Circular

New rules and amendments to the Real Estate Brokerage Act and Regulations

CIRCULAR:
16/2010
DATE:
01.07.2010
THE CIRCULAR APPLIES TO:
Real estate brokerage firms
Lawyers engaged in real estate brokerage
Persons licensed to conduct real estate brokerage

FINANS TILSYNET
P.O. Box 1187 Sentrum
0107 Oslo

New rules and amendments to the Real Estate Brokerage Act and Regulations

1 Introduction

With effect from 1 July 2010, amendments have been adopted to certain provisions of the Real Estate Brokerage Act.¹ The amendments relate to rules on the winding up of real estate brokerage firms, proprietary trading, and the responsible manager. In addition, EEA obligations under the Professional Qualifications Directive regarding the right of EEA citizens to temporary establishment are implemented.

Furthermore, the Ministry of Finance issued amendments to the Real Estate Brokerage Regulations on 18 December 2009 and 24 February 2010,² which cover certain special rules and exceptions for real estate brokerage assignments related to leasing (rental brokerage) and the sale of real estate located outside Norway (foreign brokerage).

Regulations have also been issued regarding mandatory continuing education for persons engaged in real estate brokerage activities, and the rules on bidding have been amended. In addition, certain changes/clarifications have been made to other regulatory provisions. With the exception of rules on continuing education which enter into force on 1 January 2011, the regulatory amendments enter into force on 1 July 2010.

Based on the Services Directive, which is implemented through the Services Act,³ administrative rules for applications for permission to conduct real estate brokerage have been issued, along with supplementary rules regarding requirements for business forms. These rules entered into force on 28 December 2009.

The purpose of this circular is to announce and provide general information about the content of the regulatory changes. For further elaboration on legal questions related to the individual Act and regulatory provisions, reference is made to the preparatory works collected on Finanstilsynet's website, under the menu item Real Estate Brokerage.

Chapter 10 of the circular replaces previous circular 7/2007 on bidding.

2 Responsible Manager

Under Section 2-9, second paragraph of the Real Estate Brokerage Act, Finanstilsynet may grant permission for the same person to be the responsible manager for more than one firm or one branch. This opens up the possibility of specializing the role of the responsible manager, which is expected to contribute to increasing the quality of real estate brokerage services.

The following has been established in the Bill:

Key factors will be the number of employees at the firms/branches, the scope of turnover, the qualifications and experience of the responsible manager and employees, and the extent of the responsible manager's presence and availability, including whether there is significant geographical distance between the firms/branches. The Ministry assumes that the responsible manager must be easily accessible to the employees at each of the firms/branches for which they are responsible, so that the responsible manager can ensure in a defensible manner that the firms/branches are operated in accordance with laws, regulations, and good brokerage practice.

In the application for permission, the aforementioned factors must be addressed, and the qualifications and work experience of responsible managers must be documented with certificates and attestations. The application must provide a description of how the shared responsibility is practically intended to be implemented, and the boards of the affected firms must confirm that the arrangement is considered defensible.

The responsible manager must also submit a police certificate, which must not be older than six months when Finanstilsynet receives the application.

3 Proprietary Trading

Under Section 5-3, fifth paragraph of the Real Estate Brokerage Act, real estate brokerage firms and lawyers conducting real estate brokerage cannot receive assignments from firms where related parties have decisive influence.

The sixth paragraph of the provision contains exceptions to the proprietary trading prohibition for employees in branches other than the branch executing the assignment and employees in branches that only handle settlements.

4 Winding Up of Real Estate Brokerage Activities

Section 8-2 of the Real Estate Brokerage Act provides Finanstilsynet with the authority to appoint an administrator to finalize real estate brokerage assignments in cases where a real estate brokerage firm has had its license to conduct real estate brokerage revoked.

A corresponding provision is given in Section 8-3, second paragraph of the Real Estate Brokerage Act for cases where a lawyer is prohibited from conducting real estate brokerage under the first paragraph of the provision.

5 Temporary Establishment (EEA)

Under Section 2-1 of the Real Estate Brokerage Act, the Ministry of Finance may issue regulations on temporary service provision as part of the implementation of Directive 2005/36/EC (the Professional Qualifications Directive). For temporary or occasional activities, the Directive does not allow for a requirement for public permission, only that the provider notifies the host state of the activity.

In assessing what is considered temporary professional practice, regard will be paid to the duration, frequency, regularity, and continuity of the service. Regulations are expected to be issued during 2010.⁴

6 Rental Brokerage

Section 1-3 of the Real Estate Brokerage Regulations contains special rules regarding the broker's duty to investigate and provide information in assignments involving the mediation of lease contracts for real estate (rental brokerage).

The provision does not cover the conclusion and transfer of leasehold agreements, which are regulated by the ordinary provisions of the Real Estate Brokerage Act. The provision also does not apply to assignments involving the mediation of lease contracts for commercial property, as this is regulated by Section 1-2 of the Real Estate Brokerage Regulations. The mediation of lease contracts for cottages, housing, rooms, or apartments for leisure purposes falls outside the scope of the Real Estate Brokerage Act.

The provision supplements the requirements in Section 6-7, first and second paragraphs of the Real Estate Brokerage Act and Section 6-2 of the Real Estate Brokerage Regulations. Before a lease agreement is concluded, the broker is required to provide the tenant with a written statement containing at least the following information:

1) The property's registration designation and address,
2) Ownership status,
3) The area of the leased object or number of rooms,
4) Rent and other payments under the Lease Act § 3-1, cf. § 3-4,
5) The lease term and the parties' right of termination,
6) The landlord's requirements for deposit or guarantee,
7) Conditions regarding the tenant's maintenance obligations,
8) Any right to sublet the property or part of it for residential purposes (subletting),
9) Completion certificate or temporary use permit,
10) Whether the leased object is the landlord's own residence, and if this gives the tenant fewer rights,
11) What has been agreed regarding the broker's remuneration and expenses,
12) The client's registered name, business address, and organization number,
13) Who is responsible for the assignment.

Finanstilsynet will particularly emphasize that this information is not exhaustive, but only clarifies the broker's duty to investigate and provide information. The decisive factor will be what information the tenant has reason to expect to receive and which may have significance for the agreement. Examples may include any restrictions on the use of the leased object, public law matters, as well as rights and obligations for the tenant following statutes, agreements, etc. It may be noted here that the energy certificate⁵ falls under the duty to provide information under Section 6-7, first paragraph of the Real Estate Brokerage Act.

7 Foreign Brokerage

7.1 General

The Real Estate Brokerage Act applies to intermediary activities conducted in Norway, regardless of whether the property or right being mediated is located outside Norway.

Section 1-4 of the Real Estate Brokerage Regulations contains certain special provisions for assignments involving the sale of real estate outside Norway (foreign brokerage). The provisions also cover the sale of time shares in holiday homes, but not the mediation of lease agreements.

The rules in Section 6-3, third paragraph of the Real Estate Brokerage Regulations regarding the minimum acceptance period for bids may be deviated from in this type of assignment. To the extent that the broker receives bids in connection with the assignment, the other rules regarding the proper handling of bidding will still apply. See further on this in point 10.2 of the circular. Any bids must also be recorded in the bid journal, cf. § 3-5. The rules in § 6-4 regarding access to the bid journal may be deviated from in foreign brokerage.

7.2 Use of Contractual Assistant

Under Section 1-4, second paragraph of the Real Estate Brokerage Regulations, the brokerage firm's contractual assistant does not need permission under the Norwegian real estate brokerage regulations if the assistant, under the legislation of the relevant country, has the right to conduct real estate brokerage.

The contractual assistant's name, address, and organization number must be included in the assignment agreement. Finanstilsynet assumes that corresponding information must be given to the buyer under Section 6-7, first paragraph of the Real Estate Brokerage Act.

Who can perform parts of the assignment as a contractual assistant will depend on which part of the assignment is subcontracted. Finanstilsynet assumes that this will primarily be relevant for settlements and possibly contract drafting. Actors/institutions that, under the legislation of the relevant country, have access to perform this type of settlement services, will normally be notaries, financial institutions, or lawyers.

Finanstilsynet will emphasize that the use of a contractual assistant does not exempt the brokerage firm and its guarantor from responsibility for a secure exchange of services (purchase price against legal and actual control over the property). The broker must ensure that the contractual assistant has the necessary permission to conduct the activity in their home country, as well as satisfactory security/insurance for the conduct of the activity. In addition, the broker should, as far as possible, ensure that the contractual assistant is independent in relation to the parties in the real estate transaction.

7.3 Duty to Investigate and Provide Information

There are no special rules or exceptions to the requirements for the broker's duty to investigate and provide information in foreign brokerage.

In certain cases, it may be impossible or unreasonably resource-intensive to obtain and/or verify information that the buyer initially has reason to expect to receive and which has significance for the transaction. In Finanstilsynet's assessment, it is sufficient that the broker, in such cases, provides the buyer with written orientation regarding any information that has not been obtained and verified and the reason for this. Information must be given before a binding agreement is concluded.

8 Requirements for Business Form and Administrative Rules

8.1 Administrative Rules to Supplement the Services Act

The Services Act regulates the administration's handling of permissions within service provision generally, including also the real estate brokerage area. The Act applies to both Norwegian applicants and applicants established in other states within the EEA area.

Under the authority of Section 2-3, fourth paragraph of the Real Estate Brokerage Act, special administrative rules for applications for permission to conduct real estate brokerage have been established. The time limit for processing applications is set to three months. The Services Act's rule that permission is considered granted when the processing time limit has expired does not apply to applications for permission to conduct real estate brokerage.

8.2 Requirements for Business Form

The regulations allow for real estate brokerage to be conducted in all business forms. Among others, sole proprietorships, general partnerships, limited partnerships, and foreign companies registered in the Business Register (NUF) can be granted permission to conduct real estate brokerage in Norway.

Regardless of the business form, the real estate brokerage firm must have an approved auditor under the Auditor Act and a board that meets the requirements of the Limited Liability Companies Act § 6-1.

For sole proprietorships, there is an additional requirement that the holder, who is responsible for the brokerage routines, meets the requirements for the responsible manager under Section 2-9 of the Real Estate Brokerage Act.

9 Continuing Education [Replaced by Circular 6/2012. Ed. note, 06.03.2012]

Sections 4-10 and 4-11 of the Real Estate Brokerage Regulations provide detailed rules on continuing education and requirements for documentation thereof.

The continuing education requirement applies to persons engaged in real estate brokerage who hold a real estate broker certificate, lawyer license, transitional broker permission, or lawyers with permission under Section 4-3 of the Real Estate Brokerage Act. The requirement also applies to lawyers conducting real estate brokerage under their lawyer license and legal assistants. There is no mandatory continuing education for assistants and assistant brokers.

The continuing education must consist of at least 15 hours over the two preceding calendar years within the subjects that apply to the study plan for the real estate broker exam:

• Regulations affecting the real estate brokerage profession
• Real estate brokerage in practice, including document handling
• Accounting, finance, and settlements, including handling of client funds

Approved educational institutions, as well as organizations representing real estate brokerage firms or the professional groups to which the provision applies, can arrange continuing education, including currently the Norwegian Real Estate Brokers Association, the Association of Real Estate Brokerages, the Norwegian Bar Association, the Jurists' Association, the Real Estate Lawyers' Service Office, and the Legal Assistants' Association. Other organizers can, upon application to Finanstilsynet, get courses approved within the same subjects mentioned above.

No exceptions can be made from the requirements regarding the content or scope of the continuing education.

The continuing education requirement means that one can document at least 15 hours of continuing education over the two preceding calendar years. The continuing education must be documented from the third year after the person's engagement began.

Example: If A becomes engaged as a broker on 6 April 2011, continuing education must be documented from the third year after A started the job – that is, from 7 April 2013. A must then document at least 15 hours of continuing education over the two preceding calendar years, meaning the continuing education must have been taken in 2011 and/or 2012.

The continuing education requirement applies during continuous engagement in real estate brokerage activities for two years. In the event of longer periods of absence – for example, in connection with parental leave or similar – a new two-year period will start again when the person resumes work.

Example: A goes on nine months of parental leave from 10 April 2013, and returns to work again on 10 February 2014. According to the main rule, A would have needed 15 hours of continuing education over 2012 and 2013, but due to the long absence from the industry, the continuing education requirement is "reset" such that A is considered to have started their engagement in real estate brokerage activities on 10 February 2014. The continuing education requirement must therefore only be documented from 11 February 2016, so that at least 15 hours of continuing education is taken over 2014 and 2015.

Finanstilsynet assumes that absence must be at least six months for the engagement to be considered interrupted. In the case of short-term interruptions, for example, due to sick leave, shorter leaves, or job changes, the continuing education requirement will apply.

The continuing education requirement enters into force on 1 January 2011. Persons covered by the provision, who are engaged in real estate brokerage activities as of 1 January 2011, start the two-year period from the entry into force time, such that the deadline for fulfilling the requirement of 15 hours of continuing education expires on 1 January 2013.

Individuals covered by the provision must themselves be able to document that the continuing education requirement is fulfilled at all times, and must ensure to provide a copy of the documentation to the responsible manager.

Failure to fulfill the continuing education requirement may lead to the revocation of the real estate broker certificate, lawyer permission, etc. Although the provisions on continuing education primarily address the individuals covered by the provision, Finanstilsynet views it such that the firm – through the board and responsible manager – also has an independent responsibility to ensure that the continuing education requirement is followed by the employees in the firm. Reference is made to Section 2-8, third paragraph of the Real Estate Brokerage Regulations, which imposes on the responsible manager to ensure that the employees' continuing education is in accordance with the regulation's requirements. This means that the responsible manager must ensure that documentation of the continuing education is kept, and maintain ongoing control that the employees' continuing education always meets the minimum requirements in Section 4-10 of the Real Estate Brokerage Regulations. Any failure to fulfill must be reported to the firm's board.

The documentation must at least indicate the name of the course organizer, the subject area, and a short description of the content, as well as the time and duration of the course.

10 Broker's Duties in Bidding

10.1 Prohibition on Mediation

The so-called 24-hour rule in Section 6-3, third paragraph of the Real Estate Brokerage Regulations has been amended such that the acceptance period in the bid must not be shorter than 12:00 PM on the first working day after the last advertised viewing. Saturday is not considered a working day. Bids with a shorter acceptance period than the provision requires cannot be mediated through the broker. If the bid meets the requirement for acceptance period, the provision is irrelevant for when the broker can start the bidding round or when the bid can be accepted.

The provision has no effect on the contractual relationship between the buyer and seller of the property. If the client has accepted a bid with a too-short period, the broker can complete the assignment in the usual manner, including drafting and sending acceptance letters to the parties, creating the purchase contract, etc.

The following guidance related to the 24-hour rule replaces previous circular 7/2007:

a) Consumer Relations
The provision applies only in consumer relations, that is, where the client is a natural person who does not primarily act as part of business activities. Where the seller is the client, the buyer's purpose for the purchase is irrelevant in this context. As an example, a case where a client, in the capacity of a consumer, disposes of a residential property or a residential plot that is suitable for development, and the bidder is a professional within real estate development, is a consumer relation. Furthermore, Finanstilsynet assumes that assignments to dispose of real estate for heirs to an estate will normally be consumer relations. Where the client, for example, is a real estate company selling homes to consumers, the provision will not apply.

b) Mediating Bids
All bids the broker mediates are covered, regardless of whether the bid's amount or the bidder is made known, or whether the bid is mediated to the client or other bidders and interested parties. If, for example, the seller receives a bid directly from the buyer, and forwards it to the broker, the broker is also barred from further mediating this bid if the acceptance period is not in accordance with the provision. Counter-bids are covered in the same way.

Bids covered by the mediation prohibition should not be recorded in the bid journal. However, bids given in writing must be archived in accordance with Section 3-7, second paragraph of the Real Estate Brokerage Regulations. Finanstilsynet recommends that the archiving indicates that the bid was not mediated. Alternatively, the firm can return the bid to the sender with a note indicating the reason for this.

c) Advertised Viewing
Advertised viewing refers to any communication or announcement in oral, printed, or electronic form regarding the time and other practical information about the viewing.

In cases where a viewing is held after an individual agreement, the general rules on bidding in Section 6-3, first and second paragraphs of the Real Estate Brokerage Regulations apply.

d) Basis for Time Calculation
The basis for the acceptance period is the day the viewing was advertised. If multiple viewings are advertised, the day of the last viewing is the basis for the period. If follow-up viewings are advertised after the first viewing, the broker – once the follow-up viewing is advertised – cannot mediate bids with an acceptance period shorter than 12:00 PM on the first working day after this viewing.

10.2 Other Duties in Bidding

A new provision has been introduced requiring the broker to urge the seller not to receive bids directly from the bidder, but to refer the bidder to the broker.

Furthermore, the broker is required to facilitate a proper handling of the bidding round. The purpose of such a duty is that the client and relevant interested parties have a defensible basis for their decisions.

The broker must inform the seller, bidders, and interested parties about the size of the bids and any acceptance period, and all involved must receive information about any reservations in the bids.

The duty to inform is limited to what is necessary and possible. The requirement for information will be fulfilled where the broker has attempted to contact the involved parties, and possibly left a message where this is possible, for example, on answering machines, etc.

The broker is further assigned a duty to advise against bids that obviously have too short an acceptance period for the broker to handle the bidding properly. The provision has practical significance for the bidding that occurs after 12:00 PM on the first working day after the last advertised viewing, where there is no absolute minimum acceptance period.

The broker must also inform the client about the consequences of the period being too short. Relevant consequences are that the broker is prevented from informing other interested parties or competing bidders about the bid before the acceptance period expires, or checking the bidder's financing.

11 Duty to Provide Information in the Sales Prospectus

Under Section 6-7, second paragraph, no. 14 of the Real Estate Brokerage Act, the client must provide information about what has been agreed regarding the broker's remuneration. Under Section 6-2, new second sentence of the Real Estate Brokerage Regulations, information must also be provided about what has been agreed regarding the client's right to claim reimbursement of expenses. According to the provision, it must be stated who is responsible for the assignment, cf. Section 6-2 of the Real Estate Brokerage Act.

It is mentioned for the sake of completeness that information about the energy certificate mentioned in point 6, cf. note 5, is covered by Section 6-7, first paragraph of the Real Estate Brokerage Act both in sales and leasing.

12 Other Regulatory Amendments

12.1 Security Provision

In Section 2-3, fifth paragraph of the Real Estate Brokerage Regulations, it is clarified that the broker's security provision also covers costs for storage of documents required to be stored in cases where the brokerage firm has its license to conduct real estate brokerage revoked or a lawyer is prohibited from conducting real estate brokerage activities.

12.2 Responsible Manager

Section 2-8 of the Real Estate Brokerage Regulations, which concerns the duties of responsible managers, has been amended due to the establishment of new internal control regulations on 1 January 2009.⁶ Reference is made to further treatment of the internal control regulations in Finanstilsynet's circular 3/2009.

Changes have also been made to the second and third paragraphs of the provision, which are treated above in point 9 on continuing education.

12.3 Termination of

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¹ Act 29 June 2007 No. 73. The amendments are based on Finanstilsynet's hearing note of 2 June 2009 and Bill No. 84 (2009-2010).
² Regulation 23 November 2007 No. 1318. The amendments are based on Finanstilsynet's hearing proposals of 26 March 2008 and 4 September 2009.
³ Directive 2006/123/EC. Act 19 June 2006 No. 103 on service activities.
⁴ Cf. Finanstilsynet's hearing proposal sent for hearing on 7 January 2009.
⁵ Cf. Regulation 18 December 2009 No. 1665 on energy labeling of buildings and energy assessment of technical installations (the energy labeling regulation) which applies to the sale and leasing of homes and buildings.
⁶ Cf. Regulation 1 January 2009 No. 1 on internal control.