Owner-occupied apartments - a brief resumé
The apartments in Karlatornet Penthouse are leased with owner-occupancy rights. To follow is a description of what that implies in terms of the pros and cons of this form of tenure which are important to take into account.
What does it mean to live in an owner-occupied apartment?
Owner-occupied apartments were made possible by legislative changes on May 1, 2009.
- Owning an owner-occupied apartment means direct ownership, just like owning a house, i.e.: you have title deeds to the apartment.
- You have complete control over your financial situation in the case of an owneroccupied apartment. You will have a mortgage comparable to mortgaging a house. Owner-occupancy gives you full control over the entire financing situation, because there are no common liens with your neighbours. Tenant-ownership means you take out a mortgage to buy your apartment (or actually, it’s not your apartment, but you have the right to occupy a specific apartment for an unlimited period) and the tenant-owner association will take out a mortgage that you are bound by. This means that you are highly dependent on the financial situation of your neighbours, because you have a joint mortgage.
- There is no bankruptcy risk in the case of an owner-occupied apartment because it is a property to which you have the title deeds and complete control over. But for tenant-ownership, the association can go bankrupt, which would mean that you as the apartment owner lose the right to your apartment. It is not uncommon for a tenant-owner association to go bankrupt, which is devastating, because the occupants of those apartments lose their homes. There is no risk with owneroccupancy, because the financial situation of your neighbours will not affect you.
- Owner-occupied apartments can be sold without restriction, as there is no tenantowner association that has to approve a new buyer.
- You can even let out your apartment and become a landlord. It is entirely up to you as the owner of the owner-occupied apartment, as there is no tenant-owner board that must first approve the let. Letting an owner-occupied apartment is similar to letting a house. The person who rents will be the tenant in the first instance.
Summary
o Title deeds
The same requirements as when buying a regular property
o Mortgage
The same as when mortgaging a regular property
o Letting
Can be let in the same way as a house. The Tenancy Act's rules on first-hand letting must be applied (private dwellings, utility value rule)
o Sale
Owner-occupied apartments can be sold in the same way as a regular property
o Taxation
Capital gains tax, same as for private dwellings
Assessment for property tax: valued according to the same rules as apartment buildings and taxed at the same time as them Property tax is the same as for a small house
Some disadvantages of owner-occupied apartments
o Higher property tax (equivalent to small houses).
o Cost of mortgage deeds, stamp duty 2% of the mortgage amount.
o Title deed cost, stamp duty 1.5% of the purchase price for private individuals and 4.25% for companies.
Pleasenotethatnostampdutyispayableforpurchasesbycompaniesviasharetransfer.
o Initially a higher surveyor cost (than for tenant-ownership and small houses). But relatively low.
o Less control over your neighbours (compare townhouses with owner-occupancy). That means there is no tenant-owner association that can evict noisy neighbours, nor any board that approves new buyers. In practice, the board (always) approves new buyers - and tenant-owners are rarely forced to sell their apartment due to bad behaviour or violation of house rules.
The following tables show the difference between owner-occupied and tenantownership
Table I: Form of ownership
Owner-occupied property
Ownership - Direct ownership
- Owners can own multiple owner-occupied properties
- Investment opportunity
Title deeds
- Own the property by law
Sale - Owner-occupied apartments can be sold without restrictions
Table 2: Letting is possible
Owner-occupied property
Letting - Owner-occupied apartments are classed along with houses in the Tenancy Act, which means that the apartment can be let in principle to anyone you want
Tenant-owner
- Indirect ownership with unlimited right of use
- Tenant-owners can own several tenant-owner apartments in a property, but have only one vote at general meetings
- Own shares in the tenant-owner association (a financial association) which in turn owns the property
- When selling tenant-ownership, the buyer has to apply for the board’s approval of membership
Tenant-owner
- A tenant-ownership is leased to the owner of the tenancy. Sub-letting (letting your tenant ownership to someone else) requires the approval of the board, otherwise the tenancy can be revoked.
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Table 3: Administration
Owner-occupied property
Administration - A collective is formed and administered by a joint ownership association
Fees - The owner pays a fee to the joint ownership board for administration of the collective
Tenant-owner
- The board of the tenant-owner association looks after its activities, common spaces, etc.
- The tenant-owner pays a fee to the association for the mortgage, running and maintenance costs, etc.
Owner-occupied property
Rules - Rules on the law on adjoining property in Chapter 3 of the Real Property Code also apply between these property owners
- The joint ownership association can formulate codes of conduct
Tenant-owner
- Rules on disturbance in the dwelling can be found in Chapter 7 of the Penal Code and Chapter 12 of the Real Property Code.
- The tenant-owner association can formulate codes of conduct
Penalties
- The tenant-owner association, neighbours and owners of beneficial rights can take action against disruptive owners of owneroccupied properties.
- The board must request the tenancy-owner to take corrective action in the event of repeated disturbances
- The tenancy may be revoked if the disturbances are not stopped
Table 4: Law of adjoining property and disturbances in the dwelling.Buying an owner-occupied property
The purchase
Each owner-occupied apartment is packaged in a limited liability company (AB). The buyer thereby buys the shares in an AB through a share purchase agreement. In addition, and at the same time as the share purchase agreement is concluded, a turnkey contract is also concluded, referred to as a ‘TK Contract’. TK Contracts ensure that the property will be built on the terms and conditions agreed. Both agreements must be concluded.
The packaging implies the following: We have formed an AB, which buys a non-profit stake in one of our large properties. When the zoning plan comes into effect, the plot is divided into the owner-occupied properties. The buyer has to participate in this process and if we sell the shares before the zoning plan comes into effect, all the parties involved must fully aware of the process.
If the buyer is not happy with the AB arrangement, they can opt to buy the property from the AB through a conventional property purchase. The buyer must then be aware that such expenses as stamp duty will be their sole responsibility. The buyer is in control of any such process and is asked to carefully examine all tax and other consequences.
Stamp duty
No stamp duty is payable on the sale of shares.
Property tax
Property tax is due from the date of the share purchase agreement.
Declaration
A private individual becomes the owner of an AB and must be aware of the special rules set by the Swedish Companies Act, for example regarding tax returns, etc.