Real estate finance law in Sweden

Yes, a mortgage can be granted to a foreign lender.

Yes, in accordance with the distinctions below.

Generally, a mortgage comprises both land and buildings attached thereon, meaning that a mortgage security would also cover buildings.

A building may however not be included in a mortgage if the owner of the building is different from the owner of the land, in which case the building (which is deemed movable property) may be subject to security by security assignment.

Mortgage certificates (which may be in either written or electronic form) are issued at certain face value. A stamp duty of 2% of the face amount applies, in addition to an administrative cost of SEK 375. A mortgage certificate is directly connected to the specific property (not any specific owner or pledgee) and is not transferable.

Yes, second ranking security can be taken in the same mortgage certificate. The pledge over a mortgage certificate is not in any case registered, but electronic form certificates must be held in a digital archive of the pledgee. In case of second ranking security over mortgages, the second ranking pledgee shall notify the first ranking pledgee of the second ranking security.  

Yes. However, the real estate is still subject to a valid mortgage after the transfer and therefore the real estate can be subject to executive sale by the lender for the original loan.

Simplified, there are two types of priorities under Swedish law – special priority and general priority – with special priority preferred over general priority. A mortgage pledge has special priority. There are no preferred creditors under Swedish law, other than creditors with special priority in a certain type of asset.

Yes, the obligations secured by the mortgage pledge may cover all of the pledgor’s existing and future obligations towards the lender.

Yes, the right to receive rent may be subject to security by security assignment over the relevant lease agreement. Perfection of such security requires notification to the tenant.

Yes, it is possible and common. Perfection over bank accounts requires that the pledgor is effectively deprived of its rights to dispose of the security assets – meaning that the account must be duly blocked to achieve perfection. The risk of claw-back is significant in case perfection/blocking is made in close connection to a default leading up to the insolvency of the pledgor – which makes creditors keen to require blocked accounts. In order to enable pledgors/borrowers to operate businesses, the finance documents may include accounts provisions pursuant to which certain accounts are blocked and other accounts are not (combined with sweeping mechanisms etc).

Landowners are registered with the Land Registry and any transfer of land must be reported to the Land Registry by the purchaser applying for title to the relevant property. Mortgage certificates issued are also registered in the Land Registry, but mortgage pledges are not. Perfection is achieved through delivery to the pledgee of written mortgage certificates or, in case of electronic mortgage certificates, the electronic transfer of such to the pledgee’s digital archive with the Land Registry.

A buyer failing to register title in due course (3 months) may be fined by the Land Registry.

In case of security perfection, a mortgage security would not be deemed perfected if the mortgage certificates are not delivered to the pledgee (in case of written certificates) or transferred to the digital archive of the pledgee (in case of digital certificates). The failure would cause the pledgee not to gain priority in the insolvency of the pledgor. The risk of claw-back is significant in case perfection is made in close connection to a default leading up to the insolvency of the pledgor.

See ‘Are mortgage certificates…’ above. No other costs apply. Formalities for execution of security include execution of a mortgage pledge agreement (no specific formalities apply for such execution) and delivery of mortgage certificates or duly executed applications for the issuing of mortgage certificates.

Yes. Note however that Swedish law does not include the concept of a “trustee”, but that security agents are commonly used.

No, not unless the relevant pledge agreement allows for the change of secured parties. The customary practice is however to require the pledgor to execute a customary security confirmation letter.

Office/industrial lease

This may depend on the terms of the relevant lease agreement. However, pursuant to the Swedish Land Code (Jordabalken) and its regulations on leasing (hyra), tenants are, with certain exceptions, generally not free to transfer lease agreements to new tenants. Tenants may be able to force the transfer of a lease in case the landlord does not (within a certain time period) reply to a request of transfer, or following a ruling by the Swedish Rent Tribunal (hyresnämnd). A new tenant is however forced to comply with the terms of the transferred lease agreement – including with respect to the permitted use of the property.

Retail lease

As above.

Yes. However, market practice is for disputes under Swedish law pledge agreements to be settled in Sweden.

For foreign judgements, this would depend on the jurisdiction in which the judgement was obtained:

• some judgements from other EU member states or other Nordic countries are directly enforceable
• for other judgements, it might be necessary to apply to a specific district court to have the judgement declared enforceable.

Enforcement of arbitral awards would be treated similarly – and based on the relevant jurisdiction, and whether or not the country is a party to the New York Convention.

Enforcement of real property is made through public auction administered by the Swedish Enforcement Agency. An application for enforcement requires that an enforcement title has been obtained through court.

No, but it may be in the interest of the lender to procure that maintenance and insurance are properly handled to avoid depreciation of a property’s value.

Foreclosure may be restricted under Swedish law if the relevant pledge agreement states that title may be exchanged for satisfaction of debt. However, the lender may acquire the property if the acquisition is made on market terms and in accordance with the duty of care to which pledgees must adhere. In order to honour the duty of care, the pledgee must ensure that the price paid for the property is not lower than what was reasonably possible to obtain.

The perfection requirements relating to bank accounts do sometimes cause headaches as the blocking of accounts may prevent the daily operations of the borrower group.

Foreign creditors generally do not have a digital archive with the Swedish Land Registry, which often forces them to request written mortgage certificates from the pledgor. This is not legally technical, but may cause practical issues in storing the mortgage certificates.

Due to Swedish restrictions on financial assistance, it is common for real estate acquisition finance structures to include that entities owning property may only secure their own intra-group debt (as they are restricted from securing the debt incurred by the borrower from the bank for financing the acquisition of the property owning companies). 

Yes, security over shares can be granted to a foreign lender.

Yes, share pledges (private shares) are not officially registered but are generally noted in the share register of the pledged company. The second ranking security holder shall notify the first ranking security holder of the second ranking security.

A pledge over private shares is perfected through the delivery to the pledgee of the written share certificate representing the pledged shares. It is also advisable to notify the company pledged about the pledge and to request a share register update to reflect the existence of the security.

A pledge over public shares is perfected by notification to the custodian of the securities account on which the relevant shares are registered. Additionally, a pledge over public shares is commonly connected to a pledge over a cash account to which any proceeds of the pledged shares shall be made. Perfection over such an account requires notification (and blocking) of the account in accordance with QA2, ‘Is it customary/possible for a lender…’.

As above, the pledge is not registered. The consequence of incomplete perfection would be that the pledge has not gained legal effect and would not gain priority in the insolvency of the pledgor. The risk of claw-back is significant in case perfection is made in close connection to a default leading up to the insolvency of the pledgor.

There are no specific costs associated with the execution or perfection of a share pledge.

This is not a formal requirement but the customary practice is to include a transfer “in blank” to enable the pledgee to transfer shares in case of enforcement.

Swedish law does not include specific rules on how security interests in shares are enforced (save that foreclosure is generally not permitted). This means that the pledgee may choose between various methods to sell the security assets, whereas a sale by public or private auction or acquisition by the pledgee itself are common procedures, depending on the contract. Notwithstanding the foregoing, the pledgee is obliged to adhere to a certain duty of care, meaning that it shall honour the interests of the pledgor in its enforcement actions. The main purpose of the duty of care is to ensure that the security assets are not sold at a price lower than what was reasonably possible to obtain, including not selling more of the security asset than is needed. There is no predefined formula for how to comply with the duty of care, and necessary measures from the pledgee must be assessed on a case-by-case basis. It may be advisable for the pledgee to obtain one or several valuations of the relevant assets.

Shareholder loans are not subordinated by default but may be so through customary subordination agreements pursuant to which the shareholders are subordinated until the expiry of the security period. It is customary for pledge agreements or subordination agreements to include that obligations of a pledged company shall be written off (usually effected by shareholders’ contribution) in case of enforcement.

The most common length of lease terms would be 3-5 years. Lease terms in single asset/single tenant financings do however tend to be longer.

25 years within areas subject to zoning plans; 50 years for areas outside zoning.

The answer depends on the terms of the individual lease agreement. Unless otherwise agreed, the lease term will be renewed automatically in case the lease agreement is not terminated – which requires the serving of a written termination notice (subject to certain formal requirements). The procedure for terminating lease agreements is somewhat complex and also includes that a termination shall be made in case the landlord or the tenant desires to renegotiate the lease terms. A commercial tenant does not have a “right” to renewal – and the landlord may always terminate the lease agreement to the end of the ongoing lease term. The landlord may however be obliged to pay damages in case the lease term is not renewed.

No, a tenant may not force a lease agreement to terminate prior to the end of the ongoing lease term.

The main risk for landlords is the potential obligation to pay damages in case the lease agreement is terminated – including if the lease agreement is terminated for the purpose of negotiating new lease terms, as the obligation to pay damages may be incurred by the landlord due to requesting unreasonable lease terms (the landlord may be liable in case the new lease terms – which must be presented in the termination notice – are not in accordance with good rental practice, e.g. the requested rent level is deemed to be above market).

This depends on the individual contract and, usually, the nature of the tenant/its business.

The customary practice for commercial premises is to include indexation provisions, pursuant to which the rent is reviewed annually to reflect movements in an index – usually the consumer price index (CPI).

Not with respect to commercial premises.

This depends on the individual lease agreement, but generally the tenant.

This depends on the individual lease agreement, but generally the landlord.

This depends on the individual lease agreement, but generally the landlord.

The landlord shall keep the property insured, but the tenant is commonly obliged to insure its business.

This depends on the individual lease agreement, but generally the tenant.

This depends on what rates, but generally the landlord.

This depends on the individual lease agreement, but it is common for the tenant to reimburse the landlord for outgoings relating to the tenant.

See under ‘Other typical outgoings’.

Are terms of leases/contracts recognised and supported by case law in the jurisdiction?

Yes.

To be recognised in the courts, does an appraisal have to be prepared by some domestically regulated/qualified party or is a RICS (Royal Institution of Chartered Surveyors)-qualified appraisal report accepted and recognised in each jurisdiction?

N/A.

Yes, an environmental consultant may be appointed to undertake a range of different investigations and reports.

There is no explicit provision on this type of liability. Environmental liability may generally only be incurred to the title owner of the property or a tenant/other user of the property which has caused the relevant environmental damage.