Doing business in Norway

Henrik Taubøll
Haavind, Oslo
h.tauboll@haavind.no

Introduction

Doing business in the commercial real estate market in Norway is predictable and transparent because the legal framework for real estate transactions and the lease of real estate is widely based on industry standards. The legal system has well-established regulations and is reliable, thus ensuring transparency and security in commercial real estate transactions.

Transaction and lease of real estate in Norway

Binding agreement

According to Norwegian law, there are no requirements regarding legal form when entering into a binding agreement. An agreement becomes binding upon offer and acceptance, and both oral and written agreements are equally binding. As soon as the main terms are agreed upon, the agreement may be considered binding, which means that even email correspondence can be construed as a binding agreement. It is therefore advisable to make reservations in a letter of intent for negotiations – for instance to make a reservation for the agreement to first be binding when a contract is signed by both parties – to prevent entering into a binding agreement unintentionally.

Industry standards

For transactions and the lease of real estate in Norway, contracts are usually based on industry standards published by a national body representing real estate brokers (the Norwegian Association of Real Estate Agents) in cooperation with several other trade organisations. The standards are updated and renewed approximately every other year and are made to accommodate different types of deals.

The industry standards are tailored to specific cases, such as share deals, asset deals, forward deals and different types of lease agreements. The standards typically include an ‘as is’ clause, standardised warranties and representations, warranties/indemnities based on due diligence findings, claims for breach of warranties and so on. Using industry standards brings consistency, quality, transparency and information into the specific deal, as the standards provide a benchmark for risk allocation, common language and framework and compliance with legal and regulatory requirements.

By using industry standards, the contractual work can be simplified and will allow the parties to focus on the main negotiation points in the process.

Background law

Contracts in Norway are often shorter than what is common in other countries as the background law supplements the contract on terms that have not been regulated by the parties. There is therefore no need for extensive contractual clauses as the background law will regulate all aspects of the contract that the parties have not deviated from. In commercial relations there is a wide access to deviate from the background law, and it is thus common to regulate how the parties want to deviate from applicable law.

The background law supplements real estate acquisitions and lease agreements and includes, but is not limited to, the Norwegian Alienation Act of 1992 for direct sale of real estate and the Norwegian Tenancy Act of 1999 for lease contracts. For share deals the Norwegian Sale of Goods Act of 1988 will apply. The background law will apply and complement the contract between the parties.

Protection of the law and stamp duty

When purchasing real estate, a registration in the Norwegian Land Register is necessary to obtain legal protection. Registration in the Land Register establishes legal proof of ownership and will protect against the seller’s creditors and extinction of rights. The Norwegian Land Register is a public record accessible to anyone, and the ownership of the real estate will be public. Registration is not mandatory, but if such registration is not made it can pose several risks as there will be no public record establishing the buyer’s claim to the real estate.

When registering, there is a stamp duty of 2.5 per cent of the market value of the real estate. This will commonly be the purchase price, as long as this does not differ from the market value. The stamp duty is payable by the buyer.

Registration in the Land Register will only be relevant in relation to asset deals, as a registration will not be necessary in a share deal when the real estate remains in the company acquired in the purchase and there is no change in ownership of the real estate itself. In the case of a share deal, the buyer will obtain legal protection by notification to the company. This is a factor to consider when choosing between a share deal and an asset deal.

However, there are several other relevant factors for choosing between share deal and asset deal as a transaction structure, such as tax considerations. Most deals in Norway are carried out as share deals.