Changes to the tenant-ownership in SwedenHousing developers and tenant-owner’s associations need to act swiftly
The Swedish Parliament has recently adopted an amendment to the Swedish Tenant-Ownership Act (bostadsrättslagen). The changes will affect the market for newly developed tenant-ownership apartments, including pre-agreements. Most of the changes will come into effect at the turn of the year.
Tenant-ownership in Sweden
In Sweden, a common form of housing tenure is tenant-ownership, where the resident of an apartment owns a share in a cooperative tenant-owner’s association, which in turn owns the property where the apartment is located. A share in the tenant-owner’s association is associated with a permanent and exclusive right to a specific apartment on the association’s property. Only a very small number of Swedish apartments are directly owned by the resident of the apartment. Tenant-ownership is the dominant form of ownership of resident-owned apartments in Sweden.
Since the year 2000, the real price for the average tenant-ownership apartment in Sweden has increased by almost 400%1. At the same time, the market for newly built tenant-ownership apartments has increased significantly.
When developing new tenant-ownership apartments, a tenant-owner’s association is usually founded by the housing developer. The association then signs pre-agreements with prospective buyers. The signatory to a pre-agreement has a right and an obligation to acquire a specific apartment in the association’s building at a future time. Pre-agreements are usually signed several years before the building is completed, facilitating the financing of new building projects. The heated housing market, especially in major cities, has resulted in many pre-agreements, through which apartments are sold "on drawing," at a fixed price years before the building is completed, and the buyer is granted membership in the association and access to the associated apartment.
Changes to the Tenant-Ownership Act
On June 14, 2022, the Swedish parliament adopted the most comprehensive changes of the Tenant-Ownership Act since 2003. The objective was to strengthen the consumer protection framework, after seeing an increasing number of disputes related to pre-agreements.
Following new requirements for mortgage payments on housing loans in the spring of 2018, there was a price drop on the housing market. People who had entered into pre-agreements for apartments under construction were obliged to acquire their apartments at a fixed price, while the conditions for obtaining loans changed. Many buyers tried to withdraw from their agreements, and many disputes regarding the obligation to fulfill the pre-agreements arose.
Many disputes ended up in court, and the courts almost exclusively ruled in favor of the tenant-owner’s associations.
The changes to the Tenant-Ownership Act that now are being implemented aim to strengthen the consumer protection and, in particular, the protection for people who buy apartments "on drawing."
The changes in legislation will fulfill their purpose when it comes to consumer protection, but these changes will also affect housing developers and tenant-owner’s associations that act on the market for new housing projects.
New rules for pre-agreements
One of the major changes, which will come into effect on January 1, 2023, is that a tenant-owner’s association that wants to sign a pre-agreement must provide prospective buyers with certain information about the housing project, the conditions of the pre-agreement and the risks associated with entering into a pre-agreement. The required information is specified in the Tenant-Ownership Act. In this way, the legislation related to pre-agreements is adapted to consumer law in other fields.
The information requirement is extensive. Detailed information about the building project must be provided at an early stage of the construction process.
The purpose of the information requirements is to enable the buyer to get an overall picture of the pre-agreement and the risks it entails before signing. If the required information has not been provided when signing the pre-agreement, or if it is deemed not to comply with the standards set out in the Tenant-Ownership Act, the agreement will not be binding for the buyer. However, a minor deficiency may not be invoked. As we see it, there will, at least initially, be concerns about the level of detail in the information requirement; for example, regarding the duty for the association to inform about risks attributable to the buyer’s personal finances.
We also see a risk that disputes may arise where pre-agreement signatories at a late stage of the building process invoke deficiencies in the provided information to withdraw from their pre-agreements. While a lot of the required information can be provided in a standardized manner, some of the required information must be specific for each individual association and building project. The tenant-owner’s association, and the housing developers, must put some effort into elaborating their offers to include the right information. It’s important to do the work thoroughly, otherwise the association risks having an agreement that’s not binding for the buyer.
Another change regarding pre-agreements is that the tenant-owner’s association must grant prospective signatories at least seven days from receiving the offer to signing the agreement. The offer to sign the pre-agreement must be complete with the full terms and conditions of the agreement and the additional information that is required.
During this time for consideration, the tenant-owner’s association must not sign a pre-agreement for the apartment in question with anyone else. The legislator aims to give prospective buyers time to read through the information and the conditions of the pre-agreement, and to think through the consequences of entering into the agreement.
Under the Tenant-Ownership Act, a tenant-owner’s association that wants to sign pre-agreements first needs to establish a cost calculation for its building project, which is to be reviewed and approved by two certifying officers. The aim of the cost calculation is to ensure that the tenant-owner’s association is a sound housing project. As of today, there are 91 certifying officers appointed by the National Board of Housing, Building and Planning who are authorized to certify cost calculations. The approved change to the Tenant-Ownership Act also affects the certifying officers.
Changes for certifying officers
Until now it has been common that two or more certifying officers, who often know each other well, work together in multiple projects. The legislator is of the opinion that the close cooperation between the certifying officers increases the risk that a conflict of interest arises and jeopardizes the certifying officers' independence towards the housing developers. In the approved change, it is clarified that recurring cooperation between two certifying officers may result in them being disqualified for partiality reasons.
Further, the certifying officers will now need to be approved by the National Board of Housing, Building and Planning for each individual assignment. In addition to this, certifying officers will need to take out liability insurance.
The change of the regulation regarding certifying officers will not enter into force until January 1, 2024, to give the certifying officers and the National Board of Housing, Building and Planning time to prepare for the changes. To what extent the National Board of Housing, Building and Planning will permit two certifying officers to cooperate in recurring projects remains to be seen. The circumstance that certifying officers must be approved by the National Board of Housing, Building and Planning for each individual assignment is something that housing developers must consider when planning their building projects, to prevent a project being delayed.
The adopted changes to the Tenant-Ownership Act will have consequences for housing developers and tenant-owner associations that are active in the market for future construction projects. And the consequences are imminent, since the new regulations regarding pre-agreements enter into force as soon as January 1, 2023. The short adjustment period forces the housing developers to begin working with these issues immediately.
1Government bill prop. 2021/22:171 p. 26