Notification of Contract Positions

Circular Notification of Contract Positions CIRCULAR: 6/2015 DATE: 03.06.2015 THE CIRCULAR APPLIES TO: Real estate agencies Lawyers with real estate activities FINANS TILSYNET Postboks 1187 Sentrum 0107 Oslo

Notification of Contract Positions 2 | Finanstilsynet Introduction The Housing Construction Act and the Sales Act allow consumers to resell a contract position regarding housing under construction without having to assume responsibility for the fulfillment of the agreement with the original seller (developer). The Real Estate Brokerage Regulation § 1-5 regarding the broker's duties in connection with the facilitation of such contract positions enters into force on 1 July 2015. This circular provides information about the duties that follow from the regulatory provision. In this circular, the original seller will be referred to as the seller or contractor, the reseller will be referred to as Buyer 1, and the buyer of the contract position will be referred to as Buyer 2. Scope of the Regulatory Provision The broker must, in connection with the conclusion of the mandate agreement, clarify whether the client (Buyer 1) is a contractor/business operator or a consumer. If Buyer 1 is a consumer, the broker must follow the rules in the Real Estate Brokerage Regulation regarding the facilitation of contract positions. The agreement with Buyer 2 is regulated by the Sales Act (Act of 3 June 1992 No. 93) and the Purchase Act (Act of 13 May 1988 No. 27) or the Consumer Purchase Act (Act of 21 June 2002 No. 34). If Buyer 1 is a contractor/business operator, the ordinary rules for the agreement in the Housing Construction Act apply, and the regulatory provision does not apply. There is no further regulation of when the reseller should be considered a business operator or a consumer. This raises a particular issue where the reseller's original purpose was investment (speculation) and not own housing needs, but without such investment being the reseller's main business. The purpose of giving consumers access to resell the contract position without having to assume fulfillment liability is the need these individuals may have to get out of the agreement due to later changes in family circumstances, employment, or financial capacity. The broker must have routines that ensure that the resale of a housing under construction to a consumer buyer does not fall outside the Housing Construction Act to a greater extent than the regulation and the purpose of the regulation imply. Unless the reseller's original purpose with the purchase was to obtain housing for own use, or for use by family members, the transaction should as a starting point be regulated by the Housing Construction Act. Normally, the reseller's written declaration of the purpose of the purchase can be relied upon, unless the broker has or should have other knowledge about the reseller's original purchase.

Notification of Contract Positions Finanstilsynet | 3 Conclusion of Mandate and Journaling It must appear from the mandate agreement, the mandate journal, and the brokerage journal that the mandate concerns the sale or settlement of a contract position. At the conclusion of the mandate agreement, the broker must investigate whether there are restrictions in the underlying contract on Buyer 1's right to transfer the contract, and obtain the contractor's confirmation of this. The contractor's specific consent to the transfer is obtained when Buyer 2 is known. In the brokerage journal, "the remuneration for the contract position" must be recorded, not the purchase price in the original contractual relationship. Even though the payment from Buyer 2 includes both added value and any advance payment that Buyer 1 has paid to the seller or broker in the original purchase contract, only the added value should be recorded. The remuneration for the contract position will also appear in the bid form, bid journal, etc. Investigation and Disclosure Duties It must be clearly stated in all marketing that the trade concerns a contract position. This applies regardless of the form of marketing. The requirement to be clear means that the information must be given in a prominent place, preferably in the heading. Information about the parties' rights and duties in the transaction of contract positions must appear in the sales agreement. The information must be of such a character that there is no doubt afterwards about what was the subject of the broker's facilitation. Buyer 1's contract with the contractor must be attached to the sales agreement. It must appear from the sales agreement that Buyer 2 takes over Buyer 1's rights and obligations as these appear from this contract. Information must be provided about the remuneration for the contract position and the purchase price for the housing. In addition, part of the common debt, all fees, taxes, and other costs must be specified and summed up. Any transfer fee to the seller that is to be charged to Buyer 2 in addition to the purchase price for the contract position must also be included. Information must be provided in the sales agreement about what has been agreed regarding the payment of the purchase price in the underlying contractual relationship. An agreement that Buyer 1 shall pay installments/advance on the purchase price before taking over and transferring the housing must be described in the sales agreement. The sales agreement must also provide information about any payments Buyer 1 has already made and which Buyer 2 must pay to Buyer 1. It must be stated that the seller's guarantee under the Housing Construction Act § 12 and possibly § 47 also applies to Buyer 2. It must be clear that the guarantee under the Housing Construction Act § 12 is calculated based on the original purchase price, and that the remuneration for the contract position is not included in the calculation basis.

Notification of Contract Positions 4 | Finanstilsynet The broker has an independent responsibility to provide Buyer 2 with information about the property that the contract position concerns. If the original transaction was facilitated by a real estate broker, the broker of the contract position can normally build on the information in the sales agreement from this broker. The broker must, however, assess whether the information is comprehensive and complete, and make the investigations that are necessary. Information about the property must appear in the sales agreement. It is not sufficient that the original sales agreement is attached and that only a reference to it is made. If the contractor uses a different brokerage firm than Buyer 1, it must appear from the sales agreement who is to carry out the settlement between the contractor and Buyer 2. If the settlement is left to the parties themselves, this must be stated. Information must be provided about the financial risk associated with the remuneration for the contract position. If Buyer 2 is a consumer, their duty to pay the added value ceases if the contractor does not complete the housing, cf. the Sales Act § 1-1 fourth paragraph. Buyer 1, however, has no responsibility for defective or delayed delivery from the seller's side, and Buyer 2 has a duty to pay the full added value in these cases. This applies even if the defect is significant and gives Buyer 2 the right to terminate the contract with the seller. This is a risk that must be disclosed in the sales agreement. If Buyer 2 is not a consumer, the parties may agree that Buyer 2 must pay the remuneration for the contract position regardless of whether the contractor completes the housing or not. Furthermore, in these cases, Buyer 1 can demand the added value paid out even if Buyer 2 has not yet taken over and obtained legal protection for the housing. A claim for payment of the added value can be made already in connection with the conclusion of the transfer contract. Buyer 2 will here thus have the full remuneration risk for the contract position, even if the seller does not deliver in accordance with the contract in any way. This must be disclosed in the sales agreement. Legal Protection and Settlement The broker must, in the financial settlement, receive the remuneration for the contract position, establish legal protection for Buyer 2's acquisition of the contract position, and then release the remuneration to Buyer 1. The broker must ensure that the contractor receives written notice of the resale, so that Buyer 2 obtains legal protection for their rights under the agreement. In sales to consumers, the broker must also ensure that Buyer 2 has taken over the housing and obtained legal protection for it before the added value can be disposed of for the benefit of Buyer 1. Regarding amounts paid by Buyer 2 to cover advances already paid by Buyer 1, it can be agreed that this can be disposed of for the benefit of Buyer 1 as soon as Buyer 2's contract position has obtained legal protection. Anne Merethe Bellamy director for market supervision Anne-Kari Tuv section chief

Notification of Contract Positions Finanstilsynet | 5 Contact persons: Special Advisor Arne Solberg, tel. 22 93 98 05, e-mail: arne.solberg@finanstilsynet.no Special Advisor Eva Marie Hansen, tel. 22 93 97 75, e-mail: eva.marie.hansen@finanstilsynet.no Link to law changes: https://lovdata.no/dokument/SF/forskrift/2014-11-14-1436

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