Real Estate 2019 Comparisons

Last Updated April 30, 2019

Law and Practice

Authors



Advokatfirma DLA Piper Norway DA has a market-leading real estate offering, with an international multidisciplinary team of lawyers that can serve client needs globally across the real estate sector. The firm has more than 750 real estate lawyers operating in more than 40 countries around the world, serving clients in key real estate markets, with strongly established teams in the Americas, Europe, the Middle East, Africa and Asia Pacific. DLA Piper works with clients through all stages of the real estate life cycle, including planning, acquiring, finding, developing, leasing, completing, trading and divesting. Working through this cycle, it offers the following services: financing; acquisitions and disposals; asset management; construction; cross-border investment; development; fund formation; joint ventures; leasing; litigation; planning, zoning and environmental issues; public private partnerships; REITs; restructuring; and tax. The team works alongside investors, lenders, developers and managers on every aspect of their real estate activities.

The main sources of real estate law are the Planning and Building Act with regulations (Plan- og bygningsloven med forskrifter), the Tenancy Act (Husleieloven), the Joint Property Act (Sameieloven), the Condominium Act (Eierseksjonsloven), the Co-operative Housing Act (Borettslagsloven), the Easement Act (Servituttloven), the Ground Lease Act (Tomtefesteloven), the Prescriptive Right Act (Hevdsloven), the Neighbour Act (Naboloven), the Land Register Act (Matrikkeloven) and the Land Registration Act (Tinglysingsloven). Several other laws and regulations are also relevant in real estate law, either fully or in part, depending on the circumstances.

Oslo office rents started rising slowly at the start of 2018 and picked up pace towards the end of the year, with the CBD rental growth estimated at 5-10% nominal growth over the year. Fringe rents, however, remained stable in almost all areas, mostly due to solid supply competition.

The transaction market as a whole was active in 2018, with a total volume of approximately NOK92 billion. Many buyer groups have been active, and several new international players have shown interest in Norwegian assets. Foreign buyers made up approximately 40% of the transaction market.

The prime yield estimate for Oslo office space remained steady at 3.75%, despite slowly rising interest rates. Fringe yields have come down somewhat over the last 12 months, reflecting increased demand from investors who find that the returns of CBD offerings are too low. Prime yields are expected to rise slowly over the next few years.

The retail market is stable for most segments, but uncertainty regarding e-commerce and the restructuring of many retailers has slowed the market somewhat.

The hotel market saw some growth throughout 2018, but with mixed results for different regions due to an increase in the hotel supply in certain regions.

The market for Norwegian logistics property is solid, with stable rents and increased interest from a wide range of investors. Yields trended downwards in 2018. Further expansion of the logistics sector is expected in the years to come.

The Norwegian residential market has seen prices going essentially flat after some growth following the 2016 price boom, and the sales volume of new homes has been stable. Forecasts for prices are mostly flat or negative, due to expectations of rising interest rates.

The mixed use of real estate and co-working are also key developments in the Norwegian real estate market, reflected in the increasing share of mixed-use and co-working real estate in metropolitan areas. This trend is expected to increase further in the years to come.

There are no major proposals for reform at this point in time that would significantly affect real estate investment, ownership or development in Norway.

Full Ownership

Full ownership is the most complete and comprehensive right over real estate. However, it is important to note that the use of the property may be limited by public laws and regulations, planning regulations, and private third party rights. Ownership of the property includes title to all of the constituent parts of the property, including any structures erected on the property, the airspace above the property and those areas beneath it.

The property may be owned in full by one or more persons, companies and/or other legal entities. Co-ownership (sameie) of property is subject to special laws and regulations pertaining to the use and sale of the co-owned property.

Ground Lease/Leasehold

The ownership of a property usually includes the ownership of the buildings/structures erected on the property. It is not uncommon in Norway, however, for the ownership of the property and the buildings/structures erected on it to be separated by way of a ground lease (tomtefeste), with the separate parts to be owned by different parties. The Norwegian ground lease model is based upon the lessee essentially leasing the ground from the owner of the property by entering into a ground lease agreement. The lessee may then erect buildings/structures on the property, and ownership of these buildings is held by the lessee. Ground leases are therefore usually entered into for long periods of time, typically 50 to 100 years, and in many cases include a right to extend the lease for an additional period(s).

The lessee under a ground lease agreement will usually be allowed to transfer ownership to the buildings, along with their title as the lessee, to a new owner of the ground lease.

Ground leases are governed by the Norwegian Ground Lease Act (Tomtefesteloven), and widespread case law.

Units

A special kind of ownership for shared premises is established through the Property Unit Ownership Act (Eierseksjonsloven). A property with a building erected on it may be divided into units (eierseksjoner), such as apartments and premises for business purposes, which are owned by individuals or legal entities. The common parts of the property, such as the structure of the building, staircases and entrances, are then jointly owned by the collective group of independent unit owners.

For housing purposes, the ownership of such units can also be structured as a housing co-operative (borettslag).

The Alienation Act (Avhendingsloven) regulates the transfer of planned and completed properties between individuals and/or between professional parties (companies, etc). Professional parties may opt out of the regulations imposed under the Alienation Act.

New buildings, including contracts for the proposed construction of a building, are not regulated by the Alienation Act.

In the case of individuals, such contracts are regulated by Norwegian law number 43 of 13 June 1997 (Bustadoppføringslova), but for professional parties there is freedom of contract.

In the case of professional parties entering into contracts, including those for transfer of title and for the proposed construction of new buildings, land transfer is regulated by the Alienation Act, but the construction elements are regulated through the building contract.

No special laws apply to the transfer of any specific types of real estate. The Alienation Act normally regulates the transfer of title to all types of real estate, although professional parties (companies, etc) may contract out of the Act.

Once the purchase agreement is concluded, the transfer of ownership takes effect at law. The purchaser must subsequently apply for a concession from the local authorities within four weeks of the transfer date. Even though it is not a legal requirement, a deed of transfer is also usually filed with the Land Register (Tinglysingen) to establish legal protection against claims by third parties and to avoid potential disputes with subsequent buyers.

All property transactions, including sales and purchases, mortgages, easements and rights of use, as well as any pending disputes, can be registered.

Title insurance is available in principle, but is not common, except in events where there are specific risks related to the legal title, typically due to a preceding split and separate transfer of the formal and beneficial ownership of the property respectively.

Investors usually carry out technical, environmental and legal due diligence before purchase, but it may also be done during a short, specified period after the contract is signed, if agreed between the parties in the contract.

If the due diligence is carried out after the contract is signed, the contract will specify how to deal with any negative findings.

Asset Deals

It is highly advisable for the buyer to carry out due diligence on all aspects of the property prior to completion of a property transfer agreement. Such due diligence should cover:

  • all legal aspects, such as title to property, easements, encumbrances, agreements with neighbouring owners, environmental aspects, planning/zoning law aspects, building/construction law, previous contracts and any lease agreements;
  • specific environmental aspects, which will be investigated by specialist environmental investigators;
  • the physical state of existing buildings by specialist technical investigators; and
  • any permissible future development by architects/real estate advisers, especially if future development is a key factor in the purchaser’s decision to buy the property.

Share Deals

In addition to the points mentioned above, due diligence undertaken prior to a share deal should cover the following issues:

  • all legal aspects relating to the shares in the company owning the property, such as pre-emption rights, encumbrances, articles of association, etc;
  • annual accounts of the company;
  • income tax forms and VAT reports for the company;
  • debts and risks of the company;
  • all contractual rights and obligations, whether written or oral, that bind the company; and
  • whether the property company has employees and any associated liabilities.

An increasing trend in Norway is for the buyer to take out warranty and indemnity insurance (W&I insurance), which is usually structured as “buyer side” cover, where the purchaser is insured under the policy, and the coverage is based upon the purchaser’s knowledge. The insurance premium is usually around 1-2% of the insured amount, but can be higher depending on the known risks that are insured. If W&I insurance is to be a part of the transaction, this should be considered prior to completion, at some point between due diligence and the conclusion of the share purchase agreement.

According to statutory law, the seller may disclaim responsibility for the property by selling it as seen, often referred to as ‘sold as is’. Even if the contract includes such a clause (which it often does), sellers may still be held responsible if they have given inaccurate information about the property, if they have failed to provide important information of which they are aware, or if the property is in a substantially worse condition than expected.

This responsibility may not be fully disclaimed in a contractual agreement with the buyer.

It is common for professional parties (companies, etc) to negotiate specific warranties.

The buyer must notify the seller within a reasonable timescale if circumstances are discovered that may constitute a breach of contract.

Buyers should consider the following issues:

  • the development plan that each municipality draws up for the local area, which provides a description of the permitted use for property in different areas of the municipality;
  • building permits and licences, since the right to develop a property depends on being granted a building licence by the local authority;
  • the certificate of completion or a temporary permit, since all property must be provided with a certificate attesting that certain technical, health and safety requirements have been met; and
  • fire-prevention provisions, since it is the buyer’s responsibility to ensure that the building complies with safety regulations after the purchase.

This situation is normally governed by the ‘polluter pays’ principle, though the seller can disclaim responsibility in the contract. However, if any pollution is discovered, the owner of the building may be held responsible by the authorities regardless of any contract that exists. If, according to the contract, responsibility for the pollution rests with the seller, the buyer may then subsequently claim restitution from the seller.

The development plan provides a description of the permitted use in different areas of a municipality. Local authorities may make further specifications in the plan. Any interested party can contact the local authority to get access to the development plan.

The authorities – or a private developer with the assistance of the authorities – can expropriate property for the purpose of building roads, schools, transport facilities, playing fields, etc, although this right is subject to restrictions. A property can only be subject to compulsory purchase after an overall evaluation of the advantages and disadvantages has been carried out by a court of appraisal. The buyer must pay the market value for the expropriated property, as decided by the same court.

Where deeds of transfer are filed with the Land Register, registration is normally subject to stamp duty at the rate of 2.5% of the purchase price or the market price, whichever is higher. There are exemptions from this where property is transferred between married couples, where the transferred property is a unit in a housing co-operative (borettslag), or where companies are merged or demerged. The stamp duty is paid by the buyer.

The seller must pay income tax on any profit from the sale.

Agency fees are usually between 1% and 3% of the purchase price, and are normally paid by the seller unless agreed otherwise. In addition, there is a charge for the registration of the title deeds, as well as any mortgage deeds. These charges are paid by the buyer. For other costs, such as legal fees, etc, each party normally pays its own expenses.

When buying real estate in Norway via a share deal, the agency fees are usually between 1% and 3% of the purchase price, and are normally paid by the seller unless agreed otherwise. In addition, there is a charge for registering any mortgage deeds, which is paid by the buyer. For other costs, such as legal fees, each party normally pays its own expenses.

No stamp duty applies to share deals.

Specific tax rules apply to the taxation of limited liability companies.

There are no specific restrictions on foreigners investing directly in real estate in Norway. Everyone intending to buy Norwegian real estate, regardless of their nationality, must apply for a concession from the local authority, but this formal requirement needed to obtain title in the Land Register rarely constitutes a problem for investors.

Real estate finance involves the financing or refinancing of the acquisition or development of real property being secured against the value of the property and serviced by rental income. Real estate finance is provided by banks, private investors and debt funds. For sizeable deals, the Norwegian bond market offers an alternative source of finance.

The most common forms of security when financing real estate consist of share pledges, real estate mortgages (which includes statutory co-insurance), bank account charges, floating or fixed charges over rental payments, charges over hedging claims, SPA claims, and intra-group loans and group company guarantees.

The security package may be limited in order to mitigate adverse tax consequences for the borrower due to limitations on the tax deductibility of interest on loans.

There are no relevant restrictions of general application on making payments or granting security to foreign lenders, and there is currently no withholding tax on interest payments.

The recently enacted Foreign Investment Risk Review Modernisation Act of 2018 (FIRRMA) has had minimal implications for Norwegian real estate transactions.

No stamp duties or notary fees apply to creating security normally granted in financing real estate, but there is a nominal fee (NOK525 as of February 2019) for the registration of security over real property in the Norwegian Land Registry, and for registering a floating charge over accounts receivable (NOK1,516 as of February 2019).

For a limited company, as a main rule, financial assistance (in the form of loans, security, etc) in connection with the acquisition of its (or its parent companies') shares can only be granted up to the amount of the assets that it may legally use for the distribution of dividends (its 'distributable reserves'). Due to further strict requirements, the main rule is never relied on in practice. Even stricter limitations apply to limited partnerships.

For a limited real estate company, there is a general exemption for security granted over its real property or, if it is a holding company, shares in wholly owned real estate companies. Such company must be a special purpose vehicle (ie, have no other business than owning and managing property), and there are requirements in respect of employees and other creditors. In particular, if a real estate company has any ongoing or planned development works (excluding maintenance or minor adjustments) at the time such security is granted, it is not considered a real estate company for the purposes of the general exemption.

A limited company may also apply for an individual governmental exemption from the above restrictions. Such exemptions are limited in scope, but may, for instance, allow a real estate company to grant security also over its rental income.

New legislation has recently been proposed to amend the above financial assistance rules. If passed in the proposed form, such financial assistance will generally be allowed when the buyer forms a group with the acquired entity, but there will be additional duties imposed on the board before the financial assistance is granted.

There is also a more general restriction on providing financial assistance to related parties (other than subsidiaries). As for the restriction regarding acquisition financing, a company can only provide financial assistance within its distributable reserves, and provided adequate security is established in favour of the company.

However, there is a wide exemption from this general restriction when the assistance is granted within the same corporate group. The financial assistance must serve the group's "economic interest" (which essentially means it cannot fund or assist distributions to the ultimate owners). If the ultimate parent company is a Norwegian limited company, this requirement is not applicable. Stricter rules apply to limited partnerships.

"Corporate benefit" is not a defined term in Norwegian company law, nor is it required as a specific obligation. However, all agreements with related parties must be made on arm's-length terms, and the board of a limited company is under an obligation to act in the best interest of the company at all times. In considering the company's financial assistance in a financing transaction, the board must consider, among other things, the company's equity and liquidity situation, obligations to other creditors and stakeholders, exposure under any guarantees or asset security granted, and benefits received by the company in participating in the financing arrangements. Under certain circumstances, assistance provided may require the resolution of the general meeting of the company.

Once an event of default has occurred, a secured party may demand a compulsory sale of the security assets, following a two-week notice period. The statutory enforcement regime is mandatory, and enforcement must be effected by the enforcement authorities, unless the security provider agrees on a different procedure after (and not before) the occurrence of the event of default.

The enforcement request must be presented to the court, which will decide on the most appropriate form of realisation. A sale could be made by way of a public auction, brokerage or allowing the security holder to take possession over the relevant assets, for example.

For the special case of security over financial collateral (such as limited company shares) granted to a financial institution, the parties may agree to a different enforcement procedure when the security is granted. Market practice for share pledges is invariably to agree on enforcement outside the statutory enforcement regime.

A creditor can agree to subordinate its loans and security interests to those of another creditor at any time. If registered security is to be subordinated, the subordinated creditor will often cede priority by registration in the relevant registry (unless the parties only rely on agreed waterfall provisions).

There is a statutory, preferential lien in favour of the bankruptcy estate as security for costs of the bankruptcy proceedings, attached to all assets of the bankrupt entity at the time of commencement of the bankruptcy proceedings and other assets provided as security for the obligations of the debtor at that time. The lien is maximum 5% of the value of the asset, but can never exceed 700 times the court fee (NOK1,150 from 1 January 2019) for each asset registered in an asset register (eg, real property, ships, aircraft). The lien takes priority over other statutory liens and all other encumbrances, but will only cover the necessary costs and only if there are no other available (unencumbered) assets to cover such costs.

A lender will not become liable for environmental damage merely for holding security over real estate.

However, care must be taken if such security is enforced by taking possession because owners of land that operate, use or possess the land can be liable under strict liability rules for environmental damage relating to the property even if they did not cause the damage, and even if there has been no fault or negligence on the part of the lender or owner.

Security that is perfected before the commencement of bankruptcy or composition proceedings will be recognised in insolvency, assuming that the security agreement is valid.

An administrator may void such security if it was created later than three months before the opening of bankruptcy proceedings for debt incurred prior to the creation or perfection of the security. This also applies for security created upon incurring the debt but where perfection was not established without undue delay thereafter.

Security interests may further be reversed if the security unfairly favours one creditor at the cost of the others at a time when the financial situation of the debtor was weak or became materially weaker after the security was granted. Such security can be reversed within a time limit of ten years.

Most commercial property financing in Norway is made in Norwegian kroner, which is usually borrowed with NIBOR as the benchmark rate. For those who borrow in currencies with reference to LIBOR, the consequences and approach to risk management are similar to those borrowing in other markets with the same reference rate. Also, NIBOR may follow suit at some later point in time, potentially making this an issue for NIBOR borrowers as well.

Norwegian strategic planning/zoning is governed by a combination of statutory law and governmental policy. The main legislative framework is the Planning and Building Act (Plan- og bygningsloven), along with appurtenant regulations.

The law allows the state and each county and municipality to regulate land use within their area of responsibility. The responsibility for regulating the development and use of property lies with the county and municipal authorities. A certain amount of national political influence also exists by way of guidelines and statements contained within government White Papers.

The municipalities have an obligation to control local urban development by creating municipal master plans, zoning plans and detailed zoning plans.

The municipal master plans set out the superior guidelines in relation to zoning, and must cover all geographical areas within the municipality. A zoning plan sets out guidelines for land use within a smaller geographical area, and is used if demanded in the municipal master plan. The detailed zoning plan outlines the detailed terms of land usage in a small geographical area, often consisting of just a few pieces of real estate.

A building permit is required in order to build or make significant alterations to an existing building. The municipality can refuse building consent if the proposal is not in accordance with the Planning and Building Act, appurtenant regulations, or the stipulations of the zoning plan or detailed zoning plan. However, the planning and building authorities may grant a dispensation and allow a project to commence even if it is not in accordance with the relevant plan(s).

The county and municipal authorities are responsible for regulating the development and designated use of individual parcels of real estate.

The municipalities have an obligation to control local urban development by creating municipal master plans, zoning plans and detailed zoning plans.

The detailed zoning plan outlines the detailed terms of land usage, and can focus on the type of development permitted, building height and size, aesthetic qualities, restrictions on the use and development of property, the order of development and parking provisions.

Before the developer or the responsible applicant starts to prepare the building application, it is possible to have a preliminary conference with the local planning and building authority in order to clarify the scope and overall content of the project.

Furthermore, the developer or the responsible applicant must notify the neighbours and give them the opportunity to raise their objections. A copy of the notifications must be enclosed with the application.

The application must include a sufficient description of the project to give the local planning and building authorities the necessary information to determine the application.

When the application is submitted, the authorities will consider all relevant aspects of it, and issue a building permit or a refusal. If the application is in accordance with the plan for land use and all other legal requirements, the applicant has a legal right to be granted a building permit.

Those who are deemed to have a sufficiently close connection to a permitted project have the right to submit a complaint following the issue of a permit.

If a building permit is denied or a dispensation from the plan for land use is denied, the decision may be appealed to the local Standing Committee on Urban Development (for the relevant municipality) in some cases. If the local building authority’s decision is upheld, the complaint will be tried by the County governor. A denied permit or dispensation can always be appealed to the County governor.

In some cases, the County governor can raise objections to a permit; the final decision is taken by the Ministry of Local Government and Modernisation.

When this method of appeal is exhausted, one can choose to go even further by taking the case to the Civil ombudsman or by bringing a civil case.

It is possible for the landowner or the developer to enter into a ‘development agreement’ with the municipality in relation to the development of an area. Neither the municipality nor the landowner/developer has a right to demand such an agreement, but it is seen almost as a prerequisite for larger projects, due to the often comprehensive zoning regulations demanding roads, water, sewage, parks, schools, etc, before the actual buildings can be constructed.

Upon the completion date, the constructor must complete a final control check and confirm that the project has been carried out in accordance with the permission and current provisions. Based on this confirmation, the municipality shall issue a certificate of completion.

If minor deficiencies are found, provisional permission for use may nevertheless be granted when the municipality finds this unobjectionable. A provisional permission for use should always be followed up by a certificate of completion.

It is illegal to use the premises if there is no certificate of completion and a provisional permission for use has not been granted. In such event, the planning and building authorities may prohibit the continuation of the unlawful use by instructing a close-down and/or imposing a fine.

If the instruction given by the local planning and building authorities is not carried out, the authorities can also:

  • instruct building works to stop;
  • require the rectification/removal of illegal works; and
  • impose compulsory fines.

Furthermore, the person responsible can receive fines, be reported to the police and be liable to pay compensation.

Indirect investments in Norway can be made through limited liability corporate vehicles or partnerships. The two types of limited liability corporate vehicle relevant here are:

  • the private limited company (aksjeselskap/AS); and
  • the public limited company (allmennaksjeselskap/ASA).

The only type of partnership that offers limited liability to partners under Norwegian law is the limited partnership (kommandittselskap/KS). This requires at least one of the partners to have unlimited liability (often a private limited company), but there is no limit to the number of limited liability partners.

Another type of partnership often used for real estate investment in Norway is the general partnership (ansvarlig selskap/ANS and ansvarlig selskap/DA), which does not offer limited liability to partners. As a general rule, all partners in an ANS have unlimited joint and several liability, while partners in a DA have pro rata liability.

Norwegian law does not recognise a collective investment vehicle as a separate legal entity. A real estate fund must therefore be set up, using one of the corporate vehicles mentioned above.

A real estate fund may also be set up as a form of simple joint ownership between the investors, without using a corporate vehicle. By organising the fund in this way, investors can classify their investment as real estate and not shares. For some investors, such as insurance companies, whose investment activities are regulated by statute, this can be a significant advantage.

Aksjeselskap/AS (Private Limited Company)

This is a limited liability corporate vehicle similar to the private limited companies recognised in other jurisdictions.

Allmennaksjeselskap/ASA (Public Limited Company)

This is a limited liability corporate vehicle similar to the public limited companies recognised in other jurisdictions.

Kommandittselskap/KS (Limited Partnership)

This is a limited partnership where at least one of the partners has unlimited liability (often a private limited company). There is no limit to the number of partners with limited liability.

Ansvarlig Selskap/ANS (General Partnership with Unlimited Liability) and Ansvarlig Selskap/DA (General Partnership with Pro Rata Liability)

An ansvarlig selskap/ANS and an ansvarlig selskap/DA are both general partnerships. All partners in an ANS have joint and several unlimited liability, while partners in a DA have pro rata liability.

The minimum capital requirements for each entity are as follows:

  • Aksjeselskap/AS (private limited company): NOK30,000;
  • Allmennaksjeselskap/ASA (public limited company): NOK1,000,000;
  • Kommandittselskap/KS (limited partnership): the minimum contribution for a limited partner (kommandittist) is NOK20,000 and the minimum contribution for the general partner with unlimited liability (komplementar) is 1/10 of the company’s capital, subject to a minimum of NOK2,223. Thus, the minimum capital required is NOK22,223; and
  • Ansvarlig selskap/ANS (general partnership with unlimited liability) and ansvarlig selskap/DA (general partnership with pro rata liability): no minimum contribution is required.

Aksjeselskap/AS (private limited company) and Allmennaksjeselskap/ASA (public limited company)

The shareholders’ meeting is the supreme governing body of the company and elects the board of directors. For ASA-companies it is a statutory obligation to have a managing director who is responsible for day-to-day management of the company. However, for AS-companies it is optional.

The company must keep its own accounts and, as a general rule, appoint a certified auditor (ASA-companies are obliged to appoint a certified auditor). Subject to certain requirements, AS-companies may decide to dispense with auditing the annual accounts. Both AS-companies and ASA-companies must submit annual accounts to the Register of Accounts, including the auditor’s report if applicable.

If the company conducts a business that is subject to VAT, it must also be registered in the VAT Register. Letting real estate is not normally subject to VAT, although voluntary registration has been introduced for those letting business premises for activities that are liable for VAT. This allows them to deduct input VAT on the purchase of goods and services used in their property rental business.

The company can distribute its non-restricted equity as dividends to shareholders, as long as its equity (including restricted equity) and liquidity, after the distribution, are adequate in terms of the risk and the scope of the company’s business. The company’s board must assess whether this requirement will be fulfilled.

Kommandittselskap/KS (limited partnership)

Limited partnerships have considerable flexibility to determine their own corporate governance through their by-laws. Voting and profit participation rights can be freely allocated.

The unlimited partner (komplementar) (or the board of directors) can appoint one or more general managers, who do not have the same decision-making powers as a general manager in a general partnership. Limited partners (kommandittister) may have certain limited rights of approval in relation to management decisions. Appointing a board of directors is optional.

If the partnership conducts business that is subject to VAT, it must also be registered in the VAT Register. Letting real estate is not normally subject to VAT, although voluntary registration has been introduced for those renting out business premises for activities that are subject to VAT. This allows them to deduct input VAT on the purchase of goods and services used in their property rental business.

Ansvarlig selskap/ANS (general partnership with unlimited liability) and ansvarlig selskap/DA (general partnership with pro rata liability)

The partnership has considerable flexibility to agree its own corporate governance through its by-laws. All partners are jointly and severally liable for the general partnership’s liabilities. Responsibilities, voting and profit participation rights can all be freely allocated. Appointing a board of directors is optional.

If the partnership conducts business that is subject to VAT, it must also be registered in the VAT Register. Letting real estate is not normally subject to VAT, although voluntary registration has been introduced for those renting out business premises for activities that are subject to VAT. This allows them to deduct input VAT on the purchase of goods and services used in their property rental business.

Aksjeselskap/AS (Private Limited Company) and Allmennaksjeselskap/ASA (Public Limited Company)

A limited liability company is subject to the Norwegian regulations relating to accounting and auditing. Each financial year (normally the calendar year), the company must complete and submit annual financial reports and tax returns.

If the company conducts business that is subject to VAT, a form detailing the sales/turnover must also be submitted to the tax collection office every two months.

Annual costs amount to a minimum of approximately NOK35,000 – NOK50,000. The costs are likely to be lower if the company has resolved (where that is permissible) not to audit the annual accounts.

Kommandittselskap/KS (Limited Partnership)

As a main rule, a limited partnership is subject to the Norwegian regulations relating to accounting and auditing.

If the limited partnership conducts business that is subject to VAT, a form detailing the sales/turnover must be submitted to the tax collection office every two months.

Annual costs amount to a minimum of approximately NOK40,000.

Ansvarlig Selskap/ANS (General Partnership with Unlimited Liability) and Ansvarlig Selskap/DA (General Partnership with Pro Rata Liability)

As a main rule, a general partnership is subject to the Norwegian regulations relating to accounting and auditing.

If the limited partnership conducts business that is subject to VAT, a form detailing the sales/turnover must be submitted to the tax collection office every two months.

Annual costs amount to a minimum of approximately NOK35,000.

Norwegian law differentiates between ground leases (governed by the Norwegian Ground Lease Act), leases for residential premises, and leases for commercial premises (both governed by the Norwegian Tenancy Act).

Ground leases are used as a means for structuring or differentiating ownership of buildings and land, while leases of commercial and/or residential premises only entitle the tenant to use the leased property or premises.

There are no different types of commercial leases, apart from the general differentiations mentioned above.

In commercial leases, the rent is usually calculated per square metre, including a proportionate share of the common areas of the building. The rent for retail premises is often based upon the tenant's revenue, with an agreed minimum payable rent. By contrast, rent for residential leases is usually agreed between the parties, and is not directly connected to the number of square metres. In both cases, rent is generally freely negotiable between the contract parties.

Residential leases in Norway can be entered into for either a fixed term or an indefinite period of time. Commercial leases, on the other hand, are almost solely entered into on a fixed term basis, typically for five to ten years. Commercial leases will often also include rights of renewal for the tenant.

As a main rule, residential leases cannot be entered into for less than three years. Aside from this restriction, a lease may be entered into for as many years as the parties see fit.

In residential leases entered into for an indefinite period of time, there is a strong legal framework for the protection of tenants. Commercial leases are not subject to such legal limitations and are freely negotiable.

Length of lease term varies greatly, depending on availability, type of premises, type of lease, rent levels and who the contracting parties are, etc. Leases are often granted for five years (with a right for the tenant to renew for a further five years) or ten years. The lease can be for a fixed term or an indefinite period of time.

In commercial leases, the tenant is normally responsible for the cost of internal maintenance of the rented property. The tenant’s duty also usually includes renewing wallpaper and floor coverings, and interior decorating and repair, as well as wiring/pipes and other arrangements relating to water, heating, electricity, ventilation and refrigeration systems.

Rent is typically paid in advance on a monthly or quarterly basis.

Rent for commercial leases is often adjusted annually in line with the Norwegian Consumer Price Index. Adjustment to market level usually only happens when a lease is renewed.

Generally, commercial rents are adjusted according to the Norwegian Consumer Price Index. For residential leases, the Norwegian Tenancy Act provides a legal platform for both full yearly indexation of rent based on the changes in the Consumer Price Index and statutory adjustment, as long as certain terms are met.

The landlord can opt to register as a VAT-paying company or to register the property for VAT purposes.

There are no costs other than the initial rent at the start of a commercial lease, unless otherwise agreed.

It is normally the landlord’s responsibility to pay the cost of all external building maintenance. However, the tenant will normally pay a share of the communal expenses, according to a budget prepared by the landlord, in the form of a sum on account paid together with the current rent.

Services such as telecommunications, electricity, water, heating, lighting, ventilation and cleaning are usually agreed directly between tenants and the relevant suppliers.

It is commonly agreed that each of the parties will maintain insurance to cover their own interests. The landlord usually insures the building while the tenant will take out insurance to cover, for example, windows and doors, internal features, furniture and fittings, machinery, data, stock, loss of profit/business interruption and public liability. In the event of any damage, the tenant’s insurance will be used to its full extent before the landlord’s insurance is called upon.

Leases normally stipulate the permitted use of the premises, and tenants must also abide by the restrictions imposed by planning regulations.

Tenants are not usually allowed to alter or improve the premises without the landlord’s written consent. The parties must agree on whether or not the premises need to be restored to their original condition at the end of the lease period, and on how any costs and benefits related to the alterations and improvements will be allocated.

Leases of residential property are governed by the Tenancy Act. In general, the conditions agreed in residential leases should not be less favourable to the tenant than those provided for under the Tenancy Act.

Leases of commercial property are also governed by the Tenancy Act but may, with certain exceptions, deviate from the provisions of the Tenancy Act, allowing parties to agree on a wide variety of terms for leases.

Under general contract terms, insolvency on the part of the tenant will give the landlord a right of termination without notice if the tenant is unable to make the required rental payments. The tenant's failure to vacate the premises despite having been served notice by the landlord might lead to formal eviction of the premises through formal proceedings. In the event of bankruptcy, the bankrupt estate has the option to enter into the contract position of the tenant.

One of the most common forms of security is for the tenant to provide the landlord a deposit, or an appropriate form of surety from a parent company, a Norwegian bank or another financial institution. The deposit or surety is usually equal to the value of the rent for a maximum of six months and any additional obligations.

There is no legislation in Norway conferring security of tenure.

However, a landlord cannot ensure that a tenant leaves on the date originally agreed on this basis alone, so commercial leases normally include provisions for recovering vacant possession without court proceedings after the term of the lease has expired. The tenant has a right to receive a prior warning and an opportunity to rectify any breaches of the lease before losing possession of the property. If the contract does not contain an eviction clause, the landlord must obtain a court order.

Commercial leases for a fixed term cannot ordinarily be terminated throughout the duration of the fixed term, unless a walk-away clause or premature termination clause is agreed upon.

On the other hand, commercial leases for an unspecified time period are not common, but they do include a termination right for both parties. The termination period will be three months, unless otherwise agreed.

Residential leases for an unspecified time period can usually only be terminated by the landlord in specific circumstances regulated by law. In addition, the tenant has the right to terminate. The termination period will usually be three months, unless a longer period is agreed upon. Fixed-term leases cannot be terminated, unless agreed between the tenant and the landlord.

Both residential and commercial leases can be terminated immediately if either party materially breaches its obligations under the lease.

Commercial lease agreements usually contain provisions for recovering vacant possession without court proceedings in cases of non-payment of rent. The tenant has a right to receive a prior warning and an opportunity to deliver up the property and associated fixtures to the landlord voluntarily before losing possession. Eviction usually takes between six and 16 weeks.

If the contract does not contain an eviction clause, the landlord must obtain a court order.

The landlord is normally also entitled to revoke the contract if the tenant commits any material breach of the lease agreement, which means the tenant must vacate the property.

In certain cases, a lease contract can be expropriated against full compensation to the parties concerned. The processing time will vary with the legal basis for the expropriation.

The two price formats most commonly agreed on in Norwegian construction projects are unit price contracts (Enhetspriskontrakt) and fixed sum contracts (Fastsum kontrakt). In many cases, a combination of the two formats is used in the same contract. Elements of hourly based remuneration will also often be included under both pricing formats. During the last two decades, cost-plus and target price contracts, with risk-share for overspend, for example, have become common in the market. In unit price contracts, all individual services provided to complete construction are listed and priced separately. The contractor bears the risk related to the unit price, and the client bears the risk related to amounts needed to conclude the project. The final price of the works will be calculated according to the services and units actually delivered in the project.

The responsibility for engineering and design is either left with the client in the commonly used "build only" contract schemes, or assigned to the contractor through the application of various EPC contract formats in construction projects. In either case, the client or main contractor will distribute and assign the various engineering and design responsibilities to particular expert engineers within each technical area relevant to the project.

Indemnifications, warranties, limitations of liability and waivers of damages are commonly implemented in Norwegian construction contracts. Between professional parties, there are no specific limitations to the parties' ability to agree on said devices at the outset. There are, however, general limitations following the law of contracts, and a general exclusion towards 'unreasonable' contracts (Norwegian Act on Concluding of Agreements, Section 36).

If the contractor is delayed for reasons that are attributable to the client, the contractor will commonly be entitled to a corresponding amount of additional time for construction, or to increased payment if the client demands acceleration to maintain the previously agreed schedule. If the contractor is delayed due to its own circumstances, then acceleration must be implemented at the contractor's own cost. If such delay leads to a breach of agreed milestones or the final date for construction, then the client will commonly be entitled to liquidated damages. However, liquidated damages are only applicable if such damages are expressly agreed upon for the specific milestone.

A warranty bond of 10% of the net fee is market standard to secure the performance of the contractor's work until completion. In general, the contractor is allowed to provide a bank guarantee. From completion onwards, a warranty bond of 3% of the amount of the final invoice for mal-performance within the liability period is market standard. In general, the contractor is allowed to provide a bank guarantee.

Contractors of a construction project may acquire a right over the property, comparable to a lien, in the event of non-payment. The contractor would normally have to take the unpaid invoices to court and ask for security through a temporary injunction. If security is granted by the court, the owner has to pay the debt to the contractor in order to remove the lien.  

For all building projects, if applicable, the necessary building permits must be obtained before the start of construction works. This includes the official approval of necessary fire safety standards and other technical certificates by the building authority or the responsible engineer.

VAT is not payable on the purchase of real estate, nor on the purchase of shares in a vehicle holding real estate. However, construction work is subject to VAT. Accordingly, if a new property is built in Norway or construction works are carried out in relation to an existing building, the initial sale by the construction company is subject to VAT.

If a new property is built in Norway or construction works are carried out in relation to an existing building, the VAT payable on the purchase can be recovered if the procurement is used in the investor’s VAT-liable business (including rental) and the investor is VAT-registered in Norway. VAT refund is not possible for input VAT on procurements related to real estate not used in VAT-liable business in Norway.

The standard rate of VAT in Norway is 25%.

Upon the transfer of property where input VAT has been deducted, the property is deemed to have passed to non-deductible use, and (part of) the input VAT deducted must be repaid. This also applies to property sold by a business using the property in VAT-liable business. This adjustment of VAT can be omitted if the party that takes over the property also takes over the adjustment obligation. The buyer must be VAT-registered in Norway and must use the property in VAT-liable business in order to be able to take over the adjustment obligation.

An adjustment obligation also applies if the use of the property changes from (whole or partial) use in a business that is subject to VAT to use in a business that is not subject to VAT. However, fire or the demolition of premises do not result in adjustment.

When buying shares in a vehicle holding real estate, the transfer of shares does not trigger an obligation to adjust deducted input VAT.

Stamp duty is normally payable on the transfer of title of real estate located in Norway, whether commercial, residential or industrial, at the rate of 2.5% of the sale value of the property. Normal arm’s-length conditions apply to calculating the sale value. The buyer is responsible for paying the stamp duty and registration fee.

The transfer of shares in limited liability companies and partnerships owning real estate is not subject to stamp duty. A transfer of real estate through the merger or demerger of a limited company is also exempt from stamp duty.

A minor registration fee of approximately EUR60 is payable in order to obtain legal protection for the right of ownership.

Property tax may be imposed by the municipal council. This will generally be set at a rate of between 0.2% and 0.7% of the taxable value, normally calculated somewhat lower than the market value.

Under Norwegian domestic tax law, income from real estate located in Norway is taxable in Norway, regardless of where the landowner is domiciled. The tax rate is 22% (2019). This right to tax at source is not subject to adjustment by double-taxation agreements.

For indirect investment through a corporate entity in Norway, the net rental income from real estate in Norway is subject to general corporate income tax at the rate of 23% (2019). Furthermore, withholding tax may be imposed on dividends from the Norwegian corporate entity to the non-Norwegian investor.

Owners of real estate are entitled to tax deprecations, which are calculated by multiplying the tax basis value for the real estate by the applicable tax deprecation rate, which is 4% for the building and construction of property and hotel, and 2% for commercial buildings. Residential real estate is not subject to tax depreciations.

Advokatfirma DLA Piper Norway DA

Bryggegata 6
PO Box 1364
Vika
Oslo
0114
Norway

+ 47 24 13 15 00

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info.norway@dlapiper.com www.dlapiper.com
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Law and Practice in Norway

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Advokatfirma DLA Piper Norway DA has a market-leading real estate offering, with an international multidisciplinary team of lawyers that can serve client needs globally across the real estate sector. The firm has more than 750 real estate lawyers operating in more than 40 countries around the world, serving clients in key real estate markets, with strongly established teams in the Americas, Europe, the Middle East, Africa and Asia Pacific. DLA Piper works with clients through all stages of the real estate life cycle, including planning, acquiring, finding, developing, leasing, completing, trading and divesting. Working through this cycle, it offers the following services: financing; acquisitions and disposals; asset management; construction; cross-border investment; development; fund formation; joint ventures; leasing; litigation; planning, zoning and environmental issues; public private partnerships; REITs; restructuring; and tax. The team works alongside investors, lenders, developers and managers on every aspect of their real estate activities.