Real Estate Law in Norway

The purchase of real estate is regulated by the Norwegian Alienation Act, while the purchase of shares of a property single-purpose vehicle (SPV) is regulated by the Norwegian Sale of Goods Act. As most commercial property is held through separate limited liability companies, the distinction is important. This duality has raised certain questions in the past regarding the buyer's entitlement to seek compensation for property defects when the formal object of purchase has been shares. The Alienation Act is also fairly consumer-oriented; thus, a commercial real estate transaction will normally be regulated by a customized standard agreement to cover both the aforementioned duality and the professional business aspects of the transaction. Almost all commercial real estate transactions in Norway are sold according to such a standard contract. Various standards are on the market, with the Norwegian Business Real Estate Brokers Association prevailing today, although it is considered somewhat lenient towards the interests of the seller.

All commercial and residential leases are governed by the Tenancy Act. The Act applies to all agreements relating to the right to use a property in return for remuneration, with the exception of ground lease agreements, which are governed by the Ground Lease Act. In the case of renting business premises, lease agreements may deviate from the provisions of the Tenancy Act.

Nearly all commercial real estate is held through separate limited liability companies, with each company functioning as a single-purpose vehicle (SPV) for the property in question, and such SPVs typically owned by a limited liability company in a holding structure. The main drivers for these structures are tax regulation and, to some extent, stamp duty.

Investments in the Norwegian real estate sector are therefore mainly carried out through the acquisition of shares of property SPVs or property portfolios consisting of SPVs (in whole or in part), or through professionally managed funds.

The real estate ownership normally pertains to both the building and the plot of land, upon which the building is standing. However, ownership may be split between the building and the land upon the establishment of a ground lease agreement with a duration exceeding 10 years (typically 99 years for commercial real estate). Due to economic reasons, including stamp duty, some properties are also owned separately from the property title, with such title being held elsewhere in the corporate structure. However, this requires particular attention during the purchase to ensure legal protection.

All acquisitions of real estate ownership rights as well as the right of usage are conditioned upon the applicable concession from the authorities. Exceptions only apply to commercial condominiums within joint housing ownership.

However, there are no practical limitations on foreign investment in and ownership of Norwegian real estate, except for farmland and some important exceptions within the industry and energy sectors (waterfalls, etc.).

The most important acts limiting acquisition and ownership of real estate are the Norwegian Concession Act and the Act on Acquisition of Waterfalls, Mines, and other Real Estate. In effect, the Norwegian Competition Act will also limit acquisitions of companies in possible violation of Norwegian and European Union (EU) competition and antitrust legislation. A concession is normally not necessary for the acquisition of SPVs that already have obtained a concession; direct acquisitions of developed property when the plot of land is no larger than 100,000 square meters; or acquisitions of undeveloped land for the construction of a permanent residence or holiday home on plots of land no larger than 2,000 square meters.

There are no notaries public in Norway and no roles in transactions.

Norwegian properties are registered in a land registry maintained and operated by the Norwegian Mapping Authority, which is the judicial authority for properties in Norway. The land registry is the official register of legal rights and obligations associated with fixed property and housing cooperatives. The land registry lists ownership in addition to rights and encumbrances such as mortgages, leasing rights and pre-emptive purchasing rights.

Registration may still be conducted by original paper-based documents sent by post; however, an increasing number of registrations are today done digitally. Details of the physical aspects relating to a property, such as borders, areas, buildings, and addresses, are registered in the cadaster property register, which is maintained by the different municipalities.

In Norway, there is no requirement to register property ownership in the land registry. Consequently, the registered owner may not necessarily be the actual owner of the property. However, recent discussions have centered on the potential introduction of a registration requirement, particularly for security reasons. As a result, a change in this area is possible.

As mentioned, failure to register ownership of property, rights, encumbrances, etc., does not alter the underlying legal situation between the original contractual parties. However, a third party may in good faith extinguish all rights, including ownership rights that are not registered prior to the time of the colliding right of the third party. Registration of a transfer of title in the land registry is therefore the only way to obtain legal protection against third parties.

No notary public is involved during the registration process. Registration of a change of ownership to a property by the Norwegian Mapping Authority is subject to 2.5% stamp duty based on the market value of the property. This does not apply to the sale of companies that own the property, as the direct ownership of the property itself does not formally change. Exceptions are also made for the first transfer of newly built properties, where the 2.5% stamp duty applies only to the appropriate ground value. The sale of real property or shares is not subject to VAT. This implies that input VAT on building costs is not deductible when the purpose is to transfer the property after completion. However, some exceptions exist where the property is built with the purpose of letting out. The authorities do not hold a similar register for the purchase of shares. The transfer of shares is registered in a register of shareholders operated by the company itself (private limited companies) or by the Norwegian Electronic Securities Register (mandatory for public limited companies, opt-in available for private limited companies). Access to the register of shareholders must be given to all who request it, so anyone may review who owns the shares of a limited company.

The seller’s contractual representations and warranties are normally limited to direct loss and with a basket amount regulation and maximum cap equivalent to 10% of the purchase price. The standard warranties of the seller in the most commonly used standard form contracts regarding purchase of SPV companies are that:

• The company owns the property and holds title thereto;
• The company holds full and unrestricted title to all assets entered on the balance sheet;
• The company holds no other types of assets than those set out on the balance sheet;
• The company has no debts or other financial liabilities apart from those set out in the balance sheet and in the agreements disclosed to the buyer in connection with the conclusion of this contract, hereunder tax liabilities of any type;
• The financial statements of the company are correct and based on generally agreed accounting principles;
• The company is in possession of the documentation required under applicable value added tax (VAT) provisions for the acquisition/production and use of capital goods;
• The information in the adjustment specification (for VAT), is complete and correct;
• The company has not rendered any guarantee or furnished any security for the benefit of the liabilities of any third party;
• The company has no employees, and no pension obligations as against the seller or anyone else;
• The company is not party to any legal proceedings or other legal dispute;
• The seller holds, as per the transfer of ownership, full and unrestricted title to the shares;
• The share capital of the company is fully paid up;
• The shares are transferred free of any encumbrances of any type, and that the shares are not subject to any rights of first refusal or other preemptive rights;
• No distributions on the shares, or other wholly or partly gratuitous transfers, to shareholders or anyone else, have been resolved, other than those reflected in the balance sheet;
• No rights relating to the shares (hereunder dividend rights, pre-emptive rights, etc.) have been separated from the shares;
• The activities of the company will, during the period from signing the contract until closing, be pursued in the customary manner, hereunder that no material agreements will be concluded, terminated for breach, amended, or terminated without cause, and that, during the same period, no other decisions of material importance to the company will be made without the written consent of the purchaser;
• The encumbrance situation of the property will be as set out an appendix;
  
• The property is leased as stated in an appendix;
• The seller is not aware of any claims or rights that limit the use or utilization of the property beyond what follows from the land titles and land charges of the property or the zoning plan and zoning regulations applicable to the property and the entries recorded in respect of the property; and
• The seller is not aware of the existence of any written order, etc., from government authorities in relation to the property that has not be complied with, paid or similar.

Properties may be encumbered with mortgages as well as other types of securities, based on a first-come, first-served principle with no upper limit. Properties are generally also considered as stable collateral for other financial purposes and are therefore widely used for financing bank loans and similar. Even though there is a general prohibition against using the assets in a target company as security for a loan that enables the acquisition of the target company, there is a narrow exemption with regards to using the property as security in SPV transactions.

As with the protection of the title to the property, unregistered loans or other types of agreed securities will not have any effect against third parties that have registered their security in good faith prior to the unregistered security. Two other common forms of securities are the “urådighetserklæring” and the “sikringspant.” The first, which can be loosely translated as a declaration of non-disposal, is a catch-all encumbrance that prohibits anyone deleting or registering any security, mortgage, or lien, or selling the property, without the written approval of the right holder. The latter is a normal mortgage, but with the sole function of securing all liabilities that may arise during the course of a transaction.

Based on the prevailing Norwegian lease standards, the three most common contract types regarding leases of business premises are:

• As is: The tenant rents the business premises as they are presented at the time of the contract or takeover and accepts all non-material defects. The tenant will be responsible for indoor maintenance, whereas the lessor assumes responsibility for the maintenance of the exterior of the building as well as the replacement of technical installations (lifts, air conditioning systems, etc.). The lessor must accept normal wear and tear during the lease period (i.e., the general deterioration of the lease object due to normal usage by the tenant). Thus, the tenant is only responsible for lack of maintenance and any damage caused to the lease object that arises during the lease term. The lessor is responsible for maintenance of the common areas, such maintenance being a part of the joint costs paid by all tenants;
• As built/as new: The tenant rents business premises that are new and often built to the particular specifications of the tenant. All defects or deviations from the specification are subject to complaint by the tenant; in all other ways, as above; and
• Bare house: As above, but the lessor typically rents the entire building structure for a long period and will thus assume the entire responsibility of the building, including insurance, all maintenance, and replacements.
  

The typical commercial lease term will be for a fixed period of between of five and 10 years; however, certain commercial properties are also rented out on a short- or mid-term basis. In many cases, long-term agreements have an option for the tenant to extend the lease, normally for no longer than 10 years (five plus five years), under the same legal terms and conditions but at a renegotiated price (at the market level) for each prolongation term.

Lease agreements may be terminable or non-terminable during the fixed lease period; they may also be agreed to have an undefined term, but typically with a requirement of six to 12 months' prior notice of termination.

Rent is normally agreed as a fixed sum per square meter per year, exclusive of the proportional part of the joint costs of the property and applicable VAT. The lease for retail property is often set as a percentage of turnover. The tenant must also pay all costs that relate to own usage of power, insurance of its own business, normal indoors maintenance and repairs. In 'as is' and 'as new' leases, the lessor is required to insure the building and replace all technical installations when maintenance is no longer remunerative. The tenant must normally accept all actions by the lessor that are necessary for the maintenance and renewal during the lease period. If such actions affect the lease materially, the tenant may claim damages or a discount on the lease.

Prior to the commencement of the lease, the tenant must normally issue a bank guarantee equal to three to 12 months' rent, or deposit into a deposit account as security for any unpaid rent or other claims the lessor may have against the tenant. The rent is typically adjusted yearly to accord with the general consumer price index. The parties will often agree that the rent may not be reduced.

Normally, the tenant may not hold back or offset their rent obligations against claims they have against the lessor. If these claims are not honored by the lessor, the tenant must take out separate legal proceedings to have their claim covered. Subletting and transfer rights normally require the prior written approval of the lessor, subject either to reasonable cause or without reason. However, the tenant may normally transfer the agreement, or sublet within a structure of companies, as long as the guarantee is upheld, and the solvency and solidity of the final tenant is not reduced.

The Norwegian Planning and Building Act contains detailed regulations related to planning on the national, regional, and local levels. Further requirements for dispensation and exemption applications and regulations related to responsibility, control, and supervision during the construction phase, as well as the main requirements during the completion and approval phase. In addition, the Act also regulates landowners' general rights to compensation due to the compulsory acquisition by the authorities for planning purposes or by direct claim of public ownership (expropriation).

As a rule, planning is organized as a top-down system, so that no plan at a lower (more local) level may be in conflict with plans higher in the hierarchy. Planning is generally a continuous and sector-dependent process at all governmental levels. As an example, the latest revision of the national transport plan influences regional zone planning, which again may have consequences for the approval or refusal of local construction projects that appear to be in line with current plans. A plan may also be objected to by any party directly affected by the plan, as well as being subject to overriding sector-specific public concerns. Thus, ratifying plans is considered a complex affair.

Polluted environmental considerations have occupied a considerably large place in Norwegian legislation over the past few decades and are particularly visible in the planning and approval stages of property development projects. Environmental warranties have also found their way into most business real estate transactions. The Norwegian Pollution Act stipulates that the main responsibility for pollution damage rests on anyone that “operates, uses or holds” any real estate, object, plant, or business without regard to culpa. As a starting point, this would normally be the owner. In cases where the owner and the operator of the property are not the same, the owner may be jointly liable with the operator (as the polluter), for example, if such owner is liable according to the Norwegian Neighbor Act.

Pollution liability in Norway is built upon the international “polluter pays” principle. This means that the polluter must not only cover all reparative and preventive costs, but also the social costs that such pollution results in for society.

Over the past few years, several regulations related to ESG have come into force, impacting the real estate sector. Initially, the regulations primarily apply to large, publicly listed companies and financial institutions. However, requirements related to climate and the environment are constantly evolving and will become stricter in the future to enable society to fulfil the Paris Agreement. The scope of the regulations is expanding, and it is expected to eventually apply to a large number of companies. As all financial institutions are subject to the legislation, this will also directly affect the real estate industry.

Key legal requirements include:

• The Transparency Act, which requires large companies to account for the measures they have in place to ensure human rights and decent working conditions within their own operations, supply chain, and among business partners. Large companies are those covered by the Accounting Act § 1-5 or meet two of the following three criteria:
  

– Sales revenue: NOK 70 million;
– Balance sheet total: NOK 35 million; or
– Average number of full-time equivalents in the financial year: 50.

• TEK17, which imposes requirements for climate adaptation, energy, health and environmentally hazardous substances in building products, soil contamination, biodiversity, handling of construction and demolition waste, and particle emissions. New climate requirements are anticipated;
• The Working Environment Act, which sets requirements for a good working environment, safe and fair employment conditions, an inclusive working life, and cooperation between the parties in the labor market;
• The Gender Equality and Anti-Discrimination Act, which includes an obligation to report on activities, requiring companies to report on:
  

– The actual state of gender equality in the business; and
– The efforts the business has made to fulfil the activity obligation. The obligation applies, among others, to companies with 50 employees or more, or with 20 employees or more if demanded by one of the parties in the labor market;

• EU Taxonomy, which is a common system to define which economic activities are "sustainable" in the EU, including within the real estate sector, for example, construction of new buildings, purchase and ownership of property, and renovation of existing buildings. The Taxonomy has now been introduced in Norway, and initially, publicly listed companies with over 500 employees, as well as all banks and insurance companies, are required to report. From the financial year 2023, they must include information in their annual reports on the extent to which their business satisfies the Taxonomy criteria. It can be expected that more companies will have to report over time.
• Many banks, investors, and insurance companies use the Taxonomy to determine which activities to lend to, invest in, or insure. This allows them to obtain more favorable terms in the European capital market if they choose activities that meet the Taxonomy criteria. As demands from the market and authorities shift towards a greener direction, banks, investors, and insurance companies see that it may involve high risk to lend to, invest in, or insure "grey buildings" or "grey facilities". Initially, better conditions are provided for green buildings, but in the future, Taxonomy requirements could become an absolute requirement to obtain financing and insurance.
• Corporate Sustainability Reporting Directive (CSRD), which also applies to sustainability reporting and imposes greater requirements for measurement and transparency by companies. The directive has been implemented in Norway for the financial year. The regulations standardize and normalize the information provided by companies, and trust in this information becomes more important. CSRD requires the report to be assured by an independent party, and this will strengthen credibility and reduce the risk of greenwashing.

Capital gains tax at 22% is due when real estate is sold as an asset, in addition to 2.5% stamp duty to register the deeds. Commercial real estate is usually sold as shares in SPV which is tax exempt.

The leasing of real property is exempt without credit for VAT purposes. It is, however, possible to opt for a voluntary
registration for VAT purposes for the leasing of real property to VAT liable businesses, municipalities, and counties. Consequently, it is not possible to opt for a VAT registration when renting to tenants that only conduct business that falls outside the scope of the VAT acts (state governmental bodies, healthcare, financial institutions, etc.). A consequence of voluntary registration is that the lessor may deduct input VAT on the building costs, maintenance, etc., and at the same time invoice the rent and other supplies with VAT. The VAT adjustment scheme applies for input VAT on the building costs (capital expenditure) of real property. The adjustment period is 10 years, implying that the real property must be used in a taxable business for this period in order to avoid repayment of deducted VAT.

Download: Handbook for Real Estate Transactions