Types of deals that come under the Alienation Act
The Alienation Act governs the purchase and sale, exchange and donation of real estate. The purchase of self-owned properties, holiday properties, owner occupied units, housing cooperative units, freehold and leasehold plots all come under this Act.
The Alienation Act lays down the rules that define the duties of both buyer and seller during such real estate transfers. The Act governs transfers of real estate between professionals, between professional and private persons, and between private persons.
In a sale to a buyer who intends to use the property personally together with his/her family and household, the transaction is considered to be a consumer purchase in which the buyer is afforded particular protection. In such cases one cannot agree to anything that gives the buyer worse protection that that which derives from the provisions of the Act. In other sales, however, it is possible to deviate from a number of the “compelling provisions” of the Act.
If the house or holiday home has not been completed by the date of sale (by bid/acceptance), the Alienation Act does not come into force but the Residential Property Construction Act does.
Buyer’s and seller’s duties on signing contract and at takeover
The seller is responsible for ensuring that the buyer is informed before the sale about all the circumstances that deviate from that which may normally be expected when selling the type of property in question. All the information the seller provides must be correct. Should the seller not provide relevant information, or provide misleading information, the seller may be held liable for defective performance vis-à-vis the buyer, cf. below.
The buyer must inspect the property prior to purchase, though the duty to inspect is not particularly extensive. The buyer must read all the documents in the sales prospectus and view the property in person. At a viewing, the buyer is expected to comprehend that which a buyer would normally understand with respect to a property’s condition. If one does not view the property in person, the starting point for subsequent consideration would be what one would have discovered had one physically viewed the property.
Once the purchase contract has been signed, the seller has a duty of care with respect to the property until the buyer takes it over. As a rule, the contract usually stipulates that the seller must keep the property fully insured until the takeover date, when the risk is transferred from seller to buyer. The property must also be cleaned and tidied prior to takeover.
The buyer is bound to pay the agreed sum for the property at takeover, unless the parties have agreed otherwise. If all or part of the purchase price is not paid in time, the buyer will be liable to the seller for overdue payment and interest will be payable on the unpaid amount. For his part, the seller is bound to hand over the property in the agreed condition at takeover. Should the property not be in the agreed condition at takeover, the buyer must see to it that this is noted in the takeover protocol and, as the case may be, hold back an amount equivalent to the cost of remedying the defect in question. Another alternative is for the seller to commit himself to remedying the defect by a certain date. This should be noted in the protocol as well. No interest is charged on the amount the buyer is entitled to hold back.
The seller’s hidden defects insurance normally covers just the defects present in the property at the date on which the bid was accepted. The seller will himself be responsible for any defects arising after the bid/acceptance date and up until the takeover, and the buyer must be aware that it may be appropriate to hold back money at takeover in order to cover the cost of remedying such defects.
Seller’s defective performance liability
If there is a defect in the property the buyer may be entitled to rescind the purchase, ask for a price reduction and/or compensation. The buyer is also entitled to hold back the purchase sum or part of it in order to secure his claim in connection with the takeover, cf. above.
A defect is not necessarily the same as something being “wrong” with the property. A defect in the legal sense is only said to exist when one discovers something that constitutes negative non-compliance with what one has learned about the property prior to purchase. If all the things wrong with the property are only to be expected, then there are no defects.
The extent to which there is a defect in a purchased property depends on a specific assessment of the actual condition of the property, what information has been provided about it, its age, the type of defect detected and the extent of this. Examples of defects are hidden faults such as damp and decay, incorrect or lacking information concerning improvements made, non-communication of negative information concerning relations with neighbours, errors in the details provided regarding the property’s or the house’s area, incorrect property boundaries, incorrect information about year of construction etc.
Most properties in Norway are sold in the condition they are in at the time (as is) pursuant to Section 3-9 of the Alienation Act. This means the seller can be held liable for defective performance only if the property is in “essentially worse condition” than the buyer had grounds to expect. Whether the property is in “essentially worse condition” than what the buyer had grounds to expect must be considered in accordance with “the purchase sum and the general circumstances”. A complete evaluation is conducted, and it is only in cases where the property deviates “essentially” from the expected condition that the seller can be held liable for the defect.
For the buyer to be able to rescind the purchase, a serious breach of contract must have taken place. It takes more than property being in “essentially poorer condition” for a serious breach of contract to have taken place. For a serious breach of contract, it must be possible to declare that the purchase has been a complete failure. If the buyer considers the purchase to have failed and wishes to rescind, he/she must immediately, on realising that the purchase has failed, send notice of rescission to the seller. If this is not done, the right to rescind is forfeited.
Delay caused by the seller
The seller is responsible for ensuring that the property is ready for takeover at the agreed time, and he/she can be held liable for delayed performance if the property is not placed at the disposal of the buyer at takeover or if he/she causes a delay in conveyancing the property. In such cases the buyer can demand rescission of the contract, cancel the sale, demand compensation or hold back the purchase sum. The availability of these sanctions will be a matter of consideration in each individual case.
Claims
If he/she discovers a defect with respect to the property, the buyer must lodge a claim with the seller as quickly as possible. One must make a written claim, stating clearly the nature of the claim and that one holds the seller liable for it. It is not necessary to have a valuation or survey report ready when one makes a claim, suchlike can be sent later. The most important thing is to communicate the claim as quickly as possible. The law states that one must claim “within reasonable time”. The Supreme Court has decreed that “within reasonable time” is normally not more than a maximum 3 months. The buyer must claim for each individual defect. One is entitled to claim for up to 5 years following takeover. If the buyer does not fulfil his obligations with respect to the claim, he may forfeit his right to hold the seller liable.
The buyer might have a claim against previous sellers in the chain (previous owners of the property). It is therefore important to claim against these as well in the case of a defective property.
Buyer’s duty to inspect following takeover
Once the property has been taken over, the buyer has a duty to inspect more comprehensively than prior to takeover. The buyer may lose his right to a price reduction/damages if the buyer fails to inspect the property after takeover as he/she is bound to.
Seller’s right to remedy
It is important to be aware that the seller normally has a “right to remedy” pursuant to the Alienation Act. If the seller does not receive an offer to remedy the situation, a claim for defective performance against the seller may no longer be possible. It is therefore most important to complain and ask the seller to consider remedial action as soon as a defect in the property is discovered. If the buyer remedies the situation himself, without letting the seller do so, the buyer may forfeit his claim against the seller. Of course, this does not apply to limited and entirely necessary measures taken immediately to avoid further damage. If the seller does not remedy the situation “within reasonable time” after the buyer complained, the seller will then forfeit his right to remedy, and the buyer will be able to claim that the cost of the remedial measures required are borne by the seller.
Limitation period
The rules governing the limitation period apply in parallel with the rules governing claims. Many are not aware of this. Claims for defects one was aware of from the date of takeover, or became aware of during the three years thereafter, shall be made before three years elapse. The limitation period expires after three years; for defects detected thereafter one obtains a one-year interruption limit.
The limitation period can be interrupted either by the seller committing himself to remedy the defect or by sending an application for conciliation proceedings or issuing a writ within the limitation period. The limitation period is NOT interrupted by dialogue, emails or correspondence. A claim lodged after expiry of the limitation period will be annulled.