Sweden. Maria Ingelsson Anna Lindbäck Advokatfirman Lindahl

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1 Maria Ingelsson Anna Lindbäck Advokatfirman Lindahl In this chapter, the basic mechanics for purchasing real estate in Sweden are outlined. It may be held that the Swedish Code of Land Laws (1970:994) constitutes the legal framework of real estate purchases. However, there are several regulations apart from this code which may also be relevant. Therefore, this chapter contains references to several, but not all, of the regulations that can be of importance. The reader will find references to the Joint Ownership Law (1904:48 Section 1), the Land Acquisition Act (1979:230), Act (1982:352) on the Conversion to Tenant-Ownership, the Swedish Planning and Building Act (2010:900), the Swedish Inheritance Code (1958:637) and the Swedish Estate Agents Act (2011:666). Furthermore, the Income Tax Act (1999:1229), the VAT Act (1994:200) and the Act (1984:404) on Stamp Duty at the Land Registry might be relevant. Only direct transfers of real estate, which are subject to the Swedish Code of Land Laws, will be considered. Thus, this chapter will not cover the transfer of shares in a real estate holding company, although it should be noted that for tax reasons most commercial real estate transactions in Sweden are made via the sale and purchase of shares. In addition, transfers by swap, gift, land parcelling, separation of patrimony and distribution of assets between companies are not covered below. Leasehold right is a particular right of use of property which is not dissimilar from ownership. A leasehold right is a right granted by the state or local authority for a significant period of time. The holder of the leasehold right may transfer ownership of the leasehold, but not of the real estate itself. The leaseholder is registered at the Land Registry as the owner of the leasehold, and he is entitled to mortgage and let the property and to agree upon easements in the leasehold. Transfer of leasehold right is similar to transfer of real estate, but leasehold rights will not be discussed further in this chapter. 1. Acquisition of real estate 1.1 Verifications needed prior to buying real estate (a) Items recorded at the Land Registry In Sweden, the authority responsible for keeping the land register deals with mapping, cadastral and land registration. This authority is the Lantmäteriet, hereafter the Land Registry. The land register held by the Land Registry provides information on who holds 357

2 the title to land of a specific property and details the means by which this party became the owner of the real estate (including date of purchase and purchase amount). The person registered as the title holder has the right to take certain actions regarding the property, but since the registration of the title is not a legal requirement in the transfer of ownership, the person registered as the holder of the title may not necessarily be the legal owner of the real estate. Therefore, prior to buying real estate it is common practice to ask the seller to guarantee in writing that he is in fact the legal owner of the property. The geographical coordinates and area of a given property are registered in the land register. However, potential buyers should be aware that, according to the Swedish Code of Land Laws, the property s area is the area that has been marked on the ground, and not (in the case of any discrepancy) the area registered at the Land Registry. If no markings are visible on the ground, the area will be delineated on the surveyor s map. The land register keeps information on the tax assessment value of a real property, based upon factors such as year of construction and residential space. Further, it gives information on the property s tax classification, which can affect, for instance, whether or not permission to purchase is required (see section 1.2 below). It is important for the buyer to gain control over the mortgage deeds that have been issued in respect of the property. The land register contains information about the mortgage on the real estate as well as the deeds that have been issued. If a mortgage deed is missing, it is possible to apply to the district court for cancellation of the mortgage deed. Other notes of importance can also be found in the land register. A right of use of the property that has been registered at the Land Registry will remain in force irrespective of a change of ownership. (Sometimes, also, rights of use which are not noted in the register may remain in force see section 4 below.) Furthermore, the register gives information on the rights and obligations pertaining to the property, such as easements and ownership in joint facilities. The land register may contain information on plans and regulations affecting the property. Local plans, historic building regulations, nature protection regulations and ancient remains are examples of special regulations to which the property may be subject. Ongoing surveys of land are also noted in the register. (b) Effects of registering at the Land Registry All Swedish land is registered at the Land Registry. In many situations, the person who is registered at the Land Registry as title holder will be regarded as being the owner of the property. Therefore, it is of critical importance for the buyer to apply for registration as the new holder of the title to land as soon as the transaction of the property has been completed. Under the Code of Land Laws, the buyer is obliged to file an application for title to land within three months from the date of purchase. (c) Zoning rules that are to be verified In order to construct a building, build a plant or demolish the same, a building or 358

3 Maria Ingelsson, Anna Lindbäck demolition permit will typically be required. Reconstruction and landscaping might also require prior permission. The local authorities will be able to provide information on any building permits and other permits which have been granted with regard to a given property. If a building has been constructed without permission, the owner might need to demolish it. Some land, but not all, is subject to a local plan. The local plan sets out the permitted use of land in the area and it can also contain guidelines, restrictions and exemptions regarding building permits. Before purchasing real property, and in particular if the buyer intends to develop or change the use of the property, it is advisable to review the local plan for the given area and to find out whether the municipality has any intention of changing the local plan within the near future. If there is no local plan, there may be other restrictions affecting the area. The local authorities will be able to provide information on this. The municipality is the competent authority for granting building permits etc for real estate, regardless of whether the property is intended for residential, commercial or industrial use. (d) Other advisable verifications to check by the buyer In addition to reviewing the applicable zoning rules and information in the land register, the buyer should make a physical investigation of the property, review all agreements and guarantees pertaining to the property, and make sure any applicable permits are in place. Further, the buyer should ensure that he is fully informed as to what is included in the purchase and what is not. As a general rule, and unless the parties agree otherwise, objects that have been attached to the soil or building for continuous use by the landowner are considered to be immovable property and will be included in the purchase. Land can be owned by more than one person. Unless the parties agree otherwise, the Joint Ownership Law will then apply. Under this law, if the owners do not agree on the management of the property or if one of the owners wishes to sell off his part of the property, the owner can apply to the district court to appoint a fiduciary to decide on the management of the property or to sell the property on behalf of all owners. However, the owners can agree to waive certain parts of the Joint Ownership Law. 1.2 Is clearance needed from any authority to buy real estate? No particular permission is needed for foreigners in order to purchase real estate in Sweden. However, foreign buyers are, of course, required to obtain the same permits as Swedish buyers see below. (a) Right to public access in the countryside In Sweden, there is an extensive right of public access in the countryside. This means that anyone is free to enter and, to some extent, use land which is owned by someone else. However, this right does not give a right to enter areas which have been privatised. Areas of nature, such as forest, the fells and the coast, are considered to be areas which the general public has a right to use. People are, for example, permitted 359

4 to camp for a few days, pick berries, flowers and mushrooms and make a small fire if conditions are safe, but they are not allowed to fell trees, stay for longer periods, or hunt or fish without permission. The landowner is not allowed to take actions, such as building fences, with the intention of keeping the general public out of areas covered by the right of public access. A buyer of Swedish real estate should be aware of this right of public access, although the right itself does not stipulate a requirement for any particular permission to be obtained prior to transfer of property. (b) Protection of the right to use beaches Real estate close to water can be subject to protection of the right to use beaches. The protected area can be up to 300 metres from the waterline. In order to build in protected areas, the landowner must obtain prior consent from the authorities. The rules on protection of right to use beaches might also prevent land parcelling, such as partition of land. (c) Agricultural property Acquiring land which is taxed as agricultural property may require authorisation. Under the Land Acquisition Act, authorisation may be required if the purchase is made by a legal entity from a natural person or an estate, if the land is located in a rural area or if the land is located in an area of a re-parcelling. An application for authorisation must be made within three months of the date of purchase. If authorisation is not obtained, or if the application has not been made in time or in the right way, the purchase will be invalid. (d) Rental property When real estate which is taxed as a rental property is being sold, the tenants living on the property might have a right of pre-emption. This pre-emption right follows from the Conversion to Tenant-Ownership Act. It only applies if, prior to the purchase, the tenants created a housing cooperative which registered, at the Land Registry, its interest in purchasing the property no less than two years before the purchase. If a pre-emption right exists, a transfer made without giving the tenants the right of first refusal could be invalid. (e) Property that is let to an agricultural tenant If the real estate to be purchased is let to an agricultural tenant, and the lease includes a dwelling house for the tenant, the tenant could have a pre-emption right. For this to be granted, the tenant must have notified the Land Registry of his interest in purchasing the real estate. During the 10-year period following registration of the interest, the landowner cannot sell the real estate without giving the land tenant right of first refusal; otherwise the transaction could be deemed invalid. (f) Property on which the seller lives If the seller is an individual who lives on the property and is married to or living with a cohabitant on the property, written approval for the transaction is required from the husband/wife or cohabitant. If approval is denied, the district court can grant 360

5 Maria Ingelsson, Anna Lindbäck approval. If a purchase is made without the necessary approval, the transaction could be deemed invalid. 1.3 Requirements for the exercise of a notarised public deed of purchase From a Swedish perspective, no documents need to be notarised by public notary. However, if the property owner resides outside Sweden, such notarisation might be required, depending on the domestic rules applicable in his country of residence. It can be noted that a power of attorney for someone to purchase or sell real estate must be in writing. However, it is not necessary that the power of attorney is notarised. 1.4 Taxes for which the buyer is liable Swedish VAT is normally not levied on transfers of real estate (however, there are some exceptions). Most transactions of real estate are subject to stamp duty. Transactions that do not incur stamp duty are, for example, beneficial transactions and those arising from land parcelling. Further, if two consecutive transactions are made on principally the same terms, it is possible that the first transaction of the two could be exempt from stamp duty, provided certain conditions are met. The stamp duty is calculated based upon the highest of either the purchase price or the tax assessment value of the property for the year prior to when the transfer deed was granted. At the time of writing (2012), stamp duty is levied at 1.5% on purchase by individuals. On purchase by legal entities, the stamp duty tax rate is currently 4.25%. In addition, a stamp duty of 2% is levied on new mortgage securities for real estate. The buyer and the seller are jointly responsible for payment of the stamp duty (see section 1.5 below). 1.5 Taxes payable by the seller On sale of real estate, a capital gain can be accrued. From a Swedish tax perspective, real estate is either classified as private residential property or as commercial property. Private residential properties include single-family houses and condominiums. Other real estate is classified as commercial property. Although the Swedish tax effects differ depending on the classification of the property, all capital gains are taxable in Sweden. Legal entities can, from a Swedish tax perspective, only own commercial property. For individuals, 22/30ths of capital gains on private residential property are subject to 30% tax, resulting in an effective capital gains tax rate of 22%. Half of capital losses are deductible. If, though, from a Swedish tax perspective the property is classified as commercial property, 90% of the capital gain is subject to 30% tax, resulting in an effective capital gains tax rate of 27%. For commercial property, 63% of capital losses are deductible. On purchase of commercial property in Sweden, the owner is considered to be operating a business in Sweden. Thus, the owner is liable to pay Swedish income tax on business income. All incomes, including capital gains on real estate, generated in limited liability 361

6 companies and other legal entities, except estates, are normally taxed as business income, at a tax rate of 26.3%. Generally, capital losses on real property are fully deductible for these entities, but such capital losses can only be offset against capital gains on other real estate. If losses cannot be fully offset, the company can, during the same income year, deduct the loss against capital gains from other real estate sold by another group company, provided that group relief is possible between the two companies and that both companies request the relief for the same tax year. Capital losses can be carried forward into future income years and be offset against capital gains on real estate accrued in future income years, without any time limitation. Further, as stated above, the buyer and the seller are jointly responsible for the payment of stamp duty. However, it is common for the parties to stipulate in the saleand-purchase agreement that the buyer is responsible for payment of the stamp duty. Please note that the descriptions outlined above are only general descriptions and exceptions may apply in each individual case. Specific tax rules may also apply in certain cases and have been excluded from this discussion. The tax treatment of each property owner is partially dependent on the specific situation of each property owner. Each property owner is advised to consult a local tax advisor regarding the tax implications for the owner of real estate in Sweden, including the applicability and effect of foreign rules and tax treaties. 1.6 Registration of the purchase at the Land Registry As previously mentioned, the buyer is obliged to apply for registration at the Land Registry of title to land within three months after its purchase. When doing so, the seller s handwritten signature on the bill of sale must be witnessed by two people. More information regarding the application and which documents need to be included in the application can be found at A dispatch cost is charged for handling land registration transactions (see section 2.3 below). As noted above, stamp duty will be charged on the registration of ownership and mortgages. 1.7 Administrative requirements for real estate (a) Certificate of occupancy In Sweden, it is not necessary to obtain a permit in order to let properties. However, according to the Swedish Rental Act, a landlord is subject to many legal obligations, designed to protect the tenants. For instance, the landlord must keep the property in a condition acceptable for the intended purpose and he is obliged to make certain inspections at regular intervals. If the property is let for residential use, the tenant may apply to the rent tribunal to issue an injunction compelling the landlord to perform certain actions. Furthermore, the rent tribunal may decide on compulsory administration. For most residential houses, an energy performance declaration is required, which must not be older than 10 years. If such a declaration is not available at the time of sale, then the buyer can request that one be produced at the seller s cost. 362