By: Pontus Sörlin
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A new real estate agency law
A new real estate agency law
Buying a property or condominium is often the biggest and most important business in a person’s life and the consequences if something goes wrong can be great.
Questions arising from the transfer of a property or condominium can also be complicated, which means that brokers play an important and responsible role in society.
The current Real Estate Agents Act was evaluated in 2016 and was then judged to work mainly well.
However, the Swedish Consumer Agency’s Consumer Report of 2017 states that the real estate industry is one of the markets that is perceived as most problematic by consumers.
The non-profit organization Sveriges Konsument also highlights that many people find the housing market very complicated.
Furthermore, the number of complaints against brokers to the Swedish Real Estate Agency (FMI) has increased sharply in recent years.
Although the evaluation assessed the Real Estate Agents Act as well-functioning, the Government has therefore submitted a proposal for a new real estate agents act that is proposed to enter into force in July 2021.
The bill was submitted to the Law Council for assessment in February earlier this year.
At present, only individual real estate agents, and therefore no companies, are covered by the law.
However, many brokers conduct their business within a company, which is why the biggest change according to the Government’s proposal is that real estate companies should also be covered by the law.
Some of the reasons given are that companies have the opportunity to bring about a major change in the industry as several brokers generally work within the same company.
Some changes are also proposed that would affect real estate agents on an individual level.
Furthermore, as there is a high risk of the real estate brokerage industry being used for money laundering and other similar activities, amendments to the Act on Measures against Money Laundering and Terrorist Financing (Money Laundering Act) are proposed.
Role of brokers and brokerage companies
The role of the real estate agent is to be an impartial intermediary who is not a party to the agreement and to ensure that the interests of both the buyer and the seller are met.
The assignment is personal for the broker who also has the main responsibility for ensuring that the assignment is carried out in accordance with law and good real estate practice.
The real estate agency is therefore not a party to the agreement and that division of responsibilities will remain under the new proposal.
What is proposed, however, is that companies should be given overall responsibility to ensure that the brokers working in the business fulfil their obligations under law and good real estate practice.
FMI is a government agency responsible for registration, supervision and disciplinary action in the real estate industry.
Almost all brokers are liable to register with FMI under Section 5 of the Real Estate Agents Act and are therefore under the supervision of the inspection.
In order for a broker to be registered with FMI, he must have passed his training and passed an aptitude test carried out by the inspection.
If the requirements for suitability cease to be met or if the broker acts in violation of the Real Estate Agents Act, he may face sanctions and, in the worst case, have his registration revoked.
Today there are two registration categories for real estate agents; registration and registration for rental agency.
Full registration means that the real estate agent in question may convey all property covered by the Real Estate Agents Act.
Registration for rental mediation only gives the right to convey rental apartments.
The brokerage of certain types of rental apartments does not require any registration whatsoever under Section 5 of the Real Estate Agents Act, for example, for free mediation to students and municipal mediation.
In Chapter 1, section 2 of the Money Laundering Act lists who is classified as an operator within the meaning of the Act.
The fact that someone is an operator means, among other things, that they can have measures directed against them if the law is not followed.
The real estate industry is an area where money laundering often occurs, which is why brokers with full registration are classified as operators according to the law.
FMI can thus take measures to ensure that brokers actively work to prevent, detect and prevent money laundering and terrorist financing.
Such work consists, for example, of the broker establishing a general risk assessment, obtaining some customer knowledge and establishing a risk profile based on that knowledge (Chapter 2 and Chapter 3 of the Money Laundering Act).
It is also prohibited to establish a business relationship in the event of suspicion of money laundering or terrorist financing (Chapter 3 of the Money Laundering Act).
Real estate agents and rental agents are not counted as operators today, which means that they cannot be subject to measures by FMI if the law is not complied with.
According to the government’s proposal, therefore, companies and certain rental intermediaries should also be counted as operators, which is dealt with in more detail below.
A new registration category
The Money Laundering Act implements the Fourth Anti-Money Laundering Directive (AML Directive) issued by the EU.
The law must therefore meet the requirements of the directive in order for Sweden to fulfil its commitments as an EU member satisfactorily.
According to the Directive, it is to be possible to take anti-money laundering and similar measures against anyone who brokers rental apartments with a monthly rent of at least EUR 10 000.
As mentioned earlier, the registration categories available to brokers today are full registration and registration for rental agency, then there are also certain types of brokerage where no registration is required.
At present, those who are unregistered or registered for rental mediation do not count as operators under the Money Laundering Act.
Consequently, measures cannot be directed against them to ensure the compliance of the law, which means that the directive is not transposed in an acceptable way.
The Government therefore proposes that registration for special rental agency should be introduced as a third category in the Real Estate Agents Act.
According to the proposal, all brokers who broker rental apartments for the equivalent of EUR 10,000 per month or more – even if they can currently work unregistered – must be required to register for special rental agency.
Brokers registered under the new category shall be counted as operators under the Money Laundering Act, which means that FMI will be able to take action if the law is not complied with.
The government’s assessment is that the new category will primarily have an impact on brokers involved in the brokerage of premises in terms of the relatively high amount limit.
The Audit Office considers that the proposed changes are too extensive and instead proposes that only brokers with full registration should be allowed to broker rental apartments with a rent equivalent to and above the directive’s amount limit.
However, the Government is of the opinion that the Audit Inspectorate’s proposal would lead to even more far-reaching changes.
That assessment is based on the fact that brokers who broker rental apartments above the threshold would then have to meet the unnecessarily high requirements for full registration.
It is therefore maintained that a third category should be introduced.
How real estate agents may be affected by the proposal
The Government proposes that real estate agents should be defined as a company where one or more real estate agents conduct professional brokerage of, among other things, real estate, condominiums and rental apartments.
Some referral bodies, including the Real Estate Agents’ Association, criticise the definition for being unclear.
In response to the criticism, the Government states that while it is important that the concept is clear, the definition should also be relatively neutral as it is deemed to reduce the risk of circumvention of the law.
Furthermore, the reason why the law should cover companies where brokers “conduct professional brokerage” instead of, for example, “are employees” is stated to be that there would otherwise be a risk that brokers are operating at one company but employed by another.
It would therefore open up an opportunity for companies to circumvent the rules, which in turn should lead to less effective supervision and less compliance with the law.
As mentioned above, it is still the broker who should be a party to the contract and not the company in which the broker operates.
Therefore, the brokers will continue to have the main responsibility for how they carry out their assignments, which the government believes should provide a continued strong incentive to work in accordance with good estate agent practice.
However, according to the proposal, real estate agents will also be given some responsibility for how the brokers within the companies conduct their business.
Some referral bodies are of the opinion that the proposal may lead to difficulties in drawing boundaries and that there is a risk of eroding the responsibilities of the brokers.
The government’s response is that the brokers’ responsibilities should remain unchanged but that the companies have an opportunity to control the business and determine how resources are distributed, which should also entail a responsibility to, among other things, establish guidelines and procedures for how the business is conducted.
Furthermore, the government is of the opinion that the division of responsibilities is sufficiently clear in that it is still only the brokers, and not the companies, who should be a party to the contract agreements.
An extended acquisition ban
At present, there is a ban on so-called self-entry, i.e. when a real estate agent acquires an apartment that he is tasked with conveying (Section 11 of the Real Estate Agents Act).
The ban applies to both ongoing and completed assignments.
In order to further guarantee the broker’s role as a neutral intermediary, the government proposes to extend the acquisition ban to companies in which the broker operates.
It is also considered that other brokers operating within the same company, or a closely linked company, such as someone who brokers a property should be subject to the prohibition.
“Close affiliation” refers primarily to companies under the same brand as the broker in question.
If a property is still sold to someone who according to the proposal is to be covered by the acquisition ban, the purchase must be immediately notified to FMI according to the proposal.
The reason for the proposed notification obligation is that it would allow the inspection to investigate whether the seller’s interests have actually been safeguarded.
The brokerage community does not believe that companies in nationwide brokerage chains operating under the same brand but in different parts of the country should be considered to be closely related.
The Government underlines the importance of brokers appearing independent of consumers and therefore believes that the definition under the proposal should stand.
However, it is assessed that there may sometimes be reasons to make exceptions, for example in the type of situations that the Brokerage Association addresses.
In order to ensure compliance with law and good estate agent practice even among companies, they shall, as a general rule, be liable to register with FMI and be subject to the supervision of the inspection, the requirements for registration are generally proposed to be the same as for brokers.
If only brokers who are exempt from registration obligations are active within an enterprise, the company shall also not be required to register.
Otherwise, the same registration categories as for brokers are proposed and for a company to register in the same category as the brokers operating there.
Where brokers from several categories operate within an enterprise, it shall register in the same category as the broker with the power to the most types of brokerage.
Registration obligations and supervision of FMI are also proposed to be introduced for the majority owners and management of companies.
It is considered that the examination of management and majority shareholders should focus on whether they have committed serious crime or significantly breached their obligations in any business activity in the past.
Furthermore, real estate agents shall manage their activities in such a way as to prevent money laundering and terrorist financing as far as possible under the AML Directive.
This includes an obligation to set up common procedures and provide training for employees.
The majority of real estate agents already have a responsibility to implement such measures under the Money Laundering Act, but since they are not classified as operators, it is not possible to direct measures against them if the law is not complied with.
In order to ensure compliance with the Anti-Money Laundering Directive, it is therefore proposed that real estate agents with full registration or special registration for rental mediation should be counted as operators under the Money Laundering Act.
In order for FMI to carry out effective auditing, the inspection needs to have access to relevant material.
Brokers operating within an undertaking shall therefore be obliged to keep copies of certain documents and data with the company.
Furthermore, the fact that the inspection can audit companies would mean that they have access to things such as governance documents, IT systems and internal procedures.
The review should therefore be more effective because intervention would have to be made to all brokers within a company.
For example, if FMI finds after review that a company has acted in violation of the Real Estate Agents Act or the Money Laundering Act, the company must be ordered to make a change or pay a fine.
If it is not deemed sufficient, the company’s registration shall be revoked according to the proposal.
In the event of serious, serious or systematic breaches of the Money Laundering Act, the Government also proposes that measures can be directed against persons in the management of real estate agents.
According to the proposal, the measures may consist either of the person not being allowed to hold a position in a registered real estate agency for a period, or of being required to pay a fine.
Furthermore, brokers may apply for deregistration upon knowledge that FMI has initiated a supervisory case.
Deregistration usually takes place without examination of the case due to the rule of prompt handling in Section 9 of the Administrative Act and the broker thus avoids supervision.
Thus, circumstances in the closed supervisory case cannot be taken into account, even if they indicate that the broker in question is not suitable or should be subject to some kind of sanction.
According to the proposal, FMI should therefore be able to hold off on a decision to withdraw a licence if there is probably a reason to decide on some type of sanction.
The same rule is proposed to be introduced for companies applying for deregistration following an initiated supervisory case.
The proposal’s relationship with people’s rights and freedoms
If the proposal is implemented, more brokers will need to be registered with the new registration category.
The management and majority owners of the real estate agents will also be liable for registration.
As more people will be subject to the registration obligation, more people will also be able to be sentenced.
Of these penalties, some are financial, and in some cases, the registration of real estate agents may be revoked.
The government therefore believes that the new law may affect people’s right to use their property.
According to the European Convention on Human Rights (EKMR), people may only be deprived of property in the public interest.
Since the main purpose of the new law is security for sellers and buyers and to maintain a healthy real estate industry, the government considers that the requirements of EKMR are met.
The proposal also introduces an increased obligation for FMI to carry out site surveys at real estate agents and companies.
Protection against search warrants and similar types of intrusion can be found in, among other things, the form of government (Chapter 2, section 6) and EKMR (Art. 8).
However, that protection may be restricted if deemed necessary if the restriction is proportionate to the purpose to be met.
The proposal is expected to facilitate and streamline FMI’s inspection work and also constitutes a necessary transposition of the Anti-Money Laundering Directive.
The government’s assessment is therefore that the proposal is an acceptable restriction on the right to avoid search warrants and other similar intrusions.