Norway Real Estate Legal Update 2023
In this newsletter, our real estate and ESG team gives an overview of important legal changes and matters impacting the real estate sector in Norway so far in 2023, including National Security Act amendments, bill on board gender balance and possible new energy efficiency regulations. The topics are specially chosen with our foreign real estate clients in mind.
Important amendments to the Norwegian National Security Act (the “NSA”)
Amendments to the NSA that were incorporated this summer expand the scope of the NSA and, among other things, its relevance for real estate companies. Certain amendments came into force on 1 July 2023, while the remaining amendments will become effective once the necessary regulatory changes have been implemented, probably early 2024.
The amendments should be viewed in the context of evolving security threats and the increasing use of economic instruments by adversaries to carry out activities that threaten security. The amendments that concern the notification duty in connection with acquisitions (usually referred to as the FDI regime) are of particular importance to economic life. In the future, an increased number of transactions will be subject to ownership control, and this will directly impact the implementation of such transactions, as a ban on implementation will be introduced. There will be further restrictions on sensitive properties, and companies subject to the NSA will become responsible for assessing risks associated with such properties.
The purpose of the amendments is to provide Norwegian authorities with a wider range of tools to review, assess and possibly stop economic activities that may constitute a threat to national security. The most important amendments that came into force on 1 July 2023 are as follows:
- The Ministries are given extended leeway to decide that the provisions under the NSA can apply to a greater number of companies than what has previously been the case. Going forward, the NSA will apply to companies that control information, information systems, objects (such as properties) or infrastructure, or that conduct activities that are of vital importance to national security interests, without being directly connected to a fundamental national function. In some cases, the nature of a tenant’s business or activity on the property/building, or the property’s proximity to a critical national object, can be of importance when determining whether a property owner should be subject to the Security Act.
- Also, the authorities’ threshold for subjecting companies to the provisions on ownership control under chapter 10 of the NSA is lowered. Hence, ownership control will apply to a larger number of companies that are otherwise not subject to the NSA.
- Companies comprised by the NSA are required to identify properties that, due to their location, may facilitate activities constituting a security threat against critical national objects or infrastructure. The preparatory work states that this may also apply to properties distant from the critical national object, for example properties that, due to their location, can be used to control traffic to and from a critical national object, for example properties along a road or a fjord leading to the national critical object. If it is not possible to maintain a sufficient level of security for such properties, the National Security Authority or the supervisory authority must be notified, and the Ministry is to supervise the property in question.
- Any breach of the duty to implement security measures for the maintenance of reasonable levels of security can be sanctioned with a breach penalty.
The most important amendments that will come into effect at a later stage are as follows:
- The threshold for the duty to notify in connection with acquisitions is lowered from at least one third to 10% of the share capital, participating interests or votes in the company.
- The new proposal for the wording of the NSA establishes that a duty to notify is also triggered by an increase to at least 20%, a third, 50%, two thirds, and 90% of the share capital, participating interests or votes in the company. Hence, a duty to notify will be triggered in the event of continuous acquisitions. This provision clarifies the previous ambiguous wording in the NSA concerning the notification duty.
- A standstill-period, i.e. a ban on implementation of the transaction in the period during which the authorities assess the acquisition after the notification has been submitted.
- Both the buyer, the seller and the target company will have a duty to notify. However, as regards the seller and the target company, the duty to notify applies only in the event of direct acquisition of an owner’s share, participating interests or votes in the company.
- The National Security Authority may impose a penalty for breach of the duty to notify and for breach of the ban on implementation.
In addition to the above-mentioned amendments, it is likely that more amendments will follow in this sector going forward. The NSA, including the recent and upcoming implementations, entails that it is important for companies to implement and have in place appropriate routines for assessing and handling security risks in connection with transactions.
New Bill on Gender Representation on Corporate Boards
The Norwegian government proposes to introduce further requirements concerning gender representation on corporate boards in order to ensure gender balance on the boards of mid-size and large private companies.
The following companies will be affected by these rules:
- Companies that are already bound by such regulations.
- Private limited liability companies, cooperative undertakings or co-operative building societies that have total operating and financial revenues exceeding NOK 50 million, or a minimum of 30 employees. This also applies to general partnerships with only legal persons as participants.
- Cooperative undertakings or co-operative building societies that meet the criteria above or have more than 500 members / part owners.
- Enterprise foundations, foundations with distribution as their purpose or foundations for which a public authority appoints at-least one board director.
The following requirements are proposed to be included in the bill:
- If the board has three or four directors, a maximum of two directors can be of the same gender.
- If the board has five or six directors, a maximum of three directors can be of the same gender.
- If the board has seven directors, a maximum of four directors can be of the same gender.
- If the board has eight directors, a maximum of five directors can be of the same gender.
- If the board has nine or more directors, a maximum of 60% can be of the same gender.
Further transitional provisions may be issued. The transitional provisions may set out regulations for a gradual introduction, but in such a way that the transitional period can only apply until 1 July 2028 at the latest.
Calculations show that the regulations are expected to affect around 20,000 companies by 2028. According to estimates, the new rules will result in the need to recruit close to 13,000 new board directors by 2028, most of them women.
Finally, as a reminder, the Norwegian Companies Act sets out requirements for the board directors’ place of residency, i.e. that at least half of the board directors shall reside in an EEA state, Great Britain, North-Ireland or Switzerland.
Norwegian support scheme and possible new EU regulations related to energy efficiency
On 25 September 2023, Enova (a government support scheme) launched three programmes with the aim to increase the energy efficiency in existing buildings. One programme is aimed at housing cooperatives (borettslag) and condominiums (sameier), while the other two are aimed at commercial/non-residential buildings (yrkesbygg).
In the EU, several reports and legislative proposals have been submitted, which in the long run may entail statutory obligations for Norwegian building owners with regard to requirements for sustainable solutions in buildings, especially in terms of energy efficiency. Several of the proposals apply to both new and existing buildings, commercial and residential properties, as well as publicly and privately owned buildings. The requirements concerning renovation, energy labelling etc. may entail large costs for owners of buildings or building components.
Norwegian support scheme
Enova has launched three programmes with the aim to increase the energy efficiency in existing buildings:
Housing cooperatives and condominiums
One programme is aimed at housing cooperatives and condominiums, which can apply for financial support for projects that improve the energy condition in existing commercial buildings by 20% or more. Enova’s support can cover up to 30% of these costs, with a maximum of NOK 10 million. The first deadline for an application for housing cooperatives/condominiums is 24 November 2023.
Commercial/non-residential buildings
The other two programmes are designed to strengthen energy efficiency in commercial/non-residential buildings. Enova can provide support for conducting energy mapping in commercial buildings with up to 50% of the cost, with a maximum of NOK 400,000, as well as providing investment support for projects that improve the energy condition in existing commercial buildings by more than 20%. Enova’s support can cover up to 30% of these improvement costs, with a maximum of NOK 10 million. The first deadline for an application for commercial buildings is 24 October 2023.
The intention of the support scheme is to contribute to an improvement of the energy condition in commercial buildings. The support scheme is particularly relevant for buildings with potential for improving the energy standard of the building – typically older and/or energy-intensive buildings.
Please note that there will be a competition for the support funds for all three programmes, and applications that meet the criteria will be ranked based on the requested amount of support and the goal for energy improvement.
Energy Performance of Building Directive
As part of the EU “fit for 55” package, the EU Parliament has suggested a revision of the Energy Performance of Building Directive. According to the EU Parliament report, the aim is for all new buildings to be zero-emission buildings by 2028 (by 2026 for all new buildings occupied, operated or owned by public authorities). Further, the EU Parliament suggests that non-residential and public buildings should achieve EPC (energy performance certificate) class E by 2027 and class D by 2030. Residential buildings should meet the same criteria by 2030 and 2033 respectively.
Because Norway is a party to the EEA Agreement, Norway has an obligation to implement regulations and directives from the EEA Agreement into Norwegian law. It is unclear what the final set of rules will be, at what time the new rules may be implemented and to what extent the directive will affect the requirements for buildings and the real estate industry in Norway. However, it will likely entail that many building owners will have to make investments related to both private homes and commercial properties.
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