give you peace of mind.
Once you have found the tenant you want to rent to, you have to draw up a lease. The importance of a legally correct contract cannot be emphasised enough. You may end up with an invalid lease if you do not know how to make it legally correct.
Finding a template for the A9 lease (the latest version) is easy. Much of the contract is about ticking boxes and is not rocket science, but as soon as you get to Section 11, which is written in free hand, it starts getting difficult. You can enter anything here, so it is important not to write anything that invalidates the contract or that places you in a bad situation.
Section 11 of the contract must include details about any rent increase, upkeep, refurbishment at the time of relocation etc.
If you want the rent to rise after the tenant has lived in the property for a year, it is important to make that clear in Section 11. You can regulate the rent according to the net price index. Adjustment is done as follows: current rent/old index x new index = new rent. You can raise the rent according to the net price index once a year.
You can find the net price index here.
It is also important here to make clear the tenant’s upkeep obligations, both inside and outside. It may be a good idea to write here that the tenant must clean drains, descale, defrost the freezer etc., so he or she is aware of this. If you are renting out a home with a garden, Section 11 is also the place to make it clear that the tenant is responsible for its upkeep. For example, write that the tenant is responsible for hedge trimming, lawn mowing and snow clearing.
Another thing to specify in Section 11 is what repairs your tenant is responsible for. As you know, the property must be handed back in the same state as when it was taken over, with the exception of the deterioration caused by wear and tear: cf. Section 98. However, it is important to indicate if the lease is newly refurbished (freshly painted, recently sanded floors etc.) Thereby, the tenant is aware that refurbishment/repair must be carried out when moving out. As mentioned before, it is no longer possible to demand total refurbishment by your tenant, since you cannot require the property to be handed back in better condition than it was upon occupancy. Under the new Danish Rent Act, you can only demand what is referred to as ‘normal refurbishment/repair’.
Please note the difference between Section 10 and Section 11 of the contract. Section 10 deals with other information about the rented property. This is not the place to state terms and conditions, which, in their entirety, are already included on the general terms or deviations of rent legislation. This must be written in Section 11.
Deposit and prepaid rent
You can charge up to 7 months’ rent in advance: a combination of deposit, prepaid rent and the first month’s rent.
The deposit is your security when the tenant moves out. If anything needs to be repaired that the tenant has damaged, this is deducted from the deposit. The normal thing is to charge a deposit of 3 months, excl. utilities. In other words, this is pure rent, exclusive of water, heating and other things. Hence, if your rent is DKK 9,000 per month, excl. utilities, the deposit will be: DKK 9,000 x 3 = DKK 27,000 deposit.
Prepaid rent is your guarantee that the tenant will pay rent for the final months of the rental period. In this case, you can also charge up to 3 months’ rent, excl. utilities. Prepaid rent is not repayable, but in return the tenant does not have to pay rent for the final period. If you have charged 3 months’ prepaid rent, the tenant will not have to pay rent for the final 3 months. Of course, the tenant still has to pay in advance.
Having to shell out 7 months’ rent may scare some tenants away. It is a huge deposit. You may attract more tenants with a lower deposit, so make up your mind how much you wish to charge. We always recommend a minimum of 3 months’ deposit.
It is important to hand over the property to your tenant in a decent condition: cf. Section 9 of the Danish Rent Act. So, be sure to check the following points before your tenant moves in. That way, the rental period will get off to a good start. Has your home been cleaned before the tenant moves in? We always recommend professional cleaning, preferably as close to the day of occupancy as possible. By having a professional carry out ‘industrial cleaning’, everything will be cleaned: from cabinets, drawers and surfaces to oven, hob and toilet. REMEMBER that you can complain if the cleaning does not meet your expectations – then they will come and do it again.
Have you remembered to move out your personal belongings? Whether or not the flat is furnished, you must remember to move out your personal belongings – files, pictures, papers etc. If you are renting out your flat unfurnished, you must also remember to remove all furniture, unless otherwise agreed with the tenant. REMEMBER to check drawers and cabinets, since it is easy to forget things there.
Are all the technical installations working? Before your tenant moves in, remember to test the stove, hob, extractor, dishwasher etc. to make sure they are working. In the terms of the Danish Rent Act, if something is not working, you must get it repaired. If possible, provide instruction manuals.
Remember to check that the drain is working, that the shower is not dripping and that the shower head is not scaly. Also remember to descale the bathroom before your tenant moves in.
Have you remembered to remove all your possessions from your basement/attic? If the lease stipulates that a basement/attic comes with the home, you must remember to empty it/them. Everything must be cleared out, unless otherwise agreed with the tenant.
Remember to clear your balcony and clean off any dirt or algae. Then you are sure of getting it back clean and algae-free.
If you are renting out a home with a garden, the tenant is contractually responsible for its upkeep. However, always remember to make sure the grass is mowed, the hedge is trimmed and the snow cleared (if there is snow) before your tenant moves in. This will make the tenant feel welcome.
We always recommend writing a welcome letter to your tenant. There may be a number of little issues – for example, descaling, operating technical installations etc. – which cannot be included in the contract, but which the tenant needs to know, in order to maintain the home as well as possible. In addition, your tenant may be an expat and not familiar with the area. You could, therefore, write a small, good-to-know list of shopping facilities, restaurants etc. Write a small letter to your tenant, welcoming him or her, and passing on important information regarding the property and the surrounding area.
In addition, make sure that the tenant has paid the deposit agreed upon under the terms of the contract.
When your tenant is moving in, it is a good idea to conduct a move-in inspection, when you write a report of the state of the home. An move-in inspection is only mandatory if you are renting out more than one flat: cf. Section 9, Para. 2 of the Danish Rent Act. However, we always recommend writing such a report. Here you can make a note of any existing faults and defects and take photos of the property. Thereby you can compare the condition of the property when the tenant is moving out and see whether the tenant has caused any further damage, which needs to be repaired. Upon completion of the move-in report, the tenant has 14 days to submit objections and additions to it. If, for example, the tenant discovers that the stove is not working (something that cannot be checked upon moving in), they must notify the landlord within 14 days.
Also remember to read electricity, water and heating meters (if possible).
During the rental period
Internal upkeep usually rests with the tenant. Internal upkeep means painting,
whitewashing, wall-papering and varnishing of floors. The tenant must carry out internal upkeep on a reasonably regular basis: i.e. whenever it is needed. The tenant must, of course, take care of all normal upkeep in the property, and is responsible for any damage he or she has caused. Under Section 20 of the Danish Rent Act, the tenant must also maintain locks and keys. As a landlord, you are responsible for the upkeep of technical installations, if any damage or fault was not caused by the tenant. In other words, you are obliged to repair/replace the dishwasher if it suddenly ceases to wash properly. If it is damaged as a result of the tenant’s misuse, the landlord has no obligation for its repair. Unless otherwise agreed, you as the landlord are responsible for external upkeep. However, you can opt to include in the contract that the tenant is responsible for the upkeep of outdoor areas.
If you want to pass on some of the responsibilities such as snow clearing or gardening, you must inform the tenant of this in Section 11 of the lease.
Renting out real estate can be sound and profitable business. However, you must be aware of the tax consequences and opportunities.
In Denmark, the general rule is that you must pay tax when renting out property. If you reside outside Denmark, you will at least have limited tax liability to Denmark for renting out property located in Denmark.
Calculation of taxable income in connection with rental can be done either by using a basic allowance of 1.33% of the value of the property (though always at least DKK 24,000) or allowance for expenses actually incurred. You select the principle when submitting your tax return. You have the option of switching from the basic allowance method to allowance for expenses actually incurred, but not vice versa.
In addition, when using accounting deductions/expenses actually incurred, you can make use of the options in the return on capital tax scheme or the business tax scheme.
The return on capital tax scheme and the business tax scheme ensure that interest costs are deducted from the top tax base so that interest expenses receive the greatest possible deduction value in the final tax.
Fees for auditing assistance in connection with the calculation of the taxable rental are tax deductible.
In Denmark, the above are the same rules that apply today when Danes want to rent out their home for the whole, or part of the year.
Your rental income must, as a rule, always be declared to the tax authorities, but according to the rules on taxation, you will not need to pay taxes as long as they do not exceed the so-called basic allowance – an allowance that is calculated differently depending on whether you are the owner or tenant of the property you rent out.
If you as a tenant sublet your flat, the basic allowance is equal to two-thirds of the annual rent you pay – including on-account heating charges and housing benefit, if you receive it. The same rules may also apply if you are a cooperative property owner.
As the owner of a tenanted property, you will not have to pay tax as long as the rental income does not exceed DKK 24,000 a year, or 1.33% of your home’s property value in the income year. If the property value is, for example, DKK 2 million, you may declare DKK 26,600 in rent tax-free. In most cases, however, your rental income will exceed this and you should be sure to make a thorough check of your income and expenses.
If you rent out your home for an extended period, business regulations will enable you to deduct your business’s interest expenses from your personal income. The business tax scheme also allows you to make savings in the business by paying provisional tax. In this way, you can carry out a tax equalisation of your income from the business by saving up in good years, and increasing the accumulated profits in bad years.
Termination by the tenant
During the rental period, as stated in the contract, the tenant has the option of terminating the lease. It is usual to determine a certain period of non-notice (e.g. 9 months), during which the tenant cannot terminate the lease. The tenant can then terminate the lease: cf. Section 86 of the Danish Rent Act. This states: ‘The notice of termination is 3 months to the first working day of a month that is not before a public holiday.’
In other words, the tenant has 3 months’ notice. Termination must be made in writing.
If the tenant vacates before the notice of termination – e.g. after a month – as a landlord you have a duty to try and re-let it: cf. Section 86, para. 3 of the Danish Rent Act.
As a landlord, you only have the option of terminating your tenant’s lease if you are returning to live there, or if the property is to be demolished. In this case, you must give the full 12-month notice of termination: cf. Sections 82-83 of the Danish Rent Act. In other words, terminating a lease is quite a complicated affair, and you can only give notice of termination if you yourself are returning to live in the property. This is also the reason why many people choose to rent out on a fixed-term basis (read more about fixed-term rental here).
The termination rule is mandatory, so you CANNOT terminate your tenant’s lease with less than 12 months’ notice, even though the contract may state otherwise.
There are various ways of ending a lease ahead of time: termination or cancellation. Termination is described above. Cancellation allows you to annul the lease with one day’s notice, if the tenant violates the terms of the lease as described in Section 93 of the Danish Rent Act. Possible violations include: not paying the rent on time; using the property for purposes other than those agreed; or neglect of the rented property.
This allows you to cancel the lease agreement. In this context it is not a question of notice of termination. The tenant must simply vacate the property as soon as possible.
Dialogue with your tenant
One of the most important things during your rental period is to have good dialogue with your tenant. You will be in contact with your tenant throughout the rental period, and it is important that you respond positively to any issues. It may also be a good idea to follow up with your tenant once in a while to hear whether everything is going well. However, be careful not to put too much pressure on them by contacting them too often.
At the end of the period Repayment of deposit
When your tenant has terminated the rental contract, or for any other reason has to vacate the property, the property must be returned to you. It is only compulsory to carry out a move-out inspection, if a landlord rents out more than one flat: cf. Section 98, para. 3 of the Danish Rent Act. However, we always recommend doing so, in order to compare the condition with that in the move-in report. The tenant must return the rented property in the same condition as at the handover, except for the deterioration caused by wear and tear: cf. Section 98 of the Danish Rent Act. If, during the move-out inspection, you have discovered defects caused by the tenant, you must inform the tenant of them no later than 14 days after the inspection.
The cost of any repairs is deducted from the deposit.
Once the cost of any repairs has been determined, the remainder of the amount is paid back to the tenant. If there are no defects, the full deposit is paid back.
When the tenant moves out, you must also make a utilities statement if your tenant has made an on-account payment to you. Usually water and heating are paid on account, while electricity, Internet and TV are paid directly to the provider. Upon occupancy, you must read the water and heating meters; the same again when the tenant moves out. You then need to calculate how much your tenant has used versus how much they paid. If your tenant has paid more than he or she has used, the balance must be refunded. If, conversely, he or she has consumed more than what he or she has paid on account, he or she must pay the extra amount to you.