94 | Investor Guide to Europe 2014
•
Is usually the normal security for bank institutes when the
acquisition of a real property is financed by a bank loan.
aCQuISITIon PRoCESS:
KEY STaGES
Foreign investors wishing to carry out real estate transactions do
not need any prior authorisation.
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Due diligence and LoI
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As a preliminary step, it is common in commercial real estate
transactions that the parties enter into a Letter of Intent,
containing a binding non-disclosure clause and non-binding
clauses on e.g. ean indicative purchase price, due diligence and
negotiation process.
•
Discussions are usually pursued within the frame of a preli-
minary agreement providing for an exclusivity period during
which the due diligence exercise is carried out and at the
expiry of which the purchaser is expected to confirm its initial
offer.
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Structuring
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It is relatively rare that commercial real property transactions
are carried out without any kind of structuring. Due to the Swe-
dish rules on participation exemptions, and as it is still (early
2014) possible to carry out intra-group transfers of real estate
to a wholly owned subsidiary at a price below market price,
most real estate transactions are carried out as share deals
(please see below). A share transfer does not trigger stamp
duty, even if the real property is the only asset of the transfer-
red company.
* if a real property in question is not already owned by a special
purpose vehicle (and it is relatively common that SPVs are in
place) it is sold into a newly formed limited liability company.
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Share purchase agreement / Real Property
transfer agreement
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As set forth above, real properties are generally based on a
share purchase agreement regarding a SPV that owns the pro-
perty. The SPA is normally negotiated, beginning at the end of
the due diligence process. The SPA usually contains warranties
regarding the company as such, including financial representa-
tions- and warranties, as well as warranties regarding the real
property as such, and regarding leases on the real property
etc.
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At completion of a share sale, the buyer will need to appoint
a new board of directors. Other than that, very few measures
involving governmental body will need to be involved.
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In case the sale is a direct sale of a real property (and not a
share sale), there is a wide spread use of two documents for
the sale, one purchase contract and one deed of sale. The
purchase contract is entered into on signing and contains all
the warranties and limitations and, if applicable, conditions pre-
cedent that the parties have agreed. On closing, a deed of sale
(köpebrev)
is issued, containing only the formal requirements
for a transfer of a real property under Swedish law.
•
In a direct sale of a real property, the buyer must register title
of the real estate following the purchase.
•
No notarisation is required in Sweden.
CoMMERCIaL LEaSES
Chapter 12 of the Swedish Land Code is regularly referred to as
the Swedish Lease Act as it covers leases of premises for both
commercial and residential purposes. The Lease Act is mandatory
insofar that any provisions in a lease agreement that are less
favourable for the tenant than what is stipulated in the Lease Act
are unenforceable (with a few exceptions explicitly set forth in the
Lease Act). Certain provisions of the commercial leases may be
freely agreed by the parties, such as:
- the initial rent (which can be fixed or variable)
- the term of the lease (however limited by certain other
rules (to a maximum of 25 years within areas subject to a
zoning plan)
- service charges.
However, commercial leases must comply with some mandatory
rules.
Duration: initial term of the lease
•
Perpetual leases are not enforceable.
•
The parties to a short term lease (less than nine months) may
agree that the lease terminates without notice. For lease with
an indefinite term or a fixed term of at least nine months, the
lease always has to be actively terminated to expire. Otherwise,
it will be automatically extended. It is market practice to agree
on a fixed term both for the initial period and for any extension
periods. Usually, due to certain limitations on how the rent may
be described, the fixed term will be at least three years.
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Transfer of business
•
The tenant is generally entitled to transfer a lease along with
a transfer of the business carried out on the premises in ques-
tion.
•
Validity of restrictive clauses:
- transfer of the lease without prior written consent from
the landlord or a related business transfer is prohibited
unless otherwise agreed.
- clauses limiting the transfer to various conditions such
as prior information of the transfer by the landlord, prior
payment of any unpaid balance, drafting of the transfer
agreement as a deed to which the landlord is a signatory,
etc., are deemed valid.
- in the case of assignment of the lease, it may be provi-
ded that the tenant remains jointly and severally liable
with the assignee (for example in intra-group assign-
ments) for the tenant’s obligations under the lease, in
particular, the payment of rent and charges.
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Evolution of the rent during the initial lease
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Rent is usually yearly adjusted in accordance with an indexa-
tion clause providing for an adjustment of the rent on the
basis of changes in the Consumer Price Index, published by
the Swedish Board for Statistics. This is one of the adjustments
that requires that the term of the lease is fixed and at least
three years.
