BUYING AND SELLING REAL PROPERTY IN NORWAY

Real property in Norway has a relatively high standard. Technical standards are high in general as strict requirements are set to building standards because of public law claims and climatic conditions in Norway.

Holiday homes in south-eastern and eastern Norway are extremely expensive by European standards, and holiday homes in the mountain areas of eastern Norway near alpine skiing facilities are also expensive.

However, Norway has an extremely long coastline (more than 5,000 km) and those who enjoy nature, fishing and outdoor life may buy relatively reasonably holiday homes in the area between the southernmost point of Norway and the far north. Those who enjoy sea fishing will in particular have many possibilities. There are no limitations on letting property.

In Oslo, the prices of houses and flats are in proportion to the general price level in Norway and the property prices in other European capitals.

More or less the same applies to commercial property, but here prices differ greatly depending on where in Norway the property is located.

1          Norwegian law of contract

            As opposed to many South European countries, legally binding contracts may be concluded in Norway without any formal requirements. This means that agreements may be entered into in the form of a contract signed by both parties, an accepted offer, a verbal agreement and in some cases transactions implied by conduct (acts).

This means that if a buyer has confirmed verbally or in writing that he will buy a property for a certain amount, the buyer is bound from this point in time and cannot withdraw from the purchase. If the buyer should withdraw after this point, such withdrawal will constitute a breach of contract with the financial consequences this will entail.

            In Norwegian law, the great advantage of a written, signed agreement is that it will be easy to prove what the parties have agreed on. Aspects not set down in the agreement the parties have concluded will be supplemented by Norwegian law. Norwegian legislation includes acts relating specifically to contracts, delayed payment, sale and purchase of real property and estate agency.

            All these acts will apply unless otherwise agreed by he parties.

            If the buyer is a consumer (buyer of property for personal use), some of these acts will be mandatory. This means that any discrepancy in the agreement to the detriment of the buyer will not be legally binding to the buyer. Relevant Norwegian acts translated into English may be found on: www.tryti.no.

2          Purchase of property through an estate agent or a lawyer

            In Norway, most real property is sold through authorised estate agents. These have undergone special training to conduct estate agency, and are subject to strict authorisation rules and strict control routines on the part of the authorities.

Norwegian estate agents are entitled to conclude the whole real estate transaction without the assistance of a lawyer. In Norway, estate agents are also in charge of the financial settlement and for registering the deed in a central, state register (not in a notarial register). To run an estate agency in Norway, the estate agent must be insured for at least NOK 10 million to cover any liabilities the buyer or seller may incur in the course of the transaction.

            With regard to commercial property or larger or more complicated property acquisitions, the seller will usually engage a lawyer. At times both seller and buyer will use the services of a lawyer in combination with an authorised estate agent who is in charge of the actual transaction, while at other times a law firm may be in charge of the actual sale on behalf of the seller.

            Law firms dealing in real property need a separate insurance for their real estate business, unless the sale of property forms part of a larger assignment for the client.

            The services of a lawyer in connection with the conveyance of real estate will generally be necessary in case of complicated and large deals. 

3          Registering property in Norway (“tinglysning”)

            Real property in Norway is registered in a central register to which estate agents, lawyers, banks etc have direct access. The database is constantly and daily updated with information about owner, restrictions on use, charges and encumbrances etc. If a transaction is submitted for registration one day, it will be registered in the database at the latest on the following day.

            In addition to the information provided upon registration (to the Notary Public) about who owns and who has charges on the property etc, there is also a “GAB” register (street, address and building register) where technical data about the property is kept. Here all permits and applications concerning any property will be registered. This database is also constantly updated. In addition, each municipality has a case file on each property. In most municipalities, this will be paper-based and not in electronic form.

4          Preparing for a sale

4.1       ”Estate agent assignment”

            The principal and the authorised estate agent/lawyer are required to enter into an agreement on an “estate agent assignment”. The estate agent may either be assigned the task of finding property for a buyer or sell a property for a seller. This assignment must be in writing and on a specific form where the parties’ rights and obligations are agreed and, if necessary, with the limitations on the freedom of contract stipulated in the Estate Agency Act. If such a form has not been signed, the agent/lawyer will not be entitled to a commission or other compensation for his work.

4.2              Estate agent’s commission

Normally a commission is agreed in the estate agent assignment, which is determined in relation to the amount which is the buyer and seller will finally agree on. The size of the commission varies and depends on the assignment’s complexity, marketability and size. For property up to NOK 50 million, the commission will normally be around 1 -  2.5% of the purchase price. In addition, the principal must pay 24% VAT on this commission. The commission including VAT will thus be between approximately 1.2% and 3.1%. For large properties, the commission will be lower the small ones.

4.3              Sales prospectus

Pursuant to the Estate Agency Act, estate agents are obliged to prepare a prospectus containing as a minimum the following:

* Registration number at the Notary Public (land number, title number)

* Address

* The tax office’s assessed value of the property

* Land area and building floor space

* Planning regulations relating to and limitations on use of the property

* Any registered charges and encumbrances on the property

In addition, the prospectus should normally include a valuation report by an authorised surveyor, who makes a technical description of the property and estimates the property’s sales value and the bank’s mortgage appraisement. A valuation report provides a description of the property, including any apparent flaws and defects and necessary maintenance.

At times it may be advisable to have a survey report made, which means that a professional valuation surveyor goes over the property to analyse aspects of a more technical nature and makes an overview of the property’s need for future maintenance and improvements. This is done more frequently in the conveyance of large properties. Survey reports are often made for commercial properties.

In Norway, mortgage loans do not follow the property. This means that the buyer must always obtain financing himself, regardless of any mortgages on the property at the time of sale.

Normally the property is sold to the highest bidder after a round of bids which may take some time. A closing date for a bid is rarely set and the seller may accept an offer whenever it suits him.

4.4              Concluding the sale

Most property sold is advertised on the internet. Most properties can be found on www.finn.no. In addition, some properties will be advertised in newspapers and magazines, all depending on the character of the property.

Interested buyers contact the estate agent and say how much they are willing to pay for the property. If the buyer wishes to subject his bid to any special requirements and conditions, this must be clearly indicated in the bid form sent to the estate agent. The first bid may be sent by telefax, but any later changes to the bid may be made orally to the estate agent, who will note down the changes and the exact time when they were made on the bidding form.

The estate agent will then inform the seller and other interested buyers, and the latter will be given an opportunity to make a higher bid. Normally the estate agent will let the highest bidder buy the property, provided there are no special terms in the bid and provided the buyer has obtained the necessary financing. However, the seller may freely decide which of the bidders may buy the property. When the seller has informed the estate agent on the bid he has accepted, the estate agent informs the buyer. When the buyer has been notified of the seller’s acceptance, a binding contract has been entered into between the parties. It is not necessary to draw up a written, signed contract about this.

After his bid has been accepted, the buyer is entitled to see the other bids which the estate agent received, and also to verify that the estate agent’s verbal information about the bidding process was correct.

Nevertheless, the buyer and seller will normally sign a contract after acceptance of the bid, to which all relevant documents are attached and where the parties may agree on any supplement to the property deal. Supplementary agreements may comprise matters not included in the prospectus or not specified in the buyer’s acceptance.

10% of the purchase price is normally paid when the contract is signed.

4.5              Concluding the deal

The contract between the parties normally includes a stipulation about an advance payment, and then the balance is paid when the buyer takes possession of the property. The purchase price is paid in its entirety to the estate agent. As soon as the full purchase price has been received, the deed on the property must be sent for registration.

4.6              Taking possession

Taking possession is a formal, legal act. What is noted down in the protocol signed by both parties on take-over will be of great significance if any problem should later arise in connection with the property. A non-Norwegian owner should always be assisted by a Norwegian professional when taking possession, so as to avoid risking the loss of rights.

4.7              Requirements to buyer. Licence. Fees etc.

The buyer must have Norwegian identity in the form of a national ID number or a national organisation number if the buyer is a firm.

Foreign private individuals or firms therefore need to acquire such Norwegian identity to be registered as owner. This can be done by acquiring a “D number” from the Population Register in the municipality where the property is located. Such a D number is given when the person or company in question submits the necessary identification documents from their own countries.

When acquiring agriculture land, or a large commercial property, it will also be necessary to apply for a licence. The licence terms are the same for Norwegian nationals and firms as for nationals of or firms with registered office in the EU. The fee for applying for a licence varies between NOK 750 and NOK 15,000, depending on the contract amount.

The fee for registering a deed is around NOK 2,000 and for registering a mortgage bond around NOK 2,200. In addition, the buyer must pay a stamp duty of 2.5% of the purchase price. If more than one mortgage bond should be needed, each one will cost NOK 2,200.

If a licence is required, administrative procedures may take from two to six months. Registration without a licence requirement will take from three to five days.

It is not necessary to notify any other public services.

5                    Owning property in Norway

If a private person owns a holiday home in Norway, he will have to pay a tax of 2.5% of the property’s assessed value. 2.5% of the assessed value will be considered and taxed as income.  For primary homes, there are no such taxes.

If a holiday home is exclusively used for letting, it will be considered a business activity, which entails a tax of 28% of the profit. When a holiday home is sold, the profit will be tax-free if you have owned the property for more than five years and have used it during this period as your own holiday home. If you have not owned it for five years or have not used it yourself, a 28% tax on the profit will be payable.

The same rules apply to primary homes, but the requirement to ownership is 12 months during the preceding 24 months if the profit from a sale is to be tax-free.

Commercial property is taxed in the same way as ordinary business activities, and taxation depends on income and expenditure. Specific taxation consequences must be examined in each case. When a commercial property is sold, the capital gains tax is a rather complicated issue, but in principle a 28% tax is levied on capital gains.

Both personal owners and businesses must pay a wealth tax in most municipalities in Norway. In most municipalities, wealth tax amounts to 1 per thousand of the property’s assessed value. However, some municipalities do not levy a wealth tax.

In addition, municipal charges are payable on all property. These charges vary, but may be from NOK 500 per year for some holiday homes and up to NOK 10,000. For flats in cities, such charges are included in the monthly share of the general expenses paid by each owner in an apartment building.

Due to climatic conditions in Norway, defects in a property will often have great consequences. A defect could be that the property differs materially from the description in the prospectus or that seller/estate agent has withheld information.

In both these cases, the buyer will normally be entitled to claim a price reduction or compensation within five years from the time of taking possession of the property. However, the condition for this is that a complaint is made as soon as the buyer becomes aware of the defect and files a claim form within 12 months if the flaw or defect was discovered two years or later after taking possession.

If assistance in connection with real property in Norway should be necessary, this is a service which should be rendered by lawyers who have real estate as their primary activity and who are specialists in the field.

Oslo, 2. May 2006

Helge A. Tryti

Att. at Law

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