Sweden: Reform simplifies transfers

Author: | Published: 1 Sep 2010
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With regard to real property, Sweden's legal system is generally regarded as highly developed and well functioning: predictable, reliable and secure for parties. Although Sweden is a civil law system, an important role in the interpretation of legal statutes is played by motive, case law (primarily from the Supreme Court), and to some extent, doctrine. The main source of law related to real property is the Land Code. It governs all essential aspects of private real property law such as what constitutes real property, fixtures to real property, transfers of real property; how to obtain title, mortgaging, easements, usufructs and leases; and the registration of rights. Recent reform has made transfers even more straightforward and less time consuming.

All Swedish land is divided into property units that are individually identified by a name and a code. As well as the land itself, a property unit comprises buildings and fixtures. Freehold (permanent unrestricted ownership) is the most common way to hold land. Land can, however, also be held through site leaseholds that are let by the government or municipalities. Site leaseholds are generally treated in the same way as freeholds when it comes to transfers and mortgages. From a finance perspective, a site leasehold is generally considered as good a form of security as a freehold.

Transfer of real estate

Transfers of real property are subject to certain, but comparably few, formal requirements. To be valid, transfers of real property must be documented in written form and in a deed of transfer that contains:

  • a declaration of transfer;
  • the purchase price;
  • the identity of the seller and the buyer;
  • the identity of the property being transferred; and
  • two persons must witness the seller's signature on the deed of transfer.

There are no restrictions under Swedish law on direct or indirect ownership of real property by foreign entities.

Transfers of legal entities such as limited liability companies are not subject to any formal requirements and, though they are uncommon, oral agreements to transfer shares are binding.

Restrictions on transfer

Up until March 2010, transfers of real property and real property holding companies were subject to a right of pre-emption by the municipality where the real property was situated. Furthermore, in transfers of rental properties, the purchaser needed approval from the municipality as to their suitability for holding and managing the real property being transferred. Even though it was very uncommon for the municipality to exercise its pre-emption right or decline a transfer, the process of notifying and seeking the approval of the municipality was time consuming and an understandable cause of concern to investors not familiar with the system. The removal of these restrictions has significantly reduced both the time needed to effect direct and indirect transfers of real property and the uncertainties surrounding whether or not a transfer would take effect.


The ownership of all real property units is registered in the Land Register. This is kept by the National Land Survey (Lantmäteriet) and contains, among other things: information regarding the holder of title, mortgages, easements, tax assessed value and the purchase price for the most recent transfer. The Land Register is available online or through contact with the authority. The Swedish government guarantees the accuracy of the Land Register. Parties can depend on the information contained therein, thus obviating the need for title insurance.

Registration and transfer of title

Once a binding and unconditional agreement (fulfilling all formal requirements for transfer of real property) has been signed and exchanged between the seller and buyer, the title to real property transfers. Title is therefore usually transferred on completion of a transaction, when all conditions, including municipal consents, have been fulfilled.

A buyer of real property must apply for registration of title in the Land Register within three months from completion of the acquisition. This applies to both freeholds and site leaseholds.

No registration of title is necessary in connection with a transfer of shares in limited liability companies. In order to secure title to the shares however, the seller must deliver the share certificates (provided that such have been issued by the company) duly endorsed to the buyer. Furthermore (and especially where no share certificates have been issued) the parties can notify the board of directors of the target company of the transfer, who will then be obliged to note the transfer in the company's share ledger.

For tax purposes, a transfer of real property and/or shares in a limited liability company is considered to take place at the time of signing a sale and purchase agreement, regardless of whether or not the transfer has actually been completed.

Transfer tax

For legal persons, the transfer of real property in Sweden triggers stamp duty at a rate of 3% of the purchase price for the real property (or the tax assessed value of the real property, whichever is higher). This rate will increase to 4,25% as of January 1 2011. For private persons the rate is 1.5%. Unless otherwise agreed between the parties, the law stipulates joint and several liability for the seller and the purchaser to pay the stamp duty. In practice the purchaser will usually pay the stamp duty.

There are a few exceptions to the obligation to pay stamp duty; the only one with practical effect is the so-called transport purchase. If a purchased property is sold on within three months on the same terms and at the same price as the first transfer, stamp duty will only be payable on the latter transfer.

Special purpose vehicles

Special purpose companies are often used in connection with transfers of real property. The use of SPVs simplifies the transfer by avoiding the formalities of transferring real property and obviating the need to make registrations with the authorities. Furthermore, stamp duty can be minimised and capital gains tax can generally be avoided entirely.

In terms of the legal form of the special purpose company, a limited number of entities are available. The most commonly used in today's real investment structures are limited liability companies (aktiebolag). Other entities available are limited partnerships (handelsbolag and kommanditbolag). Limited liability companies best shield ultimate owners from liability; the liability of the shareholders is normally limited to the share capital – only in very few cases has the corporate veil been pierced in Sweden. Establishing a new limited liability company in Sweden is a relatively straightforward and quick process. A limited liability company is identified by a registration number that is designated to it by the Companies Registrations Office. A board of directors and sometimes a managing director represents a limited liability company. At least half of the members of the board of directors and the managing director must be resident within the European Economic Area. If none of the members of the board, nor the managing director, is resident in Sweden, the company must have an authorised representative resident in Sweden, to receive service of process on behalf of the company. Even though creating a new limited liability company is relatively easy and quick, the most common and even faster route is to purchase an existing shelf company.

The typical real estate transaction will comprise a pre-packaging of the real property by the seller. The seller will sell the real property to a wholly owned subsidiary, or another company within its group of companies (usually a newly established limited liability company). The price will correspond to the real property's book or tax residual value (usually considerably lower than the market value of the property). The shares in the subsidiary are then sold at a price corresponding to the difference between the real property's market value and its book value, plus the equity of the target company and, in some cases, with additional adjustments such as for deferred taxes. This type of transfer is normally exempt from capital gains tax. The stamp duty payable is minimised since it will be based on the price paid by the subsidiary for the real property (or the tax assessed value, whichever is higher) instead of on the market value of the real property. Once the real property is owned by the subsidiary, subsequent transfers of the shares in the subsidiary will not trigger stamp duty.

Marketing, due diligence and pre-contractual arrangements

Larger real estate portfolios and more valuable individual properties are usually marketed through brokers who put together and distribute an information memorandum to potential investors. Smaller portfolios and properties are usually marketed through adverts in business specific publications or even daily newspapers.

Due diligence normally comprises legal, financial, tax, environmental and technical issues. Legal due diligence is comparatively comprehensive in Sweden. This is on account of (among other things) the transparency of the Real Property Register, which obviates the need for a title investigation. Due diligence usually covers rights over the real property such as easements, leases, other contractual arrangements (such as service agreements) that the parties may agree to transfer. Where a transfer concerns the shares in a legal entity, customary corporate due diligence is also performed. This includes investigation of corporate documentation, agreements, disputes, financial and tax issues, etc.

Pre-contractual arrangements are quite common and may include confidentiality agreements, covering negotiations and due diligence investigations, letters of intent or memorandums of understanding for the purpose of granting a chosen buyer exclusivity, etc. A letter of intent will usually contain a provision that explicitly states which provisions are legally binding between the parties and which merely state the parties' respective intentions. Binding provisions usually include confidentiality and procedures for due diligence, while provisions containing material terms to be included in a future sale and purchase agreement are usually stated as not binding or as subject to due diligence.

For transfers of real property, it is important to note that options do not fulfill the formal requirements for transfer stated in the Land Code. Options are therefore not binding as long as the object of transfer is the real property itself and not, for example, the shares in a property holding legal entity.

The sale and purchase agreement typically contains provisions covering the transfer, purchase price, warranties, limitations on liability and consummation of transfer. The seller's liability will typically be limited to the warranties.


Lease agreements concerning premises on a real property (whether commercial or residential) will survive a transfer of the real property and are thus valid in relation to the purchaser. Commercial leases are generally entered into for a period of 3 to 5 years. Rents are usually linked to the Swedish Consumer Price Index. Lease agreements are comparatively comprehensive and will normally comprise 3 to 4 pages (excluding appendices) in a standard format that is used to a very high extent.

For commercial leases the terms of the agreement are (with some important exceptions) freely negotiable between the parties. The exceptions, ie the mandatory rules in favour of the tenant that an investor should take into account, are as follows:

  • if the lease term is shorter than three years, the rent must (with the exception of at-cost rent for media consumption and rent based on the tenant's turnover) be set to a fixed amount;
  • tenants have an indirect right of tenure which provides a right to compensation for the loss of the lease if the landlord at the end of a lease term either terminates the lease with the purpose of vacating the leased premises or demands conditions for the lease to continue that are not considered to be in line with the market and the tenant decides to leave the premises as a consequence thereof;
  • the grounds for forfeiture of a commercial lease are fixed by law; and
  • under certain circumstances the tenant has a right to transfer the lease.

Mortgage financing

In order to pledge real property, the holder of the legal title to the real property must take out mortgages in it. When taking out a mortgage, a stamp duty of 2% on the face value of the mortgage certificate is charged. Mortgages can be made in any amount and in either Swedish kronor or Euros. A mortgage certificate in either physical or electronic form evidences a mortgage. Mortgages are given chronological priority. A mortgage certificate is perpetual and can be used and reused without incurring any stamp duty or transaction costs. In order to perfect a pledge in real property the pledgee must take possession of the mortgage certificate or, in the case of electronic mortgage certificates, be registered as possessor in a register kept by the National Land Survey. The security interest of a lender holding mortgage certificates in a real property will survive any transfer of the real property in question.

In transactions where special purpose companies are used, the Swedish Companies Act contains a prohibition stating that a limited liability company may not lend funds, provide security or issue guarantees for the purpose of acquiring the company itself. In other words, a purchaser of a real property holding limited liability company cannot use the target property as security for its acquisition financing.

In order for a creditor to obtain an enforceable remedy against a debtor, the creditor needs to obtain a writ of execution. A writ of execution is obtained by the creditor filing an application addressed to the Swedish enforcement service for an injunction to pay. The application is communicated to the debtor who may dispute the claim. If the debtor remains passive or admits the claim, the claim is considered established. Thereby the property will be considered seized. The verdict is considered both a writ of execution and a decision of seizure. If however, the debtor disputes the claim, it shall be submitted to the district court for a full hearing of the case.

If a real property is seized, the creditor exercises its writ of execution by requesting a sale within two months from the date the verdict (or the judgment regarding seizure) gained legal force. Otherwise the verdict loses its power to seize the property. Auctions under a writ of execution are handled by the Swedish enforcement service. If the property is sold, the creditor will (provided that the proceeds from the sale cover any claims by other creditors with better rights in the property than the original creditor) receive payment for their claim up to an amount corresponding to 115% of the face value of the mortgage certificates pledged in their favour, including interest calculated from the time of the seizure of the property.

It should be noted that the Insurance Agreement Act gives a mandatory right for creditors with collateral in real property (ie creditors in possession of pledged mortgage certificates) to receive insurance proceeds corresponding to the claim which is secured by the collateral, even when the claim is not due for payment.

Real property courts

When a dispute concerns the right in real property or the right to use real property, the dispute shall, as a main rule, be settled by the district court in the district where the real property is situated.

There are real property courts that handle cases related to property parceling, expropriation, site leases (including cases related to the level of the rent), etc. Furthermore there are tenancy tribunals that handle issues related to tenancy, such as disputes between landlords and tenants, approvals of certain terms of lease contracts, etc.

There are no requirements on a party to in any way be qualified to do business in Sweden in order to enforce remedies under contract or law against another party.

Author biography
Jan Litborn
Advokatfirman Glimstedt

Jan Litborn is a partner and chairman of Glimstedt Law Firm. Jan Litborn is also founder of the Baltic offices of Glimstedt law firm. He is a graduate of the University of Stockholm (LLM) and the Stockholm School of Economics. He is a member of the Swedish and International Bar Associations, where he has been practising law since 1982. Jan Litborn has extensive experience, representing several of the largest Swedish property and private equity companies, in matters regarding primarily merger and acquisitions, financing, and securitisation. Jan Litborn has also been involved in several large cross-border transactions. He has participated in seminars and written several articles.

Tel: +46 856611900
Email: jan.litborn@glimstedt.se

Author biography
Jan Berg
Advokatfirman Glimstedt

Jan Berg is a senior associate at Glimstedt Law Firm. He is a graduate of the University of Stockholm (LLM) and holds an MBA in Financial Management from the Stockholm School of Economics. Jan Berg has been with the firm for six years. Prior to joining Glimstedt, he served as corporate counsel for a multinational telecom company, primarily working in the field of M&A. Jan acts for both public and private companies and institutions. Jan practises extensively in the area of public and private M&A, corporate law matters and the setting up of private fund structures for investments in private equity as well as real estate.

Tel: +46 735160004
Email: jan.berg@glimstedt.se