Disposal Act

The Divestment Act

– regulates the relationship between buyer and seller when buying and selling a second-hand home.

By lawyer Anna B. Bjørnaas, Law firm Magnus Legal AS.

Anna has real estate as a specialist area and good experience in buying and selling property, both privately and in a business context.

The Disposal Act regulates the relationship between buyer and seller of a used home. It has now been decided that the new Disposal Act will enter into force on 01.01.2022. Buying and selling property is something most of us come across during our lives – preferably several times. Private housing is usually also the largest asset held by private individuals. The new Disposal Act will therefore be of great importance to most of us!

The purpose of the new Disposal Act is to make housing trade safer, through a more enlightened housing market. The change in the law has endings which basically mean that the buyer’s rights are strengthened when buying a home, and the seller’s responsibility is greater.

So – what is new in the Disposal Act?

  • Prohibition on selling housing “as is”
  • Minimum threshold for deficiency claims of NOK 10,000
  • Minimum requirements for condition reports
  • Area deviation

Disposal Act – New law on the purchase and sale of real estate comes into force – does it concern you?

“As Is”

According to the current law, used homes can be sold “as is”. In this there is a reservation from the seller – the home is sold as it appeared on display and this is what is decisive for whether the home has a defect or not. The seller thus waives responsibility for hidden faults and defects in the home.

Such an “as is” clause will no longer be permitted under the new Disposal Act.

If the seller is to be able to make a reservation when selling, the reservation must be concrete and specified. The seller will have a greater information risk and a stricter responsibility to disclose what is known about the home when selling. According to the new Disposal Act, the seller will be dependent on good condition reports and that the estate agents provide complete and correct information, in order not to incur a potential liability.

The risk of hidden faults and defects is shifted from the buyer to the seller, and the threshold for what the buyer can claim as a defect is lowered. The question is whether the new requirements for condition reports can compensate for this shift in risk.

The magical limit of NOK 10  000

According to the current law, no specific limit has been set regarding the economic value of a defect. Through several years of legal practice, a practice has nevertheless developed whereby remedial costs of 5-6% of the purchase price are considered significant enough to be able to establish a hidden defect. Shortcomings as a result of withheld or incorrect information have no concrete threshold limit.

According to the new Disposal Act, it will be possible to get price reductions and compensation for defects that amount to a financial loss of NOK 10,000 or more. The limit for what the buyer can define as hidden defects is therefore lowered considerably, and it takes less before something is considered a defect than before.

The buyer will then receive a low “deductible” in terms of defects, and with the new law we will have a risk shift from the buyer to the seller.

Two hands framing a picture of a drawn kitchen

New regulatory requirements for condition reports

At the same time as the change in the law, a new regulation setting a number of minimum requirements for condition reports will come into force. The regulation is intended to give condition reports a higher quality and less room for discretion, which should provide a reassuring basis of information before a home purchase. The regulation provides guidance on stricter, universal requirements, and places stricter requirements on valuers and their competence. Appraisers will be given greater responsibility for delivering a thorough and compliant report.

The amendments to the law and the new regulations should together give the seller a strong incentive to obtain a statutory condition report when selling a home. This will help to uncover hidden errors and deficiencies, and that relevant information about the property comes to light before a bid is accepted.

The buyer, for his part, cannot, according to the new Disposal Act, invoke conditions that appear in the condition report. According to the new law, the buyer will be considered to be aware of the conditions that clearly emerge from the condition report. This means that the buyer cannot claim a price reduction or compensation for what is described in the condition report. The buyer thus gets a responsibility to familiarize himself well with the information given in the condition report and gets an extended investigation obligation.

The aim of raising the quality of property sales reports is to uncover more errors and deficiencies and provide the buyer with more information about the property, thereby reducing the number of conflicts between buyer and seller. At the same time, this will probably lead to an increased number of disputes against valuers, and probably also against estate agents.

Area deviation

Today’s law regulates indoor area deviations so that deviations only constitute a deficiency in cases where the area is significantly smaller than stated, or if the seller is to blame for his information regarding the area. According to the current law, it is mainly case law that has decided where the limit for area deviation is.

In the new law, the legislator has made it clear that deviations in area constitute a deficiency if the deviation exceeds 2%, but the deviation must amount to at least one square metre.

Summary

According to the current law, the seller has a duty to provide information and the buyer, in turn, has a duty to investigate. This is continued in the Act, but in a somewhat stricter version for both parties.

According to the new law, there will be stricter requirements for documentation of major renovation projects and other work that has been carried out in the home. The seller’s obligation to provide information is tightened, and the seller will have a stricter responsibility for informing about conditions at the home. This also has the downside that it will no longer be permitted to sell housing with the “sold as is” clause.

The buyer, on the other hand, is still obliged to, and has a responsibility to, examine the home carefully, preferably with an expert. The buyer will not be able to invoke conditions that are clearly stated in the condition report and prospectus as defects.

Balancing the risk between buyer and seller in a sensible way will contribute to fewer conflicts, and provide a safer housing transaction. It will be interesting to see what practice will be like under the new Disposal Act, and not least whether the number of disputes relating to the purchase and sale of used housing will decrease when the new law is introduced.

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