Real Estate 2019 Comparisons

Last Updated May 23, 2019

Law and Practice

Authors



Advokatfirman Cederquist KB has a dedicated Commercial Real Estate team comprising two partners and eight associates. In a wider context, the real estate practice consists of five partners with focus on different areas within the real estate M&A sector, and 23 associates. The practice – which regularly represents both vendors and investors in the largest and most complex real estate transactions on the market – possesses the resources, expertise and experience required to provide a full service on all aspects of buying and selling investment properties; this includes deal structuring, investment advice, establishing investment vehicles, strategic and tactical advice, asset management and property management arrangements and transactional management as well as due diligence. Cederquist also regularly advise clients in their day-to-day business on a broad range of property-related issues, such as construction and development, planning and zoning, letting and tenancy, dispute resolution, land parcellings and re-allotments and regulations. The Commercial Real Estate team draws on specialist expertise from all of the firm's practice areas to deliver innovative but commercially-oriented results. Due to Cederquist's excellent relationships with premier law firms in other key jurisdictions, it has the ability to manage cross-border transactions and multi-jurisdictional acquisitions. The firm's clients include many high-profile Swedish real estate companies, international investors and institutional players.

Sweden operates a codified law system. The main Swedish laws affecting real estate transactions are:

  • the Land Code (Jordabalken);
  • the Companies Act (Aktiebolagslagen);
  • the Sales of Goods Act (Köplagen);
  • the Rental Act (Chapter 12 of the Land Code) (Hyreslagen);
  • the Planning and Building Act (Plan- och bygglagen);
  • the Stamp Duty Act (Lag om stämpelskatt vid inskrivningsmyndigheter); and
  • the Real Estate Formation Act (Fastighetsbildningslagen).

The Swedish market offers a reliable and secure legal system, openness in public registers and low transaction costs, which is why the market is often regarded as very suitable for foreign investors.

The transaction volume in the Swedish real estate market during 2018 was level with the preceding year's volume. The office sector surpassed the residential sector as the largest sector, which could be due to the drop in the housing market with an excess supply of newly constructed residential premises. The transaction volume in the Nordic Region was the third highest ever and the Swedish real estate market remains the largest in the Nordic region. The largest deal of 2018 was Vonovia SE's purchase of Starwood Capital Group’s share of 81.4% in the Swedish residential property company Victoria Park AB. The acquisition corresponds to a value of SEK14 billion, according to official information.

A main trend in the Swedish real estate market during 2018 was an increased number of larger and more complex transactions. Many of the largest transactions were cross-border transactions by international investors as purchasers. Further, because of the ongoing increase in e-commerce and digitalisation, a continuing interest in warehouses and logistic properties has been noted. Additionally, the interest in flexible workplaces and co-working spaces has started to affect the office sector.

The corporate tax has, as per 1 January 2019, been decreased from 22% to 21.4%. In addition, the Swedish parliament has adopted an act to further decrease the corporate tax to 20.6% in 2021.

In March 2017, a Government Official Report regarding tax planning in relation to the real estate transaction market was submitted to the Swedish Government. The proposal in the Report implies that the tax load of a transaction of a special purpose vehicle (SPV) established to hold a parcel of real estate shall equal a direct transaction of a parcel of real estate. However, no further action has been taken to implement the changes proposed in the Report.

Following the general election in Sweden in September 2018, an agreement between the left and the centre-right parties was made in relation to, inter alia, the rent for newly constructed residential premises. The agreement suggests that the current utility value system shall be replaced with a market rent system in 2021. However, the reform will be further investigated and there are political uncertainties as to whether it will be implemented at all.

Ownership of real estate in Sweden is always connected to a registered land unit. Both sole ownership and co-ownership exist. There are two types of property rights that may be acquired: direct ownership/freehold and site leasehold (tomträtt). Both property rights include all buildings on the land and other facilities (not separately owned by a third person). The direct ownership also includes the ownership of the land. Site leasehold is a special feature where normally the municipality or the state is the owner of the land and the rights acquired are specified in an agreement with the municipality or the state for an annual fee (tomträttsavgäld). The rights of the site leaseholder corresponds mainly to the rights of a property owner. In regard to, for example, mortgages and mortgaging it does not differ from the rights of a direct owner of property. Also, there is no need for a site leaseholder to obtain the consent of the landowner either prior to a transfer of the site leasehold or for the creation of security. The holder of a site leasehold will, however, need to pay a fee to the landowner as mentioned above. This fee is changed, normally, every ten years by a special procedure.

The main Swedish laws affecting a transfer of title are:

  • the Land Code (Jordabalken);
  • the Stamp Duty Act (Lag om stämpelskatt vid inskrivningsmyndigheter);
  • the Real Property Formation Act (Fastighetsbildningslagen); and
  • the Land Acquisition Act (Jordförvärvslagen) (which only applies to agricultural properties).

Other than stated above, there are no specific types of regulations for various types of real estate.

A purchaser of real estate has to apply for registration of title to the purchased real estate within three months from completion of the purchase at the Land Surveying Office (Lantmäteriet). The Land Surveying Office holds a public register, which sets forth, inter alia, the ownership of all real estate in Sweden. A failure to apply for such registration within the given time period will not make the transfer void but the Land Surveying Office may issue an injunction for the purchaser to register the title; the injunction may be served together with a fine. A registered title is important to obtain a right in rem to the real estate.

There is no system for title insurance in Sweden since the public register at the Land Surveying Office is reliable and no specific deeds or similar need to be issued in relation to a transfer of real estate.

A thorough due diligence is normally conducted by a purchaser before purchasing real estate in Sweden. Since commercial real estate is normally held by a special purpose vehicle in the form of a company limited by shares (which is the target of most transactions), the due diligence will cover both the real estate and the company. The purchaser’s due diligence process may, of course, differ depending on whether the object of the transaction is real estate purchased directly or through such a special purpose vehicle. In the latter case, the process is usually more comprehensive since, together with the matter set out below, the investigation will also include the corporate aspects of the transaction. In a real estate purchase transaction, the due diligence process focuses on the following main areas:

  • searches in public records and enquiries with relevant courts, tribunals and other authorities;
  • review of layout and zoning plans, building permits and other permits and related documentation;
  • review of easements, mortgages and other encumbrances;
  • review of lease and leasehold agreements;
  • review of construction agreements, service and maintenance agreements in relation to the real estate;
  • investigation of environmental issues in relation to the real estate or the business conducted at the real estate;
  • investigation of the technical status of the real estate; and
  • investigation of tax matters in relation to the entity and/or the real estate.

Since the records of Swedish authorities are generally publicly available it is, in most cases, possible (through a due diligence process) to obtain a good picture of the ownership and encumbrances of real estate through the public registers. However, there may exist unregistered encumbrances, which cannot be revealed through the publicly available documentation and thus cannot be identified. In addition, there is no mandatory public record of, for example, lease agreements. Such information must be provided by the seller.

The sale and purchase agreement will differ somewhat depending on whether the transaction is a real estate transaction or, as is more common, the object of the transaction is shares in a special purpose vehicle. In general, the parties agree that all applicable laws, such as the Land Code or the Sales of Goods Act, are excluded from the agreement; and it is agreed that it is the 'four corners of the document' that shall govern the legal relationship between the parties.

The warranties given by a seller in a sale and purchase agreement are, in general, similar when it comes to the warranties given for a property irrespective of whether the transaction involves the sale of an individual commercial real estate or of a large real estate portfolio. However, a transfer of shares will, of course, also contain warranties relating to the company (including, but not limited to, tax warranties). The agreements frequently contain warranties relating to, for example: title; capacity and authority; encumbrances; lease and service agreements; environmental issues; administrative and corporate approvals; and taxes. A purchaser also often demands warranties or other contractual assurances relating to the obligations imposed on landlords by Swedish statutory law to prevent accidents from occurring on the real estate and to maintain proper ventilation facilities, etc. The warranties given by the purchaser are limited and mainly relate to capacity and authority. If the seller is in breach of a warranty the purchaser may, in general, either make a performance claim or receive compensation through a reduction of the purchase price. It is, however, common that any loss following a warranty breach must exceed certain thresholds in order for the purchaser to receive compensation.

The most important area of law to consider when purchasing real estate within Sweden is the Swedish Land Code, which includes a major part of the laws and regulations relating to real estate such as formalities for a binding contract to occur and laws relating to lease agreements, etc.

Swedish environmental legislation is governed by a specific act and is, as a general rule, governed by the 'polluter pays' principle. It is primarily the operator of the polluting business that will be liable for any pollution (there are certain time thresholds that will also affect this) but if there is no operator who can perform or pay for remediation, the owner of the contaminated real estate has a secondary liability. There are also some exceptions where the landowner can be seen as the polluter.

Any use of a real estate must comply with applicable zoning plans, building permits or site leasehold agreements etc. Zoning plans and other relevant permits are public and can be received from the municipality or other relevant authorities in order for a purchaser to ascertain the permitted use of the real estate.

If an owner of a parcel of real estate wishes to amend the use of the real estate, a process must be initiated at the municipality to amend the applicable zoning plan. Please refer to section 4 Planning and Zoning, below, for more detailed information on the development process in relation to planning and zoning.

Land can be compulsorily acquired in Sweden. The Compulsory Acquisition Act (Expropriationslagen) makes it possible for governmental organs to acquire land through compulsory acquisition. The government is normally obliged to compensate an owner with the market value when compulsorily acquiring land.

The sale and purchase of real estate in Sweden triggers a stamp duty, which is normally payable when the application for registration of title has been registered. When a real estate is purchased by a corporate entity the stamp duty currently amounts to 4.25% of the higher of the real estate’s tax assessment value and the purchase price (with some exceptions – for example, when there is no tax assessment value a valuation certificate is needed). Normally, it is agreed that the purchaser pays the stamp duty, but other than that the parties are normally responsible for their own incurred costs in the transaction, such as costs for due diligence, advisers, etc. There is no stamp duty or other tax levied on the purchase of shares in a real estate-owning company; however, please refer to 1.3 Proposal for Reform, above. It is also not uncommon in Sweden to transfer property by merging two properties in a specific manner where the Land Surveying Office is involved and decides on a merger of the properties. Such a merger will not trigger stamp duty.

There are no restrictions for foreign investors to acquire real estate in Sweden.

Generally, the acquisition of Swedish commercial real estate is financed through equity and internal and/or external loans. The most common financing options for acquisitions of large real estate portfolios or companies holding real estate are capital injection by owners, bank loans and bonds. However, financing through bonds, which in later years has been more frequently used, has declined. Financing via the capital market is still common.

The most common securities granted by a commercial real estate investor who is borrowing funds to acquire or develop real estate are pledge over shares (by way of handing over share certificates), pledge over real estate mortgage deeds, pledge over intragroup loans, pledge over bank accounts, pledge over insurance and/or cross-stream guarantees.

In Sweden there are no restrictions on granting security over real estate to foreign lenders (other than standard 'know-your-customer' precautions). However, if there is any electronic mortgage deed registered in relation to the relevant real estate, a lender must be linked through a specific system in order to receive and pledge the electronic mortgage deed. If the applicable lender is not linked to the system, the relevant electronic mortgage deed must be converted to a written mortgage deed in order for the lender to receive the necessary security. This is, however, a fairly simple process. There are no restrictions on repayments being made to a foreign lender under a security document or loan agreement. Swedish real estate finance transactions have not been affected by the Foreign Investment Risk Review Modernisation Act of 2018 (FIRRMA).

If the owner of a real estate has to take out new mortgage deeds in order to fulfil its security undertaking under the relevant pledge agreement, the cost (stamp duty) for such new mortgage deeds is currently 2% of the amount of the issued mortgage deed. There are no other specific fees or taxes in relation to the granting of any security.

The legal validity and the enforceability of a security granted by a Swedish limited liability company in order to support or secure the obligations of another party is subject to the condition that the company granting such security:

  • receives a corporate benefit that is commensurate with the obligations assumed by the company under such security; and
  • is not securing:
    1. any person where such obligations have been incurred for the purpose of acquiring shares in the company or in any superior member (or any subsidiary of such superior member) of the same Swedish group of companies as the company,
    2. any direct or indirect shareholder of the company or any person which is under the control of such direct or indirect shareholder, unless such direct or indirect shareholder or other person is a member of the same group of companies as the company and the parent of such group is domiciled in the European Economic Area, or
    3. any direct or indirect shareholder of the company unless and until such shareholder owns, directly or indirectly, all outstanding shares in the company.

A Swedish limited liability company is generally believed to have received adequate corporate benefit for security granted or made by it in support of obligations incurred by its wholly owned subsidiaries, unless under special circumstances.

A mortgage over real estate cannot be enforced by the pledgee itself but only through the Swedish Enforcement Agency (Kronofogdemyndigheten) or, in the case of bankruptcy, through a bankruptcy administrator. A secured party initiates the enforcement process by obtaining an enforcement order from the Swedish Enforcement Agency or the District Court. Upon obtaining an order against an obligor, a lender is entitled to apply to the Swedish Enforcement Agency for enforcement of the relevant claim and the sale of the mortgaged real estate. In the event of the sale of the relevant pledged real estate a lender will, on the basis of the pledged mortgage deeds, have priority in respect of an amount equal to the lower of (i) the relevant liabilities and (ii) 115% of the face amount of the mortgage deeds pledged plus certain statutory interest on such face amount from the date of attachment of the relevant real estate. If the sale price is not sufficient to satisfy the claims of the lender, the remaining claim will rank pari passu with the other creditors (if any). It should be noted also in this context that the direct transfer of a real estate will trigger a stamp duty, currently equal to 4.25% of the sales price (or the tax assessment value, as the case may be – please see above) obtained in connection with the enforcement. (There are certain other levels from private persons and certain other entities). In addition, the enforcement procedure will give rise to other certain costs related thereto.

The relevant parties can agree upon a subordination for existing secured debt in relation to newly created debt. In order to create a valid and enforceable pledge over mortgage deeds, such mortgage deeds need to be handed over to – or, if in electronic form, transferred to the lenders' archive (ägararkivet) for the deposit of electronic mortgage deeds with the Land Surveying Office – the relevant lender in Sweden and at all times be retained by the lender in Sweden or in any other jurisdiction where the security interest purported to be created will be recognised and enforceable. In order to create a valid and enforceable second-ranking pledge, the pledgee of the first-ranking pledge needs to be notified that the relevant mortgage deed is subject to a second-ranking pledge.

In relation to liability under environmental laws, only an owner of a real estate or an operator may be liable for any pollution caused to the real estate (please refer to 2.7 Soil Pollution or Environmental Contamination, above). A lender holding or enforcing security cannot be liable under environmental laws.

Provided that the relevant security interest is perfected as described above, the security interest is not declared void if the borrower becomes insolvent. It should, however, be noted that any security interest granted and/or perfected after the actual day the relevant debt has been incurred and over which the security has been granted, may be subject to claw-back (återvinning) under the relevant provisions of Swedish law.

Similar to many other countries, Sweden has a wait-and-see approach in regard to the expiry of the London Interbank Offered Rate (LIBOR) by the end of 2021. To date, there has been very few practical implications since most real estate financings are SEK-denominated and not dependent on LIBOR.

The municipality is responsible for the strategic planning and zoning across its region (eg, individuals cannot demand a change in applicable zoning plans or adopt a new zoning plan). When the municipality aims to adopt a new zoning plan for a specific region, such a process is time-consuming due to certain adoption processes and the possibility to appeal any decision made by the municipality. If there are environmental aspects in the new zoning plan, an environmental impact assessment may have to be drawn up, which often prolongs the process.

There are a number of legislative and governmental controls applicable to design, appearance and method of construction. Such legislative and governmental control is to be found in, inter alia, zoning plans, building permits, the Planning and Building Act (Plan- och bygglagen) and regulations issued by the National Board of Housing, Building and Planning (Boverket).

The municipality is responsible for the strategic planning and zoning, and determines the use of all land and water across its region. Applicable legislation in relation to such decisions is:

  • the Planning and Building Act (Plan- och bygglagen);
  • the Real Property Formation Act (Fastighetsbildningslagen); and
  • the Environmental Act (Miljöbalken).

The use of land, determined by the municipalities, is set forth in zoning plans. Typical restrictions found in zoning plans are restrictions regarding which business operations may be carried out on the real estate, restrictions regarding the height of buildings and restrictions regarding where buildings may be sited.

If an owner of real estate or other entity aims to construct a new building or to refurbish an existing building there are certain regulations to consider. In order to take such actions, the entity must, as a main rule, apply for permission at the Building Committee (byggnadsnämnden) in the municipality where the real estate is located (however, when reconstructing an existing building there are certain exceptions which may entail an exemption from applying for approval). When the entity applies for a building permit, the Building Committee considers whether the construction is made in accordance with any applicable zoning plans and encumbrances and whether the building/real estate is suitable for its purposes, whether it has a good shape, colour and material effect, etc. There are also protection regulations in relation to certain buildings, which may affect the possibility to reconstruct an existing building.

Any third party that is to be considered an 'affected party' (sakägare), such as an owner of an adjacent property or an inhabitant in the municipality, will have the opportunity to comment on the application and may appeal any resolution made by the municipality to amend or adopt a new zoning plan (within certain limitations in time and provided that such a party is to be considered affected by the zoning plan).

When a zoning plan has gained legal force, no appeal may be made.

In some projects, development agreements between the relevant real estate owners and the municipality are entered into when a zoning plan is amended or adopted or when real estate is acquired from the state or the municipality. There are no legal requirements to enter into such agreements. However, the Planning and Building Act includes certain regulations governing the content of a development agreement.

If a real estate owner or a user of real estate breaches any applicable zoning plan or building permit, such entity/individual risks being imposed with liquidated damages from the municipality and may be obliged to cease the activities that are in breach of the regulations. Furthermore, if the entity/individual has constructed an unauthorised building or reconstruction, the entity/individual may be obliged to demolish the building.

Generally, real estate assets are owned through a limited liability company (aktiebolag). All legal entities may purchase real estate; however, in recent years it has been uncommon to purchase real estate through any legal entity other than a limited liability company, due mostly to tax consequences.

All Swedish legal entities are registered in the companies’ register kept by the Swedish Companies Registration Office (Bolagsverket) and are thus publicly available. The articles of association of a company set forth the main features of the company, and must at least include the following provisions: the object of the company’s business; the minimum/maximum of the share capital of the company; the number of shares; share capital; board members; name of the company; residence; number of accountants; the financial year; and the notification method for general meetings.

The minimum capital of a private limited liability company is SEK50,000. However, if the limited liability company is public then the minimum capital is SEK500,000.

A private limited liability company must comply with certain regulations such as those in the Swedish Companies Act which include regulations, inter alia, that the company shall:

  • at least have the minimum applicable share capital;
  • have adopted articles of association;
  • at least have one board member (and if there is only one board member at least one deputy director), in some cases a managing director;
  • hold a share register of the company; and
  • as a main rule have an auditor appointed and each year submit the annual accounts to the Swedish Companies Registration Office.

There are no set annual maintenance and accounting costs in relation to a real estate-owning company. Most accountants charge per hour, entailing that any such costs depend on the complexity of the company and the group.

There are three types of arrangements in Sweden for the use of real estate for a limited period of time: Lease (hyra); leasehold (arrende); and other usufruct rights (annan nyttjanderätt). Different laws apply for these. One should also note that Swedish lease law contains many mandatory provisions which are to the benefit of the tenant and cannot be agreed upon to the detriment of a tenant.

The prerequisite for a lease under mandatory Swedish law is the right to exclusively use a building or part of a building for remuneration. Generally, a commercial lease agreement is based on a standard form commonly used in Sweden (the Property Federations standard form) together with more negotiated schedules such as specific regulations. If the use of real estate is not deemed as a lease such use can be, as mentioned above, either:

  • a leasehold, which is for example an exclusive right to use the land to establish and maintain a building on such land or similar for business purposes for a remuneration; or
  • a usufruct right, which is a non-exclusive right to use land and/or a building or an exclusive right to use land and/or a building without remuneration.

The applicable laws and regulations vary depending on the type of use at hand.

There is only one type of commercial lease provided that the lease is classified as a lease according to the Swedish Rental Act (Hyreslagen). Other types of arrangements allowing the use of real estate for a limited period of time are mentioned above in 6.1 Types of Arrangements Allowing the Use of Real Estate for a Limited Period of Time.

The rent for commercial leases is freely negotiable and usually determined by reference to the current level of rent in the relevant market. The parties may negotiate on other terms than stated in the Land Code; however, there are certain mandatory restrictions such as a minimum notice period for the landlords’ notice of termination and a maximum time period which must be adhered to. Swedish lease law is very formalistic and is established in favour of a tenant.

A typical commercial lease extends over a period of three to ten years and the length normally depends on the extent of tenant improvements made prior to the commencement date. Premises are not normally let 'core and shell' but rather the landlord will furnish the premises. The most common notice period is nine months with a prolongation period of three years at each time. There are, however, as mentioned, mandatory notice periods for a landlord to observe irrespective of whether the parties have agreed otherwise in the lease agreement.

Rent and rent surcharges payable under the lease agreement are normally paid quarterly in advance. If no such provision is stipulated in the lease agreement, the Land Code states that a tenant shall pay the rent monthly in advance.

The landlord is normally responsible and bears the cost for exterior maintenance and repair, while the tenant is responsible and bears the cost for interior maintenance and repair in relation to the leased premises. A delineation list allocating the maintenance obligations between the parties is normally appended to commercial lease agreements.

During the initial term of a lease a landlord may only demand the rent stated in the lease agreement. The rent may, however, be increased in accordance with changes to the Swedish Consumer Price Index, or by a fixed increase as agreed upon in the lease agreement, provided that the applicable lease term is at least three years. The rent can be amended at the end of each lease term by way of giving notice for prolongation of the lease on amended terms (eg, a termination of the lease agreement with the intent of extending the tenure on amended terms) in accordance with the notice provisions in the lease agreement. If such notice is served by the landlord and the tenant refuses to accept the amended terms as proposed, the tenant may refer the dispute to the Regional Rent Tribunal for mediation proceedings in order to preserve its right to claim compensation pursuant to the Land Code. If the parties cannot agree on the amended terms, the tenant has to vacate the premises.

The rent for commercial leases shall be deemed reasonable, which effectively means that the rent shall equal the market rent. The market rent is determined by an assessment of equivalent objects at the location, including premises with, inter alia, similar location; size; standard; and appearance. Should no equivalent objects be found at the location, a general assessment of the rent will be carried out.

In the event the parties cannot agree upon the market rent, either party may request the Rent Tribunal to issue an opinion regarding reasonable market rent. However, the parties are not bound to comply with such opinion.

VAT is normally payable on the rent and rent surcharges if the relevant tenant’s business is subject to VAT.

If a landlord has undertaken any property improvements prior to the commencement date the tenant may compensate the landlord for all or part of the cost for such improvements as a surcharge to the rent for the initial lease term.

Payment terms regarding maintenance and repair of areas used by several tenants varies between different types of common areas. For example, parking lots are usually maintained and repaired at a landlord's expense, whereas common areas in malls are usually maintained and repaired at tenants' expense in proportion to each tenant's share of the building. Due to recent Swedish case law, all costs imposed on the tenant have to be foreseeable and subject to contract.

Apart from the rent, a tenant normally compensates a landlord for the premises’ share of costs for heating, electricity, water and sewage, waste disposal, cleaning, ventilation, etc, and cost attributable to common areas. A tenant may also have its own subscription for, inter alia, electricity and refuse disposal. Other costs such as real estate tax and indexation of rent in accordance with changes to the Consumer Price Index are normally payable by the tenant if the term of the lease is at least three years.

The landlord is obligated to maintain a full value insurance (fullvärdesförsäkring) for the duration of a lease. Most events are covered by such insurance policy; however, liability for environmental damages according to the Environmental Code or criminal responsibilities are examples of events usually not covered by insurance. A tenant is obligated to have and maintain adequate insurance for the business conducted in relevant premises.

As a main rule a tenant may not use the premises for any other purpose than stated in a lease agreement. The real estate in general must also be used in accordance with applicable zoning plans and other permits.

In general, a tenant to a lease agreement may not alter or improve the leased premises without prior written consent from the landlord.

The Land Code stipulates certain mandatory regulations that apply only for residential leases; other than that there are no differences with the regulations for other types of leases.

As mentioned above, leases of residential premises differ in a few ways from commercial leases. A main feature in Swedish residential leases is so-called security of tenure (Sw. besittningsskydd). This involves the right for a tenant to stay in its premises, with few exceptions, without the possibility for a landlord to terminate a lease. If the tenant does not agree to a termination of the lease, the dispute is settled by the Rent Tribunal as first instance. Until the dispute has been settled, the tenant has the right to continue occupying the premises. The security of tenure also includes the right for the tenant to be awarded respite for vacating the premises by the Regional Rent Tribunal. However, the tenant is not entitled to prolong a lease in certain cases, including if the tenant has waived its right to security of tenure, or if the tenancy is forfeited. Accordingly, a residential lease agreement will proceed unless the landlord is able to prove that specific circumstances overriding the security of tenure are at hand.

The rent for residential premises can be determined either through direct negotiations between the landlord and the tenant, or through collective negotiations between the landlord and a tenant organisation. In practice, an individual tenant rarely negotiates; it is almost always a tenants' organisation. The tenants’ organisation protects tenants’ rights and is almost always affiliated to the Swedish Union of Tenants. An ordinary tenancy will include a negotiation clause that binds the tenant to pay the rent determined at future negotiations. Collective negotiations are normally conducted once a year on the initiative of the landlord.

The rent for residential premises is determined in accordance with the utility value system (Sw. bruksvärdessystemet), which means that the condition and features of the premises – such as location, environment, size and level of modernity – are compared with other similar premises within the same area. The rent is not deemed reasonable if it is considerably higher than the rent for premises with an equivalent utility value. If no agreement is possible, the tenant or the landlord must refer to the Regional Rent Tribunal, which will either mediate or conduct a utility value review to establish the rent for individual apartments. Tenants can always require a utility value review for the rent of their own apartment. This also applies in cases where the rent is determined through collective negotiations. If the rent is found to be too high, the landlord must in future follow the rent determined by the Regional Rent Tribunal. A landlord and the tenants' union for where the property is located can agree that the rent could exceed the utility value. The rules are applicable to buildings that are newly produced and part of already existing buildings, which have been rebuilt with residential premises. Such agreement must include all of the residential premises within the new building or all of the residential premises in the part of the building that has been rebuilt. The main purpose of this is to assure a landlord that the rent will cover the costs for the premises if a dispute arises in the Regional Rent Tribunal regarding the rent.

A tenant’s insolvency has no effect on the lease if the tenant continues to pay the applicable rent and rent surcharges in due time. If the tenant neglects to pay the rent, the lease may be forfeited.

Depending on the tenant and his or her financial strength, a landlord may, in order to secure the tenant’s fulfilment of its obligations under the lease agreement, request a bank guarantee, a rent deposit or a parent company guarantee. Such a guarantee should be delivered to the landlord prior to the tenant taking possession of the premises.

A tenant to a commercial lease has, as a main rule, an indirect security of tenure if the lease term exceeds nine months. The indirect security of tenure gives the tenant the right to compensation should the landlord terminate the lease at the end of each lease term without due cause (as specifically set out in the Land Code). The same applies should the parties not agree on the terms for a prolongation of the lease following a termination for amended terms and the terms proposed by the landlord are not deemed to be reasonable and conform to market practice. The most common event granting the right for a landlord to terminate an agreement at the end of the relevant term is a major rebuilding/construction, provided that the landlord may offer the tenant with acceptable replacement premises. If a lease agreement is terminated by reference to any of the foregoing and unless, if applicable, the landlord provides acceptable replacement premises, the tenant is entitled to receive a minimum compensation equal to one year of rental payments. The tenant is also entitled to compensation for any economic loss suffered in excess of the minimum compensation. If the tenant has to vacate the premises, unless the tenant has terminated the lease, the tenant may submit a request for respite in vacating the premises to the Regional Rent Tribunal; such respite can be granted for a maximum period of two years.

The tenant may waive its indirect security of tenure in a separate agreement. Such an agreement must be approved by the Regional Rent Tribunal if it is agreed upon during the first nine months of an initial lease period. The Rent Tribunal’s approval must be obtained prior to the tenant taking possession of the premises in order to be enforceable.

As mentioned, Swedish lease law is very formal and established in favour of tenants. A landlord cannot terminate a lease agreement prematurely unless the lease is considered forfeited. A lease may be considered forfeited, inter alia, in the event a tenant is subject to late payments or in the event the tenant subleases the lease object without the required consent and permission. However, a tenant may terminate a lease agreement prematurely in any event that the parties have agreed upon in the lease agreement.

A tenant can be forced to vacate the premises due to forfeiture; however, if the tenant refuses to leave the premises due to the forfeiture the dispute may be referred to the District Court which has to determine whether or not the landlord had a valid cause for the forfeiture. Such a court procedure may vary significantly in terms of duration, but can take approximately one to two years.

A lease agreement can only be terminated by the parties. In certain cases, a public authority may decide that the premises, in part or as a whole, shall not be used. If the decision entails substantial restriction, the tenant may terminate the lease agreement.

The most commonly used price structure for construction contracts is a fixed price. However, the fixed price is sometimes combined with different types of variable rates; there may be bonuses if a project is finished before a certain date and it is not uncommon to have certain parts of a project charged on cost-plus. It has also become increasingly common to use different types of incentive models and partnering agreements as part of the price structure. Using a cost-plus for an entire project is rather uncommon.

In theory, there are two methods for assigning responsibility for design and construction. These correspond to the two most commonly used standard contracts for construction projects, AB 04 and ABT 06.

Under AB 04, a real estate owner is fully responsible for the design and construction of a project; the contractor must only perform what has been set forth in the contract documents. For design-build contracts, ABT 06 is used and the real estate owner then only provides a description of what functions  are required. In this case the contractor is responsible for the construction and design of the project and for ensuring that the construction and design fulfil the functions required by the owner.

The most common practice is that there is a mix between the two models described above. For example, it is normal under ABT 06 that an owner provides not only the requirements for function but also drawings and prescribes in other ways the construction of crucial parts of the project.

As the standard agreements mentioned above are used in most projects, devices in these agreements are commonly used to manage risk on a project. AB 04 and ABT 06 principally use a combination of warranties and limitations of liability to manage risk. The normal warranty period is five years for a contractor’s work performance and two years for materials and goods. If the contractor on its side has received a longer warranty than two years, this longer warranty also applies between the contractor and the owner. The aggregated period for liability is ten years. After the first five years following the completion of the project, which is the warranty period mentioned above, the contractor is liable only for material defects during a subsequent five-year period. When the ten-year period has passed, the liability of the contractor ceases in its entirety. 

The liability for both parties is normally limited to the higher of either 15% of the contract sum or the amount of the party’s insurance. This limitation does not apply:

  • to damage to the project caused by the contractor;
  • to damage caused by one of the parties to the other party’s work;
  • to damage caused by defects in the contract works or consequential damages from such defects; or
  • in cases of gross negligence.

There are strict limitations of claims under the abovementioned standard agreements. For damage that appears during the construction period or the warranty period, claims must be made in writing within three months from the end of each period. Claims based on defects that appear after the warranty period must be made in writing within three months from the appearance of the defect.

The same limitations apply for claims based on claims from third parties that have a contract regarding the project (such as subcontractors).

As the construction field of law is more or less unregulated there are no direct legal limitations, but the general clause in the Swedish Contracts Act sets forth that a contract term or condition may be modified or set aside if such term or condition is unreasonable in relation to: the contents of the agreement; the circumstances prevailing at the time the agreement was entered into; subsequent circumstances; and circumstances in general. However, this general clause is rarely used with regard to commercial agreements between legal entities.

Parties are allowed to agree that an owner is entitled to monetary compensation, if certain milestones and completion dates are not achieved. Schedule-related risks are commonly managed by agreeing on liquidated damages to be paid by a contractor should the contractor not meet agreed dates for certain milestones and completion dates. If no liquidated damages are agreed upon, the owner is entitled to compensation for damages that arise due to delays.

It is common for owners to seek additional forms of security to guarantee a contractor’s performance on a project. Unless otherwise agreed, the standard agreements mentioned above set forth that the security provided by the contractor shall amount to 10% of the contract sum during the construction period, and 5% during the two years following the construction period. Securities normally have the form of parent company guarantees or bank guarantees.

Without the consent of the owner, a contractor or designer is not permitted,  to lien or otherwise encumber a property in the event of non-payment.

Before a building may be inhabited or used for its intended purpose following a new development or an extensive refurbishment, a final certificate (slutbesked) is required. The owner is therefore required to notify the local Planning and Building Committee (Byggnadsnämnden) that the construction is about to be finished. To receive a final certificate the owner must show that all requirements set forth by the building permit governing the construction, control plan, start notice and other decisions with complementing requirements have been met, and that the local Planning and Building Committee finds no reason to initiate a supervision matter. If the project does not meet all prerequisites in order to obtain a final certificate an interim final certificate (interimistiskt slutbesked) can be issued which must then be followed by a final certificate. 

The owner and/or the user of the applicable premises will be subject to a building sanction fee should the owner inhabit or otherwise use the building despite not having been granted a final certificate or an interim final certificate, as the case may be.

According to the Swedish Value Added Tax Act, the sale and purchase of real estate is exempt from VAT.

However, the sale and purchase of real estate in Sweden will trigger the stamp duty, which is normally paid in connection with the application for registration of title. When real estate is purchased by a corporate entity the stamp duty amounts to 4.25% of the higher of the real estate’s tax assessment value and the purchase price.

The most common way of transferring real estate in Sweden is to sell the real estate indirectly through a special purpose vehicle; the stamp duty is thus avoided because of the indirect acquisition/disposal. A sale of shares in a group company does not normally trigger any tax either; however, recent case law has opened up the possibility for taxation in some cases in connection with the disposal of real estate companies. However, in regard to a description of the tax law in Sweden, these refer to tax advisers active in Sweden.

Real estate tax is paid on a majority of commercial real estate. Buildings for schools, hospitals and other public facilities are, for example, exempt from real estate taxation. Real estate tax amounts to a given percentage (0.5–1.0%) of a real estate’s tax assessment value, calculated as 75% of the estimated market value of the real estate. The cost of real estate tax is often allocated to tenants.

Advokatfirman Cederquist KB

Hovslagargatan 3
P.O Box 1670
SE-111 96 Stockholm

+46 8 522 065 00

+46 8 522 067 00

Gabriella.westerberg@cederquist.se www.cederquist.com
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Advokatfirman Cederquist KB has a dedicated Commercial Real Estate team comprising two partners and eight associates. In a wider context, the real estate practice consists of five partners with focus on different areas within the real estate M&A sector, and 23 associates. The practice – which regularly represents both vendors and investors in the largest and most complex real estate transactions on the market – possesses the resources, expertise and experience required to provide a full service on all aspects of buying and selling investment properties; this includes deal structuring, investment advice, establishing investment vehicles, strategic and tactical advice, asset management and property management arrangements and transactional management as well as due diligence. Cederquist also regularly advise clients in their day-to-day business on a broad range of property-related issues, such as construction and development, planning and zoning, letting and tenancy, dispute resolution, land parcellings and re-allotments and regulations. The Commercial Real Estate team draws on specialist expertise from all of the firm's practice areas to deliver innovative but commercially-oriented results. Due to Cederquist's excellent relationships with premier law firms in other key jurisdictions, it has the ability to manage cross-border transactions and multi-jurisdictional acquisitions. The firm's clients include many high-profile Swedish real estate companies, international investors and institutional players.

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