Clear victory in the Danish High Court following a dispute about the conditions for an acquisition

If you want to sell a business, you should provide the conditions to the counterparty in writing – and as a starting point incorporate them explicitly into the terms of the agreement.

This is made clear after the Western Division of the Danish High Court delivered its judgment in a case about a business transfer, in which the seller still owned the properties in which the sold business was based. Hence, the sold business (the target company) was to lease the premises from the seller.

In the seller’s view, these commercial leases had a fixed, non-adjustable rent. However, as this was neither stated in the agreement nor mentioned by the seller in the course of the negotiations, the buyer was not aware that, in the seller’s view, it was not possible to lower the rent.

Had the buyer known that the rent could not, for example, be adjusted to the market rent, it would of course have had a significant impact on the buyer’s assessment of both the value of the leases and of the deal. The dispute that followed between the buyer and the seller was first heard by the district court and later by the Western Division of the Danish High Court.

Clear victory in the High Court

Holst, was not involved in the conclusion of the agreement. However, associate partner Christian Skad-borg represented the buyer/target company through to a clear victory in the High Court.

The judgment entailed that the target company’s rent was significantly reduced, and that the target com-pany now has a repayment claim of more than DKK 2 million (including DKK 450,000 in legal costs).

In its decision, the Western Division of the Danish High Court particularly took into account the fact that the seller had not made the buyer aware of the seller’s essential condition about the rent for the leases.

Important contribution to case law
In recent years, there have been many business transfers in Denmark, and subsequent disputes about the terms are not unusual. Most often, however, the disputes are resolved directly between the parties, and if necessary through arbitration – which Holst, also has great experience with – and therefore the decision is of importance to case law.

The decision underlines the importance of both communicating conditions and being aware of any ap-pendices, and it also confirms previous practice regarding Section 13 of the Business Lease Act, accord-ing to which the rent for a commercial lease can be adjusted to the market rent. It is important for both the buyer and the seller to be aware of this during a business transfer, as it – depending on the circum-stances – should be included in the overall assessment of profitability.