Swedish Law – Purchasing Real Estate in Sweden

I have received a question if a foreign (i.e. non-Swedish) lawyer may draft the Sale and Purchase Contract in respect of Swedish real estate.

My answer was roughly as follows:

There is no formal requirement that a Sale and Purchase Contract should be drafted by a Swedish lawyer. There is actually no requirement at all regarding who is entitled to draft the Sale and Purchase Contract. Even if it is most common that the real estate agent involved drafts the contract, it could be drafted by the parties themselves or by a third party.

However, I would assume that a Swedish seller would be hesitant to sign a Sale and Purchase Contract drafted by a foreign lawyer. In addition I am not sure that a foreign lawyer would be sufficiently acquainted with applicable Swedish law relating to transfer of real estate to safe guard her or his client as buyer.

Swedish Law – Purchasing Real Estate in Sweden - Sale of Co-Owned Property

I have received a question about the sale of a property by a 50 % owner.

Question:

Is it possible for a 50% share owner of a property to order the sale of the entire property without the consent of the remaining partners?

As my answer may be hard to find among the old posts on Purchases of real estate in Sweden I publish it here.

Answer:

Yes and no. I am a lawyer you know ;)

The rules of the Swedish Act on Co-Ownership (Lag (1904:48 s.1) om samäganderätt) apply.

According to this act, if a house or other real property is owned by more than one person, each co-owner, irrespective of the share he owns, has the right to go to court and ask the court to appoint a custodian, who will then arrange for the sale of the property through a public sale.

Purchasing Real Estate in Sweden - Notes on Purchase of Commercial Real Estate including Tenement Buildings - Signatures

It should be kept in mind that the managing director of a selling company normally would not be authorised to sign the purchase agreement in his capacity as managing director.

The agreement should be signed by authorised signatories as stated in the registration certificate.

A managing director has the right to enter into agreements in the daily course of business but a sale of real estate does not normally fall within that category. However, it is not uncommon that the managing director has been appointed sole signatory of the company, in which case his signature, of course, is enough.

Purchasing Real Estate in Sweden - Notes on Purchase of Commercial Real Estate including Tenement Buildings – Guarantees related to Tenants

Normally a purchase agreement for tenement building should include guarantees in respect of the rent level, the payment discipline of the tenants and any disputes with tenants. All tenement contracts should also be made available to the purchaser prior to signing.

Purchasing Real Estate in Sweden - Notes on Purchase of Commercial Real Estate including Tenement Buildings - Environmental issues

As a purchaser of commercial real estate, you acquire the risk of being liable for any necessary clean-up and after-treatment measures; provided that the previous owners conducting an environmentally hazardous activities causing pollution are not able to pay for these measures. However, if the purchaser did not know or should not know of the pollution he is free of this responsibility.

If we assume that the seller did not inform the purchaser of any pollution and even if he guaranteed that the real estate was free from pollution, the purchaser may have acquired liability, because he ought to have known.

It is a general principle in Swedish law as mentioned in a previous post that a purchaser of real estate has an obligation to investigate the real estate thoroughly. The purchaser is not able to claim that he should be entitled to rescind the purchase contract nor to compensation for “hidden defects”, if such defects would have been possible to find at a competent investigation of the real property prior to the purchase. The same principle may be said to apply also to pollution.

A purchaser of real property has to safeguard himself against unwanted and unknown liabilities to the extent possible and should at least carry out a thorough environmental due diligence to ascertain the possible risks of environmental liability. This should preferably be done separate from the normal real property due diligence as the investigators called in most probably should have different fields of expertise.

The due diligence investigation under the Swedish Environmental Code must first of all include a thorough ocular investigation. Should any land unevenness, rusting barrels or drums be visible, this must cause added investigations e.g. digging and analyzing soil samples. Normally, an investigation under the Swedish Real Property Code could be limited to non-destructive investigation. The purchaser need thus not open up floors or walls or start digging, but if there is an indication that something might be wrong such investigations have to be made.

It is also clear that a purchaser has an obligation to find out what kind of business activities have been carried out on the property to be purchased. Any indication that such activities could have entailed a risk for pollution, such aspects must be deemed to cause additional investigations.

The Purchase Agreement should provide for a compensation from the seller if, and, when, the purchaser is required to undertake and pay for the clean-up and after-treatment measures. It should, however, be noted, as very important point, that no agreement between the seller and the purchaser will influence the purchaser’s after-treatment measure responsibility towards the authorities; even if such an agreement may give the purchaser the possibility to seek compensation from the seller e.g. due to a breached guarantee.

Purchasing Real Estate in Sweden - Notes on Purchase of Commercial Real Estate including Tenement Buildings

In addition to what is applicable to private homes / villas certain points need to be considered if the object of a purchase is a commercial real estate or a tenement building.

Certain issues have already been mentioned such as permits but the following should also be kept in mind.

• Environmental issues
• Guarantees related to tenants
• Signatures

These points will be covered in later posts.

Purchasing Real Estate in Sweden - Registration of new owner

The buyer should register his title to the real estate within three months of completing the transfer. However, failure to register the title within the stipulated time will not make the purchase invalid.

The registration in the Land Register is important for many reasons; mainly because it gives the buyer – in good faith – priority to title from the day of application for registration. As mentioned before, i.a. in this post, it is also necessary for the buyer when applying for mortgages.

Purchasing Real Estate in Sweden - Activities in connection with the Take-Over

When all the necessary permits have been obtain and the transfer date has arrived the parties normally hold a closing meeting at the buyer’s bank to exchange money and documents. Present at such a meeting usually are the parties, the real estate agent and a representative of the buyer’s bank.

The purchase contract normally provides for the seller to carry any and all costs for the real estate until the transfer date and will also enjoy any income of the real estate until that date. From the transfer date these roles are reversed.

A settlement of accounts covering these costs and income is agreed and the net sum arrived at in the settlement is taken into account when deciding on the final amount of money to be paid by the buyer.

The seller will normally have to sign an application for additional mortgages in the real estate necessary as security for the buyer’s loans. It is only the seller who is entitled to make such an application as he or she is the registered owner of the property at that stage. The seller will also hand over any “mortgage letters” held by him. If such “mortgage letters” are in electronic form a re-registration is made.

When the bill of purchase has been signed and the buyer’s bank is convinced that it will receive the necessary security in the property, the purchase price will be transferred to the seller’s bank.

The seller will finally hands over the keys to the building together with any available maps and other documentation related to the real estate to the buyer.

Purchasing Real Estate in Sweden - Permits in connection with purchases of commercial real estate /commercial property

As mentioned in an earlier post the municipality within whose borders the real estate is situated may have a right to step in as buyer on the same terms and conditions as the buyer who entered into the purchase contract with the seller.

Also mentioned earlier here purchases of tenement buildings may require separate approval according to the Act on Acquisitions of Tenement Buildings (I have not found any English translation). The buyer must notify the transfer to the municipality in which the real estate is situated. When the notification has been made, the municipality decides whether the transfer needs to be approved by the local

Rent Tribunal. Such approval will be granted after the Tribunal has found that the buyer has a long-term ambition with his investment and also the ability to manage the tenement building in an acceptable manner.

If the object of the purchase is agricultural land and land for forestry an approval is needed from the County Administration according to the Swedish Land Acquisition Act (I have not found any English translation).

Purchasing Real Estate in Sweden - Permits in connection with purchases of non-commercial real estate, private homes / villas

As mentioned in an earlier post here the Swedish Pre-emption Act (I have not found any English translation) gives municipalities a right to exercise a right of pre-emption. The municipality within whose borders the real estate is situated may have a right to step in as buyer on the same terms and conditions as the buyer who entered into the purchase contract with the seller.

It is important to note that no such right exists if the object of the purchase is a one or two family house with surrounding land not exceeding 2,000 square meters.

This pre-emption right is only exercised in very few cases each year.

Purchasing Real Estate in Sweden - The Purchaser’s Obligation to Investigate the Real Estate

The seller should inform the buyer of the condition of the real estate including any known defects.

According to Swedish law the seller is responsible for all defects. However, this responsibility is balanced by exclusion of all defects that were possible to discover with a careful examination of the real estate. In practice, this means that the seller is only responsible for “hidden defects”.

As soon as the buyer finds a defect prior to the purchase, it is of course no longer hidden and cannot be used by him against the seller. Even if only mere indications of defects (such as stains that are a result of damp or the smell of mould) are noticed, a more thorough investigation (by a professional) need to be made.

Normally, most buyers use a professional building inspector/surveyor who investigates the real estate and presents a written report. Although this does not automatically make the seller responsible for everything that the inspector has not found, it is normally easy for the buyer to point out that defects not discovered by a professional surveyor have to be considered as “hidden”. If the surveyor misses detectable defects, the buyer will lose the case against the seller but then the surveyor most probably will be responsible towards the buyer; at least to the extent of his insurance.

It is possible for the seller to exclude the responsibility for “hidden defects” as well. The wording of the exclusion provision in the contract is very important. If the exclusion is too general, it will not be accepted by the court. The seller is not helped by e.g. selling the real estate “as is” or in “existing condition”. However, this is acceptable in respect of specific parts of the real estate e.g. the heating system. Even with acceptable exclusions, the buyer can make claims against the seller for defects known the seller.

Purchasing Real Estate in Sweden - Financing of the Purchase

It is not often that someone will purchase real estate with the full sum up front and most purchasers will have to acquire some sort of real estate financing.

The buyer will normally be able to secure a first mortgage loan up to 80 or 85 per cent of the appraised value of the real estate. An additional second mortgage may also be obtained but at a higher interest rate.

The mortgage is actually a document (pantbrev = “mortgage letter”) issued by the relevant court in the desired amount. Only the registered owner may apply for such a mortgage. A fee of 2 per cent of the amount is charged for this. This “mortgage letter” is then pledged to the lender as security for the loan.

In the purchase situation the buyer’s lender will require sufficient “mortgage letters” to cover the amount burrowed by the buyer, before the buyer has acquire the title to the real estate and thus while the seller still is the registered owner. This is solved by the seller at the transfer date signing applications for the issue of the “mortgage letters” needed indicating the buyer’s lender as recipient of the “mortgage letters”. The court will upon the issue of the “mortgage letters” send them to the lender and not to the seller.

Re-payment of the loans is determined by the amount borrowed, the re-payment plan, the interest, which is calculated by the lender according to current rates; and the type of real estate purchased.

Purchasing Real Estate in Sweden - Additional Clauses in the Purchase Contract

In addition to the compulsory content of a Swedish real estate purchase contract a number of clauses are usually to be found. The most common are covering the following:

1. Payment Conditions

Normally a down payment is made at the signing of the purchase contract. If a real estate agent is involved in the transaction, he will insist on having the down payment deposited in his account. This safeguards his interest in getting paid his commission even if the purchase is not followed through.

The remaining part of the purchase price, normally about 90 %, will be paid on the transfer date.

2. Debts secured in the real estate

The parties have to decide to what extent any part of the seller’s loans secured in the real estate will be taken over by the buyer. Such take-over will of course require the consent of the lender in question. If no take-over is agreed, the seller will repay his loans at the transfer date and the mortgage deeds thereby released will be handed over to the buyer or, probably more realistic, to the buyer’s bank financing the buyer’s purchase.

3. Transfer of Risk

The parties will agree on whether the risk of damage etc. to the real estate will remain with the seller until the transfer date and the consequences of any damage occurring between the time of signing and the transfer date.

4. Insurances

The seller normally undertakes to keep the real estate fully insured until the transfer date.

5. Division of real estate income and costs

The seller will carry any and all costs for the real estate until the transfer date and will also enjoy any income of the real estate until that date. From the transfer date these roles are reversed.

6. Costs of registration etc.

When the transfer of titled to the real estate is registered, the court will charge a registration fee and a transfer tax. This tax is 1.5 % of the purchase price if the buyer is a private person and 3 % in case of a legal entity as buyer. It is almost always the buyer who will undertake to pay the fee and tax.

In connection with the purchase additional mortgages are often registered in order to secure the financing of the purchase and the parties normally agree that the cost of this should be carried by the buyer. The cost of registering a new mortgage is 2 % of the nominal amount of the mortgage.

7. Present condition of real estate

The seller should inform the buyer of the condition of the real estate including any known defects. This is of course of importance in relation to the warranties and the future liabilities resting on the seller.

As part of the condition of the real estate, any limitations as to use of the real estate for a specific purpose etc should be considered.

8. Warranties

If the purchase concerns a villa you would normally not find many warranties by the seller. He may warrant the he is the lawful owner, that only mortgages and other encumbrances on the villa set out in the Swedish Land register exist etc.

If the object of the transfer is e.g. a commercial building or industrial land, the seller will be required to give substantial warranties including warranties as to rent and tenants, possible environmental issues etc.

9. Pre-emption rights etc.

The municipality within whose borders the real estate is situated may have a right to step in as buyer on the same terms and conditions as the buyer who entered into the purchase contract with the seller. The purchase contract will normally be made conditional upon the municipality confirming that it will not exercise its pre-emption right.

Purchases of tenement buildings and of farming real estate require approvals by various government bodies.

I will comment upon these questions in a later post.

10. Issue of Bill of Purchase

The seller will undertake to issue the purchase deed upon receipt of full and final payment. This is of major importance to the buyer as he will ordinarily apply for registration of the transfer of titled based on the purchase deed and not the purchase contract.

11. Attachments

The content of the attachments may vary depending on what kind of real estate is purchased. One attachment that should be included is an excerpt from the Swedish Land Register showing the ownership and mortgage situation of the real estate.

Purchasing Real Estate in Sweden - Compulsory content of the purchase contract

The purchase contract has to be in writing and

1) identify the real estate,

2) set out the sales price,

3) contain a clear statement of the seller’s intention to sell and

4) be signed by both parties.

A contract that does not meet the formal requirements 1—4 above is void.

If the seller is married, it will most likely be necessary to obtain the spouse’s consent to the sale.

The seller’s, and – if applicable – the spouse’s signatures should be confirmed by two witnesses.

As mentioned in an earlier post, the documentation ordinarily consists of a purchase contract setting out all the provisions of the transaction and a Bill of Purchase confirming the transfer of title and the payment of the full purchase price. Both these documents must fulfil the above requirements with the exception of the signature of the seller’s spouse. Such consent need only be made in the document used for registration purposes.

Finally, it should be noted that there is no Swedish requirement to involve a notary public in connection with a real estate purchase contract. Anyone can draft such a contract and it is normally done by the real estate agent and not a lawyer.

Purchasing Real Estate in Sweden – Normal Content of a Purchase Contract

A normal purchase contract for a private home in Sweden would contain i.a. the following headings:

1. Seller

2. Buyer

3. Real Estate

4. Transfer Date

5. Purchase Price

6. Payment Conditions

7. Debts secured in the real estate

8. Transfer of Risk

9. Insurances

10. Division of real estate income and costs

11. Costs of registration etc.

12. Present condition of real estate

13. Warranties

14. Pre-emption rights etc.

15. Issue of Purchase Deed etc

16. Attachments

17. Date

18. Signatures

In several coming blog posts I will discuss these items in some detail. However, I have in earlier posts mentioned the Seller and the Buyer .

Purchasing Real Estate in Sweden - The normal way a real estate (private home) transaction is carried out in Sweden

• The seller finds a suitable real estate agent, who advertises the real estate in newspapers and on the internet.

• The potential buyer gets in touch with the real estate agent, who shows the house to to the buyer and presents the pertinent facts about the house and its running costs.

• Following negotiations, the parties agrees orally on the transaction. Note that this is not binding on the parties as all agreements for sale of real estate in Sweden must be in written form.

• The buyer arranges for an inspection of the house. Such an inspection may also be made after the purchase contract has been sign, but then with a possibility for the buyer to cancel the contract if major defects are detected.

• The parties sign the purchase contract prepared by the real estate agent.

• At the same time, the buyer makes a down-payment of about ten per cent of the purchase price.

• On the take-over date set out in the purchase contract, the parties meet together with the real estate agent at the buyer’s bank.

• At this closing, the bill of purchase will be signed by the parties and the payment of the purchase price will be effected.

• The seller hands over the keys to the building together with any available maps and other documentation related to the real estate to the buyer.

Purchasing Real Estate in Sweden - The parties involved in a Swedish real estate transaction - Building Inspector

As I will explain in a future post, the buyer of Swedish real estate has a far-reaching obligation to ensure that the property he or she is going to purchase does not contain any defects.

It is thus advisable for the buyer to engage a building inspector to carry out a thorough inspection of the property; preferably before signing the purchase contract. However, with appropriate language, the inspection can be made afterwards if the purchase has been made conditional upon an agreed outcome of the inspection.

Purchasing Real Estate in Sweden - The parties involved in a Swedish real estate transaction - Bank

The buyer’s bank will normally be involved in the financing of the purchase either by lending or by connecting the buyer with providers of the long-term financing. The closing and take-over of the real estate usually takes place at the buyer’s bank.

Purchasing Real Estate in Sweden - The parties involved in a Swedish real estate transaction - Real Estate Agent

In almost all real estate transfers in Sweden a real estate agent is involved. The real estate agent is commissioned by the seller and will be solely paid by the seller, but has an obligation according to the Real Estate Agent Act (Fastighetsmäklarlagen 1995:400) to “carry out his commission carefully and in all observe generally accepted estate agency practice. In so doing, the estate agent shall watch and protect the interests of both the seller and the buyer.” (Section 12 of the Act).

As mentioned earlier, the normal Swedish buyer relies on the impartiality of the real estate agent although it is the seller who has engaged the agent and who is paying him the commission when a sale has been made.

Purchasing Real Estate in Sweden - The parties involved in a Swedish real estate transaction - Buyer

If the buyer is a limited liability company it is wise to have the buyer present a resolution by the board of directors of the company approving the purchase. The managing director of a company is normally not allow to decide on purchases of real estate on his or her own, unless sales and purchases of real estate constitutes the normal business of the company.

Normally, in transactions involving private homes, the buyer accepts to rely on the advice of the real estate agent, even if he is commissioned by the seller. The buyer would not seek the advice of a lawyer. Sometimes the buyer’s bank will read the purchase contract draft and advice the buyer.

When the real estate transaction concerns a commercial property the buyer would normally involve his own lawyer in the negotiations and production of transaction documents.