Danish Owner's Mortgage: A Guide for Foreign Lenders

Cross-border financing into Denmark often introduces foreign lenders to unique local security instruments. The most common, yet frequently misunderstood, is the Danish owner's mortgage (ejerpantebrev).

For lenders accustomed to direct pledges, the concept of a company issuing a registered mortgage deed declaring a debt to itself and with itself as a creditor can seem counterintuitive. However, this specific instrument is an important component of the Danish debt finance market, offering both strong creditor protection and significant cost efficiencies. Here is a breakdown of how the owner's mortgage instrument operates, particularly regarding priority and re-use.

The Mechanics of the Sub-Pledge

Instead of granting a direct pledge to a bank lender, a Danish company issues a registered mortgage deed declaring a debt to itself (figure 1 below). The company is registered as a creditor against itself. The company then uses this deed as collateral by sub-pledging (underpant) it to a third-party creditor (such as a bank) to secure an underlying liability like a credit facility (figure 2 below). In other words, the Danish company is both pledgor and pledgee of the first priority security, and in its capacity as pledgee it sub-pledges its interests to a third-party creditor. Upon redemption of the underlying obligation, the sub-pledge reverts to the original pledgee.

Fixed Priority

The priority of the owner's mortgage is established at the exact time it is registered in the relevant public registry of charges. This priority attaches solely to the registered deed itself, not to the underlying obligation. As long as the deed remains registered, its place in the creditors' priority queue is protected, regardless of fluctuations or temporary repayments in the underlying bank debt. The owner's mortgage can remain in place even after the underlying obligation secured by the sub-pledge is redeemed.

Re-usability and Stamp Duty Efficiency

The primary commercial advantages of the owner's mortgage are re-usability and registration cost savings. Registering a new security in Denmark triggers a stamp duty of 1.5 per cent of the principal amount in return for being granted priority. When the underlying bank loan is fully repaid, the sub-pledge is released, and the deed reverts to the owner's absolute control. The owner can then sub-pledge the exact same deed to a new creditor to secure a new loan (figure 3 below). By recycling the existing instrument, the owner entirely avoids paying the 1.5 per cent stamp duty again.

Strategic Sizing to Reduce Costs

A common pitfall for foreign lenders is demanding registration for the total combined facility limit. Because the 1.5 per cent stamp duty applies to the nominal face value of the charge, this approach often results in unnecessarily high registration costs. If the combined debt is EUR 50 million, but the pledgeable assets have a realistic liquidation value of only EUR 20 million, registering the full EUR 50 million is economically inefficient. Creditors can never recover more than the actual value of the assets. To reduce transaction costs, some lenders take a commercial view and cap the registered nominal amount at the estimated maximum recovery value of the assets. If there are several senior lenders, an intercreditor agreement would then dictate the exact waterfall distribution of the enforcement proceeds among the secured parties, rendering a fully sized registration unnecessary.

Conclusion

This combination of a locked priority position, stamp duty-efficient recycling, and strategic sizing makes the owner's mortgage a standard and very efficient tool for securing e.g. revolving credit facilities in Denmark. Understanding this structure allows the parties to optimise transaction costs for their borrowers. Interestingly, while this structure is common in the Danish market, it is rarely seen outside Denmark. However, we have previously been able to replicate the structure outside Denmark, in e.g. England & Wales, by reference to the applicable Danish market practice.

Further Information

For further information on Danish security for cross-border banking and finance transactions, please consult our guide on Danish banking and finance law for foreign lenders and our briefing and news section. If you are a bank, financial institution, project sponsor, or corporate borrower considering how a Danish security package could support your financing or project activity, our Banking & Finance team would be pleased to advise on the structure and documentation. For further guidance, please contact your usual Carsted Rosenberg adviser or reach out to  Michael Carsted Rosenberg or Dr. Andreas Tamasauskas at Carsted Rosenberg.

This briefing is intended to provide general information on banking and financial law in Denmark It is not intended to provide definitive legal or tax advice. No legal, tax or business decisions should be based solely on its content. The briefing does not necessarily deal with every important topic and is not designed to provide legal or other advice. It shall not be used as a substitute for legal advice and none may be inferred. It is only intended for general information on matters of interest. While we endeavour to represent the information as accurately and correctly as possible, we cannot accept any responsibility for any errors or omissions.