Commercial real estate in Sweden: overview

A Q&A guide to corporate real estate law in Sweden.

The Q&A gives a high level overview of the corporate real estate market; real estate investment structures, including REITs; title; tenure; sale of real estate; liability; due diligence; warranties; real estate tax, including VAT and stamp duty/transfer tax; climate change targets; restrictions on foreign ownership; real estate finance; commercial leases; and planning law.

To compare answers across multiple jurisdictions, visit the Corporate Real Estate Country Q&A tool.

This Q&A is part of the global guide to corporate real estate law. For a full list of jurisdictional Q&As visit www.practicallaw.com/realestate-guide.

Contents

The corporate real estate market

1. What have been the main trends in the real estate market in your jurisdiction over the last 12 months? What have been the most significant deals?

Sweden maintains its strong position for real estate investments. The 2016 investment market looks to maintain the momentum built up in the low interest environment post-credit crunch. The general market outlook contains continued low prime yields, with a yield gap to secondary gradually closing. International investors still take advantage of the Swedish investment market with its good liquidity, high transparency and low transaction costs, efficient business procedures and financing alternatives.

The global urbanisation trend is apparent in the Swedish property market, and areas outside the metropolitan areas of Stockholm, Gothenburg and Malmoe now attract investor interest. Housing developments characterise many local markets across Sweden, and studies indicate that as much as 35% of total transaction volume is generated outside the three larger cities.

It is too early to say what impact the outcome of the Brexit-vote will have on the Swedish real estate market. At present, no clear effects/trends have been established. The Swedish sector magazine Fastighetsvärlden has published the following list for the top transactions in 2016 to October:

  • SEK26 billion: Castellum acquiring Norrporten from Andra AP-fonden and Sjätte AP-fonden.

  • SEK5 billion: Willhem buying 4,302 apartments from Akelius in western Sweden.

  • SEK4.150 billion: Balder buying all real estate in I.A. Hedin Fastighet AB's group of companies from Anders Hedin Invest AB.

  • SEK3.1 billion: Trophi buying retail properties from Starwood.

  • SEK3 billion: Intea buying from Blackstone/Areim.

  • SEK2.8 billion: Platzer buying from Volvo in Gothenburg.

  • SEK2.8 billion: Willhem buying from Akelius.

  • SEK2.5 billion: Partners Group buying from Sveafastigheter.

  • SEK2.257 billion: Union Investment buying from Fabege.

  • SEK2.083 billion: Castellum buying from Heimstaden.

Both Swedish and international banks remain active. However, larger local borrowers continue to combine bank finance with bond issuance, and they are occasionally also issuing preference shares as an alternative to traditional external financing.

 

Real estate investment

2. What structures do investors typically use for real estate investment in your jurisdiction and what are the main advantages and disadvantages of each (for example, flexibility and tax transparency)?

Investments in Swedish real estate can be made through:

  • A limited liability company (aktiebolag, AB).

  • A partnership (handelsbolag, HB).

  • Limited partnership (kommanditbolag, KB).

  • A non-resident company, for example a UK limited company, a Dutch BV or German GmbH.

However, investors often go for a Swedish structure with a HoldCo AB and a separate subsidiary PropCo AB holding the assets, often one property each. Such structures are often largely tax driven where the sale of subsidiary shares may be tax exempt.

There are generally no restrictions on overseas companies entering into acquisition agreements or lease agreements.

Sweden currently does not have any thin capitalisation rules, which has so far opened the possibility for highly leveraged private equity structures with interest payments reducing the taxable profit in Sweden. However, in June 2014 a government official report (SOU 2014:40) was published, suggesting reduced deductibility for financial expense, which would negatively affect the tax situation both for local Swedish investors and for international investors. It is today unclear when and to what extent the report proposals will be put before parliament for adoption.

REITs are not available in Sweden.

 
3. What are the main sources of finance and types of investors for real estate investment in your jurisdiction? Does your government encourage overseas investment into real estate in your jurisdiction, for example through real estate investment legislation?

Bank loans remain the main source of external capital for real estate investors in Sweden. Larger Swedish investors now also turn to the capital markets, not only for regular equity but to attract investors through issuing bonds and preference shares (see Question 1).

Sweden has generally liberal foreign investment laws. Swedish law allows foreign entities to invest and to own shares in Swedish companies or in Swedish real estate directly. It is open to nearly all foreign investment and allows 100% foreign ownership.

 

Restrictions on foreign ownership or occupation

4. Are there restrictions on foreign ownership or occupation of real estate, or on foreign guarantees or security for ownership or occupation?

There are no restrictions on foreign ownership or occupation of Swedish real estate in general. There are restrictions for agricultural properties, but not based on nationality.

There are no restrictions on foreign guarantees or security for ownership or occupation.

 

Title to real estate

5. What constitutes real estate in your jurisdiction? Is land and any buildings on it (owned by the same entity) registered together in the same title, or do they have separate titles set out in different registers?

Ownership of real estate in Sweden generally includes both the actual land and the building(s) on it.

The Land Code defines different types of accessories to real property, that is, buildings and accessories to buildings. Any building or any other fixed installation, which has been placed on the property by the owner for permanent use, is known as an accessory to the property (fastighetstillbehör) and is considered to be part of the property. Accessories which have been installed by the property owner in an accessory building, and which are suitable for permanent use in such building, are known as accessories to the building (byggnadstillbehör) and form part of the property. All these accessories are called fixtures. Examples of fixtures include elevators, water pipes and radiators.

All registered property units in Sweden have specific names and codes (fastighetsbeteckning), normally consisting of the name of the municipality where the property is situated, an area name and numbers for local identification.

 
6. How is title to real estate evidenced? What is the name of the public register of title and the authorities responsible for managing it? Is electronic access and electronic conveyancing available?

Ownership of real estate and holding of site leasehold (see Question 9) are registered in the public Land Register maintained by the Land Registration Authority (Lantmäteriet) (www.lantmateriet.se). Ownership of property must as a general rule be registered within three months from the acquisition of the real estate or site leasehold.

The owner registered in the Land Register has the formal capacity to take action involving the real estate, for example, apply for new mortgages and agree on rights of use and other rights over the real estate. A potential buyer can rely on the information in the Land Register.

If real estate has been sold twice by the same seller, the first buyer to apply for registration of ownership normally has priority over the other buyer (provided that he subsequently becomes the registered owner). Therefore, it is essential for a buyer to register its title to the real estate or its site leasehold right to the real estate in the Land Register. However, failure to register does not affect the validity of the transfer.

Title to real estate as a right in rem is established by the agreement or other document evidencing the acquisition of ownership of the real estate or the site leasehold. A buyer has priority before the seller's estate in bankruptcy based on the sale agreement.

Electronic access to the Land Register is available through various service providers on the market. The Land Registration Authority also provides a service for electronic applications in relation to property registrations, which includes registration of title to real property/site leaseholds and applications relating to mortgages. Companies that are under regulatory supervision, for example, banks, real estate agents, and law firms, can connect to this service and file applications and documentation with the Land Registration Authority electronically.

Electronic conveyancing is not available.

 
7. What are the main information and documents registered in the public register of title? Can confidential information or documents be protected from disclosure in the public register of title?

The Land Register contains information for every property unit. The information includes:

  • The size and location of the property.

  • The registered owner (and registered site leaseholder where applicable).

  • Any mortgages and encumbrances registered on the property.

  • Tax assessment values.

  • The most recent transfer, including the purchase date/registration date and price.

All records and documents submitted to the Land Registration Authority are public. The purchase agreement and the specific terms of the agreement are not disclosed in the public register but can if and to the extent actually submitted be obtained from the Land Registration Authority. By submitting only a short form bill of sales much of the transaction details and conditions can be kept confidential.

The identity of the titleholder can be protected from disclosure in the Land Registry if the person has a protected name or address.

 
8. Is there a state guarantee of title? Is the authority that manages the public register liable to pay compensation for any errors it makes in relation to title registration? Is title insurance available and is it commonly used?

The government is strictly liable for any error in the maintenance of the Land Register, that is, it will compensate any resulting loss or economic damage. The compensation may be adjusted if the person entitled to compensation has contributed to the damage by negligence. Title insurance is not available.

 

Tenure

9. How can real estate be held (that is, what types of tenure and other main ownership rights exist over land)?

Direct full ownership

Real estate can be held by any private or legal person, and ownership is always connected to a registered property unit. Ownership involves a right to own, occupy and dispose of the land and any buildings on the land owned by the landowner. In principle, ownership of land also carries with it the right to the soil below and the airspace above the property, although the working and extraction of minerals may require permission.

Direct co-ownership

Land can be jointly owned by more than one person and/or entity. The owners are subject to certain detailed provisions regulating their joint ownership, such as provisions on sale, management and division of costs.

However, it is only permissible to own a share or percentage of a registered property unit. An agreement to purchase part of a property unit is not valid unless the buyer applies to the Land Registration Authority for property formation within six months from the purchase agreement.

Site leasehold (tomträtt)

Site leasehold can only be granted on publicly owned land. The site leaseholder has essentially the same legal status as an owner of land. It has the exclusive right to use and occupy the property. The main differences compared to land ownership, apart from the obligation to pay an annual ground rent, is that the site leaseholder has no right to transfer ownership of the land, merely the right to transfer the site leasehold. Site leasehold includes buildings and other properties on the real estate.

Land leasehold (arrende)

There are different types of land leaseholds depending on the purpose of the lease, for example agricultural or residential. A land leasehold is generally valid for a fixed term (or for the lifetime of the tenant) but can only be terminated for specific reasons. A land leasehold does not give the lessee any title or ownership rights to the property, but may give the lessee a right to register a right of first refusal (hembud) to acquire the property.

Easement (servitut)

The function of an easement is in some respects to strengthen a property's potential so that it will be permanently suited for its purpose. This is achieved by a property gaining access to a feature that it lacks from another property. The easement can for example involve a right to use a road on the other property. The right applies to the property regardless of who currently owns either of the involved properties. An easement can be created either by agreement between the involved property owners or by cadastral procedure carried out by the Land Registration Authority. The grant of an easement is generally not limited in time.

Partial usufruct (partiell nyttjanderätt)

Partial usufruct refers to the grant of a property in a certain respect and may for example consist of the right to extract certain natural resources, such as gravel and forest. An important difference in relation to, for example leasehold or rent, is that exclusivity to a certain portion of the property is not obtained. The law prescribes certain maximum periods for the grant (25 years in detailed planning areas and 50 years outside such areas). Often the legal relationship is governed by written, relatively detailed contracts.

 

Sale of real estate

Preliminary agreements

10. What types of preliminary agreements are typically used in the sale of real estate? Are they legally binding?

A sale and purchase of real estate between professional parties/investors is normally initiated by a sales memorandum prepared by the seller, followed by indicative bids from interested parties.

If the parties agree to enter into purchase negotiations, the parties often sign a letter of intent. In most cases, this gives the buyer an exclusive right to perform a due diligence and to negotiate a purchase agreement with the seller during a specific period. Confidentiality is agreed between the parties, either through a separate agreement or undertaking, or through a confidentiality clause in the letter of intent. Due diligence, (technical/environmental, financial and legal) is carried out and the financing of the purchase secured during this period.

The due diligence may result in new purchase price discussions and/or extended warranties and representations. However in most cases, it will lead to signing a purchase agreement relating to the property (fastighetsöverlåtelseavtal) or a share purchase agreement relating to the shares of a property owning company (aktieöverlåtelseavtal).

 

Sale contract

11. Briefly outline the typical main provisions of a corporate real estate sale contract and main real estate provisions of a typical share purchase agreement.
 

Due diligence

12. What real estate due diligence is typically carried out before an acquisition and what key areas does it cover? Which documents are typically reviewed? Which specialist advisers are usually involved and which reports do they typically produce?

An ordinary real estate due diligence investigation is usually carried out by legal and technical advisers before an acquisition. The due diligence normally covers the following areas and documentation:

  • Public registrations concerning the real estate.

  • Planning issues, including a review of any encumbrances registered over the real estate.

  • Tenancy relations.

  • Pending litigation (if any) concerning the real estate.

  • Environmental issues, including for example potential soil pollution.

  • Tax issues.

  • Technical investigation.

  • Financial due diligence.

The results of the due diligence exercises are usually summarised in reports where the key issues identified are presented and possible solutions are suggested.

 

Sellers' warranties

13. What real estate warranties are typically given by a seller to a buyer in the sale of corporate real estate and what areas do they cover? What are the main limitations on warranties, for example are they typically qualified by disclosure?

When a sale agreement is being negotiated, investors often focus on the financial issues relating to the real estate. The buyer tries to obtain warranties and representations relating to the following, but the seller is usually reluctant to provide them:

  • The lettable area.

  • Rents.

  • Vacancies.

Commercial leases are usually attached to the purchase agreement and warranted, since their provisions often vary.

If the parties do not agree otherwise, which they usually do, the statutory limitation to claim a breach of warranty is ten years.

To limit warranties sellers often argue to include the wording to the best of seller's knowledge.

 

Liability

14. Does a seller have any statutory or other liability to the buyer in a disposal of real estate?

The buyer has, according to the Land Code (applicable to a direct transfer of real estate) a duty of examination, which means that the seller is by law only responsible for so called "hidden defects" (dolda fel) in the real estate. A corresponding duty applies according to the Sale of Goods Act (Köplagen 1990:931) (in an indirect transfer of real estate through a transfer of shares). However, sale agreements sometimes contain clauses under which the seller assumes liability for defects other than hidden defects through specific warranties. It is also common in property transactions between professional investors for the seller's responsibility for hidden defects to be excluded. However, this exclusion is not effective in relation to any such hidden defects that the seller is aware of but did not inform the buyer about.

 
15. Briefly outline the environmental legislation and potential liability for a buyer in a purchase of real estate. Is it common to carry out environmental surveys and searches and to obtain environmental insurance? How is environmental liability typically dealt with in the sale contract?

Environmental liability is normally not inherited by a new owner of a real estate, as Swedish law generally recognises the polluter pays principle, that is, the principle that an operator is responsible for any pollution resulting from its activity. However, if an operator is not able to carry out or pay for the clean-up of polluted real estate, any person who has acquired the property after 1 January 1999 and was aware of the pollution at the time of acquisition, or ought to have discovered it, has a subsidiary liability to take remedial measures, in part or in whole. The same applies for an acquirer of site leaseholds.

It is important for a buyer to consider the need and scope of an environmental and technical survey before acquiring real estate, and to negotiate environmental warranties. Market practice is often that a seller agrees to give some environmental warranties qualified to the seller's knowledge.

 
16. Can an owner or occupier inherit liability for other matters relating to the real estate even if they occurred before it bought or occupied it? Can a seller or occupier retain any other liability relating to the real estate after it has disposed of it?

A buyer of real estate generally inherits the obligations and liability under any leases over the real estate.

A seller retains liability for the real estate if there is a breach of warranties provided by the seller. The seller also retains liability in relation to hidden defects in the real estate, unless agreed otherwise.

Further, if the seller has polluted the real estate the seller is liable to clean it up under the polluter pays principle.

 

Completion arrangements

17. What are the typical arrangements and main documents required for completion of the sale? When does title transfer and what are the formal legal requirements to execute the sale documents, transfer the real estate and register the change of title? Is notarisation required?

There are formal requirements for a direct acquisition of real estate, for example the agreement must be in writing and signed by both parties, which are not stipulated if the real estate is acquired indirectly through a share purchase agreement. The agreement will contain provisions regarding, for example:

  • Income/costs allocation.

  • Mortgages.

  • Loans.

  • Tenancies.

  • Taxes.

  • Insurance.

  • Passing of risk.

  • Payment terms.

  • Warranties.

  • Transfer date.

If such provisions are not included in the agreement, the default provisions of the Land Code (if direct acquisition of the real estate) or the Sale of Goods Act (köplagen) (if indirect acquisition through a share purchase agreement) will apply to the purchase agreement.

Before signing the transfer agreement, it is important to have the real estate inspected by a technical and environmental surveyor. The buyer will not be entitled to any remedy in respect of defects found after the date of signing, unless either:

  • The seller has given a warranty covering the defect.

  • It was not possible to detect the defect at the time of the survey.

The actual transfer of the property, directly or indirectly (closing), is the date when the sale consideration is transferred, unless the parties agree otherwise. On closing, the seller will issue a bill of sale (Köpebrev) and, if applicable, a settlement of account for rental income and operating costs will be issued and signed. The issuing of a bill of sale is a formal requirement and will state:

  • The parties.

  • The name of the registered property unit.

  • That the transfer of title to the property has been completed.

  • The purchase price and that it has been paid.

The risk of the real estate normally passes on the date of closing. We recommend that it is clarified who is actually liable on the closing date. Sometimes it is agreed in the share purchase agreement that risk passes on the agreed date of closing, regardless of whether the buyer actually takes possession of the shares or the real estate on the agreed closing date.

In a direct acquisition, the purchase agreement or, more often, the bill of sale (which must be in Swedish) must be submitted to the Land Registration Authority, in order for the buyer to get its legal title registered.

There is no notary system in Sweden and therefore notarisation is not required.

 

Real estate tax

18. Is stamp duty/transfer tax (or equivalent) payable on the purchase of real estate? Who pays, what are the rates and are there any exemptions? Does it apply to the transfer of shares in a company holding real estate and at what rate?

In a direct acquisition of real estate, stamp duty is levied at a rate of 4.25% (1.5% for private individuals) of the purchase price or the tax assessment value, whichever is the highest, when a new owner is registered in the Land Register. Stamp duty is also levied on transfer of site leasehold.

In addition, an administrative fee of SEK825 is also payable in connection with the registration.

The liability to pay stamp duty is joint and several for the buyer and seller. However, Swedish contracts normally provide an obligation for the buyer to pay the stamp duty and other costs in connection with registration.

There is no notary system in Sweden and therefore no notary costs.

The acquisition of the shares in a real estate company is not subject to any transfer duties, whatever the form of the company, and regardless of whether the underlying assets are land or buildings.

 
19. Are any methods commonly used to mitigate real estate tax liability on acquisitions of large real estate portfolios? What is the general approach of the tax authorities in your jurisdiction to such schemes?

Investors often set up a Swedish structure with an AB as a holding company, which has AB subsidiaries owning the properties, often one property in each. The arrangement allows the seller to dispose of the properties by selling the shares in the real estate companies. This does not incur any stamp duty and is normally exempt from capital gains tax. The Swedish Tax Agency so far accepts such structures.

Transfer tax may also be avoided if the transfer is part of a company's restructuring (for example a merger/demerger).

 
20. Is value added tax (VAT) (or equivalent) payable on the sale or purchase of real estate?

VAT is not applicable to acquisitions in relation to a sale or purchase of real estate or of shares in a real estate company.

 
21. Are municipal taxes paid on the occupation of business premises? Are there any exemptions?

State property tax

No taxes are levied based on the occupation/lease of business premises. However, real estate charges apply as follows.

State property tax is levied on:

  • Undeveloped residential plots.

  • Commercial premises.

  • Residential plots with buildings/homes under construction.

  • Land with only freehold flats or rental flats that have a different owner.

  • Land built on with only freehold flats or residential rental flats that lack building value.

The person/entity that owns the property on 1 January of the relevant year is liable for the property tax for the entire year, even if the property changes owner in that time.

Municipal property charge

Owners of residential property are subject to a municipal property charge. A house in this context is a one or two-family home such as a detached or terraced house, or a holiday cottage. The person/entity that owns the property on 1 January of the relevant year is liable for the property charge for the entire year, even if the property changes hands in that time. The property charge is adjusted annually according to changes in the income base amount (basbelopp).

The regulation that no property charge was payable for the first five years on newly built homes, and that it was reduced to half the normal rate for the following five years, has been replaced from 2014. Now, no property charge is payable for 15 years for newly built houses (built in 2012 and thereafter).

 

Climate change issues

22. Are there targets or incentives to reduce greenhouse gas emissions from buildings in your jurisdiction? Is there legislation requiring buildings to meet certain minimum energy efficiency criteria?

A general national target is set to reduce greenhouse gas emissions by 40% by 2020 (including, for example, housing, but also transport and some industry) compared to 1990 levels.

Both in relation to residential and commercial properties an "energy efficiency report" is required to be made and published (in the entrance of a building). The purpose of this requirement is to increase awareness of energy consumption in the property sector and to create a wish/incentive to save energy.

Further, the Swedish Property Federation (Fastighetsägarna Sverige, www.fastighetsagarna.se) has adopted energy and environmental targets, including 20% improved energy efficiency by 2020 compared to 2008 levels, and a 40% reduction of emissions and the exclusion of fossil fuels.

 
23. Are provisions relating to the energy efficiency of buildings commonly included in contracts for the sale of real estate or in leases (for example, green leases)?

Provisions relating to energy efficiency of buildings are occasionally included in contracts for the sale of existing real estate. However, in connection with new developments the energy efficiency rating is of increasing importance, as are "green leases".

 

Real estate finance

Secured lending involving real estate

24. Briefly outline the typical security package required by lenders in relation to real estate lending. How are the most common forms of security interest relating to real estate created and perfected (that is, made valid and enforceable)?

Acquisitions of large estate portfolios are generally financed through a 50% or more credit mortgage financing. The remaining financing is generally contributed by the buyer in the form of equity or through the issuance of bonds or preference shares.

Since the financial crisis, second tier bank financing has been difficult to obtain and consequently the need to find alternative sources of finance in a transaction has increased.

A pledge over existing and/or new mortgages over real estate is the most common and important security interest provided to lenders in relation to real estate financing. A mortgage certificate can be in physical form (skriftligt pantbrev) or digital form (datapantbrev). Most mortgages are in digital form. However, only lenders with access to the digital mortgage register can take a digital mortgage certificate as security. A digital mortgage certificate can be converted into a physical mortgage certificate (and back again).

A mortgage is created by the real estate owner filing with the Land Registration Authority a duly signed application for registration of a mortgage over the relevant real estate. A stamp duty of 2% of the mortgage amount is payable when a new mortgage is issued. When the stamp duty (and a smaller registration fee) has been paid, a mortgage certificate is issued on the property. The mortgage certificate can be pledged by the property owner as security for its obligations to its lenders. A mortgage certificate that has been issued maintains its validity and priority, and can be reused as security any number of times, without any additional stamp duty or other fees or charges being payable.

A mortgage pledge is perfected by the mortgage certificate being delivered to the pledgee, in the form of a registration (digital certificate) or through handing over the physical mortgage certificate. A pledgee can be registered in the Land Register as holder of a pledged mortgage certificate but this is not required to perfect the pledge.

 
25. What other real estate related measures do lenders typically take to protect themselves against default by the borrower?

In addition to the mortgage and depending on the transaction, structured lenders regularly demand:

  • Various financial covenants, such as loan to value (LTV) and interest rate coverage (IRC) ratios.

  • Real estate covenants, such as regular valuations and full value insurance.

 
26. Can lenders incur environmental liability? What measures do lenders typically take to manage potential environmental liability?

The main rule is that lenders do not incur any environmental liability from offering financing. However, lenders may indirectly suffer economically through a reduced value of contaminated real estate.

Due diligence, including review of risk classifications of the County Administrative Board (Länsstyrelsen) and liability insurance may be used to manage potential environmental risks.

 
27. Briefly outline the main remedies for lenders in relation to the secured real estate if the borrower defaults on the loan. What is the effect of the borrower's insolvency on the lender's remedies?

Mortgage holders can initiate a foreclosure on the property and have priority to any proceeds from a forced sale.

 
28. Briefly outline key additional issues for lenders in relation to construction and development projects.

Swedish development finance has traditionally not been very sophisticated. Borrowers have received disbursements, basically based on incurred project costs. On larger international projects lenders are much better protected, including project progress due diligence and also step-in rights.

 

Other real estate financing techniques

29. Are other real estate finance techniques commonly used in your jurisdiction? For example, real estate securitisation and sale and leasebacks.

Real estate securitisation is not common in the current market. The issuance of bonds and preference shares are currently in trend with the larger real estate companies, to compensate for the lower LTVs offered by mortgage banks since the financial crisis.

 

Real estate leases

Negotiation and execution of leases

30. Are contractual lease provisions regulated or freely negotiable? Which legislation applies?

Chapter 12 of the Code of Land Laws (Rental Act) regulates to a large extent the entire relationship between landlord and tenant. As a result, a standard lease is only a few pages long. In many cases a standard form (Formulär 12B.2 Hyreskontrakt för lokal) prepared by the Swedish Property Federation is used as a basis for negotiations but expanded in an appendix to the standard form. Since there are essential provisions that are binding to the tenant's benefit, it is important that a Swedish lawyer with experience of the Rental Act draft or review the lease.

The Rent Tribunal (Hyresnämnden, www.hyresnamnden.se) mediates in disputes relating to both residential and business premises. It also decides on certain issues, for example, the right to sublet an apartment. The Rent Tribunal can assist with information about, among other things, tenancy legislation and other legislation relating to issues within its area of responsibility.

The Swedish Property Federation is the largest and most authoritative trade organisation for Swedish property owners. It has developed a widely used package of standard documents for several types of commercial leases.

 
31. What are the formal legal requirements to execute a lease? Does the lease have to be executed by certain parties or as a deed? How do the formalities differ for a company, partnership and for individuals?

There are no formal requirements to execute a commercial lease. An oral lease agreement is in principal also binding. However, each of the parties may at any time require that a written agreement is drawn up. The concept of a deed does not exist under Swedish law.

 

Rent payments

32. How are rent levels usually reviewed and are there restrictions on this? Is stamp duty and VAT (or equivalent) payable on rent? Is a rent security deposit required and does it have to be managed in a certain way?

The parties can freely agree the rent for commercial premises. Tenants commonly pay added charges for, for example, heating, cooling, electricity, VAT (if the tenant is liable for VAT) and property tax. Turnover rents are often agreed for retail space, which means that the landlord shares some of the business risk of the tenant (less rent if there are low sales).

No stamp duty is payable on rent. Basically, if VATable business is conducted on the premises the lease will also be subject to VAT.

For leases with a term of three years or more, the rent is frequently made subject to an annual adjustment based on consumer price indexation (konsumentprisindex). This indexation is not allowed if the lease period is shorter than three years, that is, an extended lease period must also be at least three years.

The rent can be renegotiated together with other terms and conditions of the lease, in connection with each expiry of the lease period. Notice of such rent review must be given by one of the parties, and is subject to the same notice period as is a notice of termination.

Rent security deposits or guarantees are subject to agreement.

 

Length of term and security of occupation

33. Is there a typical length of lease term and are there restrictions on it? Do tenants of business premises have security of occupation or rights to renew the lease at the end of the contractual lease term?

The term of a lease can be as long or as short as the parties agree, up to a maximum of 50 years, or 25 years if the leased premises are in a municipality's detailed plan area. Office premises are often let for a period of no less than three years at a time. Initial lease terms for five or up to ten years are not unusual.

Unlike tenants of residential premises, tenants of business premises have no protected right of tenure. However, business tenants have an indirect right of tenure, being entitled to compensation for damages (minimum 12 months' rent) that they incur if the lease is terminated or if the landlord refuses to renew the lease at the expiration of the lease term (indirekt besittningsskydd). A waiver by a tenant of its right to extension or compensation requires a separate agreement. The parties must obtain approval from the Rent Tribunal for such an agreement to be valid, unless the lease has been in force for nine months or more at the time of signing the waiver agreement.

 

Disposal

34. What restrictions typically apply to the disposal of the lease by the tenant? Can tenants usually share their business premises with companies in the same corporate group? What is the effect of a legal reorganisation or transfer/sale of the tenant on the lease and on a guarantee of the lease?

As a rule, the tenant is not allowed to transfer the lease without the landlord's consent. If a tenant's request for transfer approval is denied without due cause or the landlord does not provide an answer to the request within three weeks from the time the consent was requested, the tenant can terminate the lease. The Rent Tribunal can also, under certain circumstances, authorise the transfer.

The landlord cannot prevent the transfer of shares.

Sublease of the entire premises requires landlord's consent or authorisation by the Rent Tribunal. The tenant can however sublet part of the premises without such consent or authorisation, as long as it does not cause detriment for the landlord.

Unless it is specifically stated in the lease, tenants cannot share their business premises with companies in the same group or other third parties, but partial subletting is permitted (see above).

 
35. Does a landlord or tenant retain any liability under the lease after the lease is assigned?

Any surviving liability, apart from liabilities relating to the time before assignment, would be subject to agreement between the parties.

 

Repair and insurance

36. Who is usually responsible for keeping the leased premises in good repair and for insuring the leased premises? Are there provisions for the ownership of lease improvements?

The landlord must carry out and pay for necessary maintenance of the premises and of any business specific furnishings provided by the landlord. The parties are free to decide on a different allocation of the obligations to keep the premises in good repair. Most commonly, the tenant carries out and pays for necessary maintenance of finishes on floors, walls and ceilings and furnishings that the landlord specifically provides for the business.

It is usually the landlord's responsibility to take out and maintain normal real estate insurance for the property in which the leased premises are located. The tenant is usually obliged to take out and maintain insurance for the activities carried out on the premises.

In real estate insurance, land and buildings are often insured at full value (fullvärdesförsäkring). This means that if the buildings are damaged the restoration costs are wholly compensated for.

Lease improvements and installations are generally owned by the party paying for and carrying out such improvements or installations.

 

Landlord's remedies and termination

37. What remedies are available to a landlord for a breach of the lease by the tenant? On what grounds can the landlord usually terminate the lease and what restrictions and procedures apply? What is the effect of the tenant's insolvency under general contract terms and insolvency legislation?

The Rental Act stipulates certain minimum notice periods for termination of a commercial lease depending on whether the lease has been entered into for a fixed term or an indefinite term. A lease for an indefinite term must be terminated in order for it to cease. The same applies for leases entered into for a fixed term longer than nine months.

The lease can also be rescinded with immediate effect in certain situations set out in the Rental Act. These forfeiture grounds are exclusive. For example, the lease may be forfeited if the tenant does not pay the rent in due time. If the lease is forfeited, the landlord is also entitled to damages. However, the lease cannot be forfeited if the breach of contract is immaterial and the tenant can under certain circumstances rectify its breach.

Regulations for the tenant's bankruptcy are found in the Rental Act. In principle, the bankruptcy estate is entitled to terminate the lease. However, the landlord may also want to terminate the lease at this point, since it is not clear whether the bankruptcy estate will be able to pay the rent and fulfil their other lease obligations. The landlord can terminate the lease as long as the tenant has not taken possession of the premises, unless satisfactory security is provided (on request). The tenant has a more secure position once it has taken possession of the premises.

Further, the landlord can require security from a commercial tenant. Alternatively, the bankruptcy estate may declare itself responsible for the tenant's obligations, so that claims on rent takes precedence over claims in bankruptcy.

If the lease is terminated as a result of the tenant's bankruptcy, the landlord is entitled to damages regardless of whether it was the tenant or the landlord that terminated the lease.

 
38. Can the tenant withhold rent payments in certain circumstances, for example for serious damage to the leased premises? Can the tenant terminate the lease in certain circumstances?

If the parties have agreed on a fixed lease period, the tenant cannot terminate the lease during that period without the landlord's consent.

The Rental Act stipulates certain situations in which the tenant may be entitled to terminate the lease prematurely, for example in case of material deficiencies on the premises, or if the tenant is prevented from using the premises or if a public authority restricts the intended use of the premises.

If the tenant considers himself to be entitled to a rent reduction, compensation for damage or for remedying a shortage, or that he has any other counterclaim against the landlord, and the tenant would like to deduct the corresponding amount from the rent payable, he can deposit the amount with the County Administrative Board. This is also the case when there is a dispute as to the amount of the rent to be paid and the amount has not been determined in the lease.

If rent has been deposited with the County Administrative Board, the landlord cannot claim that the tenancy right has been forfeited on the basis that the deposited amount has not been paid to him.

 

Planning and development controls

39. In what circumstances can local or state authorities purchase business premises compulsorily? Is the purchase price market value?

Expropriation is hardly ever used in Sweden, and is only allowed for very specific reasons, for example construction of large infrastructure facilities. Permission for a municipality to expropriate real property (freehold, usufruct to the real property or easement) must be granted by the government or through delegation by the County Administrative Board. If the land is expropriated, the remuneration is determined based on fair market value.

 
40. What authorities regulate planning control and which legislation applies? Is there specific protection for special categories of buildings such as historic buildings?

Planning is generally governed by the Planning and Building Act (Plan- och bygglagen 2010:900). The municipalities are usually responsible for planning. They decide on approval of key local plans such as the comprehensive plan (översiktsplan) and local plan (detaljplan) in accordance with the Planning and Building Act. The Environmental Code provides some general guidance rules for the authorities' decisions, when different interests compete for natural resources.

Comprehensive planning for a municipality is set out in the comprehensive plan. It provides guidance for the local plan and permits in specific cases, such as building permits. As a general rule the comprehensive plan has no direct legal effect. The rules provide for consultation at an early stage, to promote debate and increase citizen participation.

The municipality must prepare a local plan in certain cases where the use of the land is more carefully regulated. The local plan has far-reaching legal consequences. For example, construction must comply with the plan and the municipality can reclaim land that is intended for the public. The local plan must state the implementation period (five to 15 years), that is, the time within which a real estate owner has a right to build in accordance with the plan. The real estate owner must obtain a building or ground permit during this time for the plan to be implemented. The right to build ceases when the implementation period has expired, and the plan may then be altered without any compensation for the landowner.

Some buildings are considered to have such value that it is a matter of national concern that they are preserved for the future. These buildings are protected by the Cultural Environment Act (Kulturmiljölagen 1988:950). This includes listed buildings (byggnadsminnen) and many churches. The County Administrative Board handles issues related to these buildings. However, many other historically valuable buildings are protected at the municipal level, through the Planning and Building Act. This category includes most of the buildings that are commonly referred to as "K-marked" (K- märkta).

The term "K-marked" as such has no specific legal meaning. "K-marked" is a widely used generic term for different types of legal protection designed to protect buildings and environments of cultural and historical interest. The legislative protection often means that a building cannot be demolished or altered in such a way that the cultural and historical value decreases. Also buildings of cultural and historical value which are not "K-marked" are subject to the limitations of the Planning and Building Act, which states that changes to a building must be carried out carefully, in particular that buildings of cultural and historical value must not be altered (förvanskad).

 
41. What planning consents are required for building works and the use of a building?

As a general rule, permits are required for:

  • Construction (building permit) (bygglov).

  • Demolition (demolition permit) (rivningslov).

  • Certain other intrusive measures relating to the ground (ground permit) (marklov).

Applications are examined by the local building committee (byggnadsnämnden).

A person trying to avoid the rules for building permits or other permits is liable to pay a standard fine (in case of non-compliance, the fine may be increased).

 
42. What are the main authorisation and consultation procedures in relation to planning consents?

Initial consents

For development projects, the local building committee assesses whether the project:

  • Site is suitable for the construction project.

  • Is appropriate from an environmental viewpoint.

  • Otherwise takes into account the interests of society and the rights of neighbours.

In case of doubt, the real estate owner can receive an advanced notice (förhandsbesked) so that he knows well in advance what to comply with.

The local building committee must process applications for permits and advance notices promptly, and deliver its decision within ten weeks from when the complete application is received. This time period can be extended once by up to ten weeks.

Third party rights and appeals

A proposal for a comprehensive plan and local plan must be preceded by consultations with, among others, the County Administrative Board. Before adoption of a plan, the plan will need to be showcased, so that those who want to provide additional comments on the proposal can do so.

Certain decisions of a municipal council (kommunfullmäktige), for example a comprehensive plan, can be appealed by all members of the municipality. Appeals are made in these cases for legality review (laglighetsprövning), which provides for certain possibilities to revoke the decision.

Any person concerned by a municipal decision under the Planning and Building Act can normally appeal the decision. Neighbours and others whose interests are affected by the decision may also have the right to appeal. In the case of decisions regarding plans, a party must also have made written submissions during the time the plan was showcased, in order to be entitled to appeal.

An appeal must be submitted to the relevant authority within three weeks from when the decision was received by the appellant.

 

Reform

43. Are there any proposals to reform real estate law in your jurisdiction?

In 2015, the government appointed an inquiry under the title Certain issues related to the field of real estate and stamp duty (Dir. 2015:62, Vissa frågor inom fastighets- och stämpelskatteområdet). The "certain issues" refers in the first instance to tax planning through so-called real estate packaging, as well as the possibility of avoiding stamp duty. Today, a company that sells real estate may limit taxation by selling a subsidiary holding the real estate assets. This structuring model can also be used for other assets and in other industries, but the government believes that real estate is particularly favoured by the current rules and has therefore initiated a review. The report is scheduled for 31 March 2017. Depending on the outcome, the availability of tax-efficient structures may be limited, adding to transaction costs going forward.

Further, there is also a government official report (SOU 2014:40) suggesting reforms in relation to the deductibility of financial expenses (see Question 2).

 

Online resources

Swedish public legal information portal

W www.lagrummet.se

Description. Lagrummet.se is a portal for Swedish public administration legal information. It contains legal information from the government, parliament, the higher courts and government agencies.

The National Courts Administration (Domstolsverket) is responsible for the publication of lagrummet.se. Each agency is responsible for the content of legal information they provide, and how it is published on the internet.

Swedish statutes

W www.government.se

Description. On the government's website, there is a selection of Swedish Code of Statutes (SFS) in translation. As a rule, the translations are not official translations.



Contributor profiles

Tord Svensson, Partner

Eversheds Advokatbyrå AB

T +46 8 545 322 83
F +46 8 545 322 01
E tord.svensson@eversheds.se
W www.eversheds.se

Professional qualifications. Sweden, 2003, Member of the Swedish Bar Association

Areas of practice. Real estate and real estate finance.

Eva Nyman, Associate

Eversheds Advokatbyrå AB

T +46 8 545 322 87
F +46 8 545 322 01
E eva.nyman@eversheds.se
W www.eversheds.se

Professional qualifications. LLM 2008, University of Lund; Clerkship 2012, Malmö District Court

Areas of practice. Business law with particular emphasis on real estate.


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