Opportunity to Make Long-Term Investments in Real Estate

Circular Opportunity to Make Long-Term Investments in Real Estate

CIRCULAR: 7/2015 DATE: 12.06.2015 THE CIRCULAR APPLIES TO: Real estate agencies Law firms with real estate brokerage activities

FINANS TILSYNET P.O. Box 1187 Sentrum 0107 Oslo

Opportunity to Make Long-Term Investments in Real Estate 2 | Finanstilsynet

Introduction Individuals who perform work included in real estate brokerage (hereinafter referred to as employees), whether in a real estate agency or at a law firm, may not buy and sell real estate according to Section 5-2, first paragraph, of the Real Estate Brokerage Act. However, the Act does not prevent the individual from purchasing residential and holiday properties for their own use. Furthermore, there is some opportunity to save for the long term in real estate, that is, to place saved funds / excess liquidity in real estate, with a view to long-term rental.

Long-term investment in real estate is only permitted if the activity is not suitable for undermining trust in the real estate agency or the lawyer's integrity and independence. This must be based on a concrete overall assessment. The circular describes the factors that should be included in the assessment.

Assessment Topics The starting point should be the boundaries for taxable business activity. In accordance with Lignings-ABC 2014/15, the boundary is generally at the rental of more than approximately 500 sqm for business purposes, or five residential units or more for residential purposes.

Normally, investments within these boundaries will not conflict with the rule.

There may also be specific circumstances related to the employee or the properties involved that mean that investments exceeding the boundaries for taxable business activity can also be assessed as being within the regulatory framework. Relevant circumstances are described below.

Circumstances Regarding the Property If the properties are geographically and by use in a different market than the market the employee works in/with, the investments will be less likely to undermine trust. If an employee brokers residential properties in Tromsø, investments in business premises in Kristiansand could be accepted to a greater extent than if the same person invested in residential properties in Tromsø.

Circumstances Regarding the Employee The opportunity for long-term investment in real estate may vary depending on the tasks the employee has. For persons who do not have contact with the market and do not participate in purchase negotiations, long-term investment in real estate will more difficultly be said to be suitable for undermining trust in the agency's integrity and independence than for employees who participate in such market processes.

Initially, it does not matter whether the employee owns the property directly or indirectly through shares, company parts, etc. The employee's participation in the daily operation and management of the property portfolio, including entering into rental contracts, will, however, be relevant. If the employee has made a purely passive capital placement in a limited company, and is neither formally nor factually involved in the company's daily operations, this points towards an extended access to long-term savings in real estate.

In the assessment, it will also be relevant to look at when and how the employee acquired the properties. Inherited property will more difficultly be suitable for undermining trust in the agency's integrity and independence than if the employee had purchased it themselves.

Similarly, the time of purchase of the property will have significance for the assessment. It takes more for an employee who has purchased real estate before they started working in the real estate brokerage business to be said to be running an activity suitable for undermining trust, than is the case where the employee's investments were made while they were working in the real estate brokerage business.

Control to Ensure the Regulatory Framework is Followed It is the individual employee's responsibility to ensure that investments take place within the framework of the law.

The requirement for good brokerage practice implies that the real estate agency must also ensure that employees do not act in a manner suitable for undermining the agency's integrity and independence.

Real estate agencies must keep a register of their employees' rights to real estate, and the responsible professional must ensure that the register is always complete and up to date. The responsible professional must assess whether the employee's rights to real estate are in accordance with the law.

In this context, the responsible professional must also assess whether the employee's investments are covered by the absolute prohibition on buying and selling real estate. The assessments must be documented.

Finanstilsynet will not give recommendations in individual cases regarding whether a factual situation falls within the prohibition, but will follow up the agencies' follow-up of the regulatory framework in supervision and react to breaches of the regulatory framework in the usual manner.

Anne Merethe Bellamy director for market supervision Anne-Kari Tuv section chief

Contact persons: Special Advisor Arne Solberg, tel. 22 93 98 05, email: arne.solberg@finanstilsynet.no Special Advisor Eva Marie Hansen, tel. 22 93 97 75, email: eva.marie.hansen@finanstilsynet.no Senior Advisor Johan Andreas Skartveit, tel. 22 93 99 24, email: johan.andreas.skartveit@finanstilsynet.no

FINANS TILSYNET P.O. Box 1187 Sentrum 0107 Oslo POST@FINANSTILSYNET.NO WWW.FINANSTILSYNET.NO