Most transactions involving the acquisition of commercial real estate in Norway are carried out as an acquisition of shares in property-owning companies, and capital borrowed in connection with the acquisition is usually secured by a mortgage over the property. When financing such transactions, the purchaser must bear in mind the restrictions on financial assistance provided by the Companies Act.
Unlike many other jurisdictions, there is no stamp duty on property mortgages in Norway. The only public fee payable for the registration of a mortgage on Norwegian property is a registration fee of Nkr525. This fee applies per mortgage document; thus, if a mortgage is registered against multiple properties, the fee remains at Nkr525. Therefore, common practice for acquisitions and re-financing is to discharge the existing mortgage and register a new mortgage in favour of the lender or mortgagee. Although assignment of mortgages is possible in Norway, it is rarely done.
If a property acquisition is structured as an asset deal whereby the purchaser acquires ownership and title to the property directly, the purchaser is free to provide any security the lender requires. The purchaser may:
- issue a mortgage over the property;
- assign the receivables deriving from the property; and
- pledge any machinery, plant or similar items connected to the property or the purchaser's business operations.
Where the transaction is structured as a share deal whereby the purchaser acquires shares in a property-owning company, the financial assistance provisions of the relevant legislation will apply. Most property companies in Norway are limited liability companies (with the abbreviation 'AS'), which means that the Companies Act applies. Some property companies are set up as partnerships (with the abbreviation 'KS', 'ANS' or 'IS'), in which case the Partnership Act applies.
Section 8 -10 of the Companies Act limit the ability of limited liability companies to provide financial assistance for an acquisition of shares in the company. Financial assistance cannot exceed any amount that can be distributed as dividend from the property company. As the value of the property on the balance sheet of a company is often is significantly below the market or transaction value of the property, a property company's dividend capacity will usually be limited.
However, a purchaser is not prohibited from pledging the shares in the property company, as such pledge will be deemed as granted by the purchaser and not as assistance from the property company.
The Ministry of Trade, Industry and Fisheries (MTIF) has issued a regulation which allows certain financial assistance in connection with the acquisition of property companies. If the conditions set out in the exemption regulations are met, a property company may grant a mortgage over the property as security for the purchase price paid for the shares in the property company, thereby allowing the purchaser to use the value of the property as the basis of loan capital in connection with the acquisition. However, the property company may not grant other types of security, such as a pledge over receivables, machinery and plant.
The main condition of the exemption regulation is that the company providing the mortgage must qualify as a 'property company' – that is, a company whose sole business is to own real estate and engage in the operation of such.
The acquisition of shares in a property company that has a building under construction (eg, a forward transaction) will typically not fulfil the conditions of the exemption regulation, since the company in such case will be deemed to conduct property development, not only property operation.
The Supreme Court and the MTIF have further clarified the interpretation of the exemption regulation. Where the property company has plans relating to development, large-scale refurbishment, demolition or reconstruction of buildings, it might not be classified as a property company. Such company will require a more detailed evaluation in light of the conditions set out in the exemption regulation.
Further, under the exemption regulation the property company may have no employees other than a general manager and no creditors other than the mortgagee under the mortgage to be established. However, claims from minor creditors arising from the operation of the property are allowed.
In addition to the general exemption under the exemption regulations, the purchaser may also apply to the MTIF for an individual exemption from the Companies Act. Where the exemption regulation does not apply or the purchaser questions whether the conditions for exemption have been fulfilled, the purchaser may apply for an individual exemption. Individual exemptions have been given in certain development projects and forward projects. However, exemption has been denied in some situations where the company applied to be a guarantor in general. The timeframe for processing an exemption application can be up to three months.
The Partnership Act imposes limitations regarding financial assistance similar to those of the Companies Act, and no exemption regulation is applicable for partnerships. The application for individual exemption will therefore often be necessary when acquiring partnership units.
For further information on this topic please contact Gøran Mjelde Aarvik at Wikborg Rein's Bergen office by telephone (+47 55 21 52 00) or email (firstname.lastname@example.org). Alternatively, contact Jens Aas at Wikborg Rein's Oslo office by telephone (+47 22 82 75 00) or email (email@example.com). The Wikborg Rein website can be accessed at www.wr.no.
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