Buying and selling commercial property in Norway

In this guide you can get a brief overview of how commercial property transactions are carried out in Norway, including key preparations, the offer and acceptance process, standard transaction agreements and the rules of completion.

This article is part of our Doing Business in Norway guide.

Introduction

Each year, a significant number of property transactions are carried out in Norway. In recent years, 70–90% of commercial property transactions have been sales of property companies organised as private limited liability companies (Nw. “aksjeselskap”, “AS”). A property company is a company that owns and manages one or more properties. The typical structure is for one property to be held in each company, so-called “single purpose” companies.

The tax and corporate law framework in Norway mean that structuring the company as a private limited liability company and selling the property company is often the preferred type of transaction, as opposed to a direct sale of the property itself.

Preparations

Good preparation increases the likelihood of a successful transaction.

In certain transactions, the seller will carry out a review of the company itself as part of the preparation for the sale, known as Vendor Due Diligence (VDD). If the seller does not have a buyer in place, a buyer will typically be found through a sales process in which potential buyers are invited to participate, or by advertising the property for sale on the market. A short prospectus containing information about the company and the property available for sale is usually the starting point of the process. This is usually prepared by a broker. A more comprehensive prospectus follows, often accompanied by a letter describing how the seller wishes the transaction process to be conducted.

For the buyer, it will be important during the preparatory phase to obtain sufficient control over the information about the property company in order to determine whether they wish to submit a bid, on what terms they will submit a bid, and to check the bank’s conditions for financing if part of the purchase price is to be loan-financed. Most banks require security in the target company’s property, and it is important that buyers are mindful of section 8-10 of the Norwegian Private Limited Liability Companies Act and the rules that apply when the target company provides security for acquisition financing.

Offer & Acceptance

The offer will establish the basis for further negotiations between the parties. In addition to setting out key terms such as the transaction object, the parties, price, completion date, the offer will typically also contain conditions regarding the completion of a due diligence process satisfactory to the buyer, as well as the fulfilment of certain specific conditions.

The party submitting the offer must consider whether the offer is to be binding, or whether assumptions or conditions should be included to ensure that the binding agreement only arises at a later stage or when certain conditions are met. If no conditions are included in the offer, the offer will be binding, provided that the material terms are set out in the offer and the offer is accepted by the seller within the deadline. Offers containing conditions are referred to as indicative offers, as they are non-binding offers intended as an indication to the seller of the price and terms the buyer envisages if the conditions are waived.

Non-Disclosure Agreements

In most cases, the seller will require a non-disclosure agreement (NDA) to be signed before the parties enter the due diligence (DD) phase and the seller provides full information about the company. The purpose of a DD is to verify that the commercial assumptions underlying the buyer’s offer are correct.

Agreement

Broker standards (Nw. “Meglerstandardene”) are generally used in commercial property transactions and have been prepared by the Forum for Commercial Property Brokers (Nw. “Forum for Næringsmeglere”) and the Norwegian Association of Real Estate Agents (Nw. “Norges Eiendomsmeglingsforbund”).

Four main templates are relevant for the purchase and sale of property companies organised as private limited liability companies:

Sale of a Private Limited Liability Company

The most widely used standard in the property transaction market
Standard share purchase agreement (SPA)
Transfer of shares and risk normally takes place at closing
The seller provides warranties and the buyer typically has a right to compensation for breach

Sale of a Private Limited Liability Company with Warranty Insurance

As with a standard SPA, but the seller’s warranties are backed by a W&I insurance policy (Warranty & Indemnity)
Reduces the seller’s post-completion liability; claims are directed against the insurer (with some exceptions)
Commercial negotiation as to who bears the insurance premium, often with the seller covering part or all of the amount, as it is frequently the seller who wishes to obtain such insurance in order to avoid warranty liability and achieve a “clean exit”

Forward Transaction with Immediate Transfer of Shares

Relevant where the building/project is sold whilst still under development/refurbishment
The shares are transferred to the buyer at closing, which takes place before completion, but the parties have agreed that the seller will fulfil certain conditions over time, e.g. construction, development, or the achievement of lease agreements
The buyer normally bears the risk relating to the development of the company, and the seller bears the risk of any increase in the costs of completion

Forward Transaction with Deferred Transfer of Shares

The purchase agreement is entered into, but the transfer of shares only takes place at a future date, when certain conditions are met, e.g. completion, issue of a certificate of completion, or full tenancy of the building
The seller bears the risk for the project until transfer; the buyer normally bears market risk

Completion

In the case of a property company, it is the shares that are transferred. There is therefore no change of ownership to be registered in the land registry, but an update to the owner of the shares in the share register that constitutes the actual transfer.

Next Steps

Whether you are acquiring or disposing of a property company, each stage of the process requires careful legal guidance. Contact Brækhus today for an informal discussion on how we may assist you with your next property transaction.