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Finance providers

What are the typical providers of real estate financing in your jurisdiction? Are there any restrictions on who may provide financing?

The four major banks in Sweden are the main providers of real estate financing. Larger investors on the real estate market increasingly mix bank finance with bonds or the issue of shares.

Financing business is a regulated activity in Sweden and is subject to authorisation by the Swedish Financial Supervisory Authority (SFSA). A ‘financing business’ means a business which includes commercial operations which:

  • accept repayable funds from the general public; and
  • grant loans, provide guarantees for loans or, for financing purposes, acquire claims or grant rights of use in personal property (ie, leasing).

Provided that a lender does not accept deposits from the general public, it will probably not be considered a financing business and therefore will not be subject to regulatory requirements corresponding to such business. Under certain circumstances, natural or legal persons must register with the SFSA if they are carrying out so-called ‘other financial operations’ in Sweden. ‘Other financial operations’ means, among other things, granting loans (eg, in the form of loans secured by real property mortgage). One consequence of being registered is that the entity must adhere to Swedish money laundry regulations. However, this registration requirement applies only to legal persons incorporated or acting from a branch in Sweden.

Financing structures

What are the most common structures used to secure real estate financing and how are these security interests perfected?

Financing of real estate acquisitions is generally obtained by term loan acquisition facilities agreements and secured by mortgages in the real estate. Such security is perfected by the pledgor by handing over of the mortgage certificate (or, if the mortgage certificate is in electronic form, by a transfer of the mortgage certificate to the lender in the digital system governed by the Land Register). Lenders always require equity to be contributed by the buyer, most common between 20% and 50%. Acquisition of a larger real estate or real estate portfolio may also be financed by an issue of shares or bonds.

What covenants are typically made in financing agreements?

Common covenants included in financing agreements are:

  • loan-to-value;
  • debt-service ratios;
  • net debt to adjusted earnings before interest, tax, depreciation and amortisation (EBITDA); and
  • adjusted EBITDA to financial net payable and capital expenditure.

Enforcement of security

How are security interests enforced in the event of default?

A secured party initiates the enforcement process of mortgage certificates by obtaining an enforcement order from the Enforcement Authority or a Swedish court. On obtaining an order against a pledgor, the secured party is entitled to apply to the Enforcement Authority for enforcement of its claim and the sale of the mortgaged real estate. A sale of real estate by the Enforcement Authority is usually conducted by public auctions held in the district in which the real estate is located. It is also possible for the Enforcement Authority to sell a property using other means (eg, through a real property agent) if they are considered more expedient and provided that it is clear what mortgages and other encumbrances there are on the real property.

What is the typical timeframe for the enforcement of security?

Usually, the sale of mortgaged property should be completed within four months (when the order has been obtained from the court or the Enforcement Authority). However, this time limit may be extended to six or seven months if the relevant sale so requires (eg, depending on the value, location, size and the number of properties).

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