Changes to the condominium in Sweden – Housing developers and condominium associations need to act quickly
The Riksdag has recently adopted an amendment to the Housing Ownership Act (the housing rights act). The changes will affect the market for newly developed condominiums, including advance agreements. Most of the changes come into force at the turn of the year.
Right of residence in Sweden
In Sweden, a common form of ownership is a condominium, where the occupant of an apartment owns a share in a cooperative condominium association, which in turn owns the property where the apartment is located. A share in the condominium association is associated with a permanent and exclusive right to a certain apartment on the association’s property. Only a very small number of Swedish apartments are owned directly by the person living in the apartment. Bostadsrät is the dominant form of ownership of condominiums in Sweden.
Since the year 2000, the real price for the average condominium apartment in Sweden has increased by almost 400%1. At the same time, the market for newly built condominiums has increased significantly.
When developing new condominiums, a condominium association is usually formed by the housing developer. The association then signs preliminary agreements with prospective buyers. Anyone who has signed a preliminary agreement has the right and obligation to acquire a certain apartment in the association’s building at a future time. Advance agreements are usually signed several years before the building is completed, which facilitates the financing of new construction projects. The heated housing market, especially in the big cities, has resulted in many advance agreements, through which apartments are sold “on the drawing board”, at a fixed price years before the building is completed, and the buyer is granted association membership and access. to the associated apartment.
Amendments to the Housing Ownership Act
On June 14, 2022, Sweden’s Riksdag adopted the most extensive changes to the Tenancy Act since 2003. The goal was to strengthen the consumer protection framework, after seeing an increasing number of disputes related to advance agreements.
After new requirements for mortgage payments on housing loans in the spring of 2018, there was a price drop in the housing market. People who had entered into advance agreements on flats under construction were obliged to acquire their flats at a fixed price, while the conditions for obtaining loans were changed. Many buyers tried to withdraw from their contracts and many disputes about the obligation to fulfill the pre-contracts arose.
Many disputes ended up in court and the courts ruled almost exclusively in favor of the condominium associations.
The amendments to the Housing Ownership Act that are now being carried out aim to strengthen consumer protection and in particular the protection of people who buy apartments “on plan”.
The changes to the law will fulfill their purpose in terms of consumer protection, but these changes will also affect housing developers and housing associations that act in the market for new housing projects.
New rules for advance agreements
One of the major changes, which will come into effect on January 1, 2023, is that a condominium association that wants to sign a preliminary agreement must provide prospective buyers with certain information about the housing project, the conditions for the preliminary agreement. agreement and the risks associated with entering into advance agreements. What information is required is specified in the Housing Ownership Act. In this way, the legislation surrounding advance contracts is adapted to consumer law in other areas.
The information requirement is extensive. Detailed information about the construction project must be provided at an early stage of the construction process.
The purpose of the information requirements is for the buyer to be able to get an overall picture of the preliminary agreement and the risks it entails before signing. If the required information has not been provided when signing the preliminary agreement, or if it is deemed not to comply with the standards set out in the Tenancy Act, the agreement is not binding on the buyer. However, minor deficiencies may not be invoked. As we see it, there will be, at least initially, concern about the level of detail in the information requirement; for example, regarding the obligation for the association to inform about risks attributable to the buyer’s private finances.
We also see a risk that disputes may arise where pre-contractors at a late stage of the construction process invoke deficiencies in the information provided to withdraw from their pre-contracts. Although much of the information required can be provided in a standardized manner, some of the information required must be specific to each individual association and construction project. The housing rights association, and the housing developers, must make an effort to develop their offers so that they receive the right information. It is important to do the work carefully, otherwise the association risks getting an agreement that is not binding on the buyer.
Another change with regard to advance agreements is that the condominium association must grant prospective company signatories at least seven days from the time the offer is received until the agreement is signed. The offer to sign the preliminary agreement must be complete with the full terms of the agreement and the additional information required.
During this time for consideration, the condominium association may not sign a preliminary agreement for the apartment in question with anyone else. The legislator aims to give prospective buyers time to read through the information and terms of the preliminary agreement and to think through the consequences of entering into the agreement.
According to the Housing Owners Act, a housing association that wants to sign a pre-contract must first draw up a cost estimate for its construction project, which must be reviewed and approved by two attesting officers. The purpose of the cost estimate is to ensure that the condominium association is a healthy housing project. As of today, there are 91 certifying officers appointed by the Housing Authority who are authorized to certify cost estimates. The approved amendment to the Housing Ownership Act also affects the attesting officers.
Amendments to Certifying Officers
Until now, it has been common for two or more certifying officers, who often know each other well, to work together on several projects. The legislator believes that the close cooperation between the certifying officers increases the risk of a conflict of interest arising and endangers the certifying officers’ independence vis-à-vis the housing developers. The approved amendment clarifies that repeated cooperation between two attesting officers can lead to their disqualification for reasons of bias.
Furthermore, the certification officers will now have to be approved by the Housing Agency for each individual assignment. In addition to this, certifying officers will be required to take out liability insurance.
The change to the regulation regarding certifying officers will only come into force on 1 January 2024 to give the certifying officers and the Housing Authority time to prepare for the changes. To what extent the Housing Authority will allow two attesting officers to cooperate in recurring projects remains to be seen. The fact that certification officers must be approved by the Housing Authority for each individual assignment is something that housing developers must take into account when planning their construction projects, in order to prevent a project from being delayed.
The adopted amendments to the Housing Ownership Act will have consequences for housing developers and housing associations that are active in the market for future construction projects. And the consequences are imminent, as the new regulations regarding advance agreements come into force as early as January 1, 2023. The short transition period forces housing developers to start working on these issues immediately.