Research highlights out-dated legislation

The Swedish legislation governing real estate-backed financing is outdated and does not meet the needs of a globalized real estate market. Also, knowledge of Swedish real estate law is being eroded. To help break this trend, Mannheimer Swartling has sponsored a research position in land law at Stockholm University. Elisabeth Ahlinder, who received her PhD in December, recommends revised legislation in her dissertation. “It is now up to the Swedish Ministry of Justice to react,” she says.

The Swedish Land Code, which includes rules on the real estate and rental markets that to some extent affect real estate financing, was mainly created in the first half of the 20th century. The travaux préparatoires to the Swedish Land Code were drafted between 1905 and 1970. Since then, globalization and the development of new forms of financing have radically changed conditions in the real estate market.

“However, the legislation has not changed in principle,” explains Elisabeth Ahlinder. “As a result, there are certain basic diff erences between traditional and commercial land law. Differences that entail a risk of friction on the real estate market. In addition, it creates incentives for parties to intentionally circumvent the legislation and may cause foreign parties to avoid the Swedish market.”

Mortgages are a medieval concept
Security in real estate is traditionally established through the creation of a mortgage. But when real estate is used in transactions that involve large amounts, mortgages are rarely the only form of security. Financing is then often achieved through the use of alternative fi nancing forms, such as real estate leasing, the pledging of shares or units in companies that own real estate, mezzanine loans or complex financing forms where assets are packaged and structured in a manner that allows them to be used to back a bond issue.
Mortgages are basically a concept that functions well, says Ahlinder. However, today’s real estate market is more complex than ever before and often requires more sophisticated solutions than those allowed for by mortgages.

If agreements are ambiguous, this involves risks and costs for those who wish to invest in Swedish properties

She also notes that the new forms of financing cause interpretation and application problems to arise in connection with current legislation. The internationalisation of the financial market results in conflicts between Swedish and foreign legal cultures.

Among other things, this relates to the Swedish division into real property and personal property and common law-based agreement structures used in the Swedish system.

“For example, there is a slight diff erence between a lease and a rental agreement,” explains Ahlinder. “This means that there are no clear-cut answers to how a potential dispute that arises due to an agreement should be resolved. If agreements are ambiguous, this involves risks and costs for those who wish to invest in Swedish properties. For this reason, an investor may refrain from entering into an agreement, and the Swedish business community loses capital.”

“Up to politicians to react”
In her dissertation, Ahlinder also suggests amendments to various provisions in the Swedish Land Code that would modernise the legislation. She presented her dissertation in December 2013, and the Ministry of Justice has also taken part of her conclusions.

“I have highlighted the problems. It is now up to the politicians to react,” Ahlinder points out. The findings from her research will also be presented at client seminars to be arranged by Mannheimer Swartling in the spring of 2014. She will also be given the opportunity to share her knowledge by leading two courses in land law at Stockholm University in 2014.

A wish to inspire others
Mannheimer Swartling chose to support her research project, which was initiated in 2007, because the firm had discovered that Swedish land law expertise was about to be eroded due to a generation shift and a shortage of new talent. For example, there is no current Swedish professor in land law. Ahlinder, on the other hand, was passionate about the chance to study commercial land law in more detail, as this is unexplored research territory in Sweden. The aim was to write a book on the topic. “Mannheimer Swartling’s support has been of great significance to my research,” she states. “The most important aspect for me, except for the financial support, was that I was granted access to the firm’s knowledge and collective experience. My connection to the firm has also been a fantastic door opener for my research.”

Ahlinder was the first person to methodically review the Swedish Land Code and ask questions that had never been asked before, which she describes as a ‘monster project’. As the topic and the issues were new, there was a significant shortage of materials addressing the area of research. The new issues required an initial and basic analysis of the commercial real estate market as well as principles of land law. A task that was both vast and challenging.

The next item on the agenda is to write a more accessible version of her dissertation, to be used as a textbook for students. “I hope I will able to inspire others to develop an interest in land law. That way I would contribute to a long-term expansion of the knowledge in Sweden in this area,” Ahlinder concludes.

Further reading

IKEA and Mannheimer Swartling exemplify benefit of knowledge sharing

A corporate culture pervaded by open doors and generous knowledge sharing leads not only to satisfaction among employees – it is also an important reason why some companies are more successful than others. Read more...


“Defluff sustainability issues”

A corporate culture pervaded by open doors and generous knowledge sharing leads not only to satisfaction among employees – it is also an important reason why some companies are more successful than others. Read more...


You cannot free yourself from responsibility by delegating it

Bribes, the use of chemicals or the abuse of workers. The responsibility for how a company’s local organisations manage the business always rests with the group management – as the effects ultimately affect not only the brand, but also the earnings. Read more...