Guide

From tenancy to tenant-ownership – Conversion Step

The conversion of tenancy to tenant-ownership is a rather long process that requires active participation, patience and knowledge. The section below gives you more detailed information about this process.

Talk with your neighbours

A conversion begins with an initiative by residents of the building. Talk with your neighbours to find out how many are interested in converting from tenancy to tenant-ownership. You can organize a meeting where everyone can meet, for example, or just knock on your neighbours’ doors and ask them.

At the meeting, those who took the initiative to start the conversion process can get an idea of how much of an interest there is in a possible conversion of the property. Initially, there will be many questions, and it is important to give correct answers about what a conversion would mean. It may therefore be a good idea to bring in a conversion expert, a representative of a bank and/or anyone else with knowledge and experience of conversions.

The association is not obligated to retain a consultant, but it is common that tenant owned cooperative housing association s do so, as the conversion process can be difficult for those not having experience with it. The cost of a consultant varies, depending, for example, on how many apartments the association will own.

If there is interest in conversion, the next step is to register a tenant owned cooperative housing association

Register a tenant owned cooperative housing association

When you know that residents are interested in converting from tenancy to tenant-ownership, the first step is to establish a tenant owned cooperative housing association. It is also the tenant owned cooperative housing association that will purchase the property from the landlord after a vote in favour of the conversion at the purchase decision meeting.

Establishing and registering a tenant owned cooperative housing association is a legal process that must be done in a correct manner. The website of the Swedish Companies Register (Bolagsverket) contains additional information, as well as a number of templates that are to be used.

A tenant owned cooperative housing association must have at least three members, and must be registered with the Swedish Company Register. All primary tenants of the property are entitled to become members. It is important to know that membership in the tenant owned cooperative housing association s does not mean that you, as a tenant, commit to converting or buying you respective owner-occupied apartment. Commercial tenants (i.e. tenants who rent commercial space but do not live at the property) can become members if the association allows them to.

Once the tenant owned cooperative housing association has been registered with the Swedish Companies Register, the association is now what is known as a legal person, and can make legal decisions such as entering into a contract or taking out a loan from a bank.

Organizational meeting

The first meeting of the tenant owned cooperative housing association is called the organizational meeting. At this meeting, the members adopt the bylaws of the association and elect members and deputy members to the board of directors, commonly known as “the board”. The board represents the tenant owned cooperative housing association during the conversion process and maintains contact with the conversion consultant, if any, the landlord and the bank.

The meeting is also required to appoint an auditor to review the activities and finances of the association. The auditor does not need to be a resident of the property or a member of the tenant owned cooperative housing association s. In the case of a larger association, the auditor is required to be a chartered accountant.

It is important to provide correct information about what a conversion would mean. It can therefore be a good idea to bring a consultant or other person with knowledge and experience of conversions to the meeting.

In order to go forward with the conversion the association and a certain number of its members must then make a notice of interest.

Declare your interest

When the tenant owned cooperative housing association has been registered with the Swedish Companies Register, the association must submit a completed notice of interest in conversion to the landlord. This consists of a joint notice of interest by the tenant owned cooperative housing association and individual declarations of interest from at least half of the tenants. The last day to submit a completed notice of interest to the landlord was 31 December 2019.

Once the tenant owned cooperative housing association has been registered with the Swedish Companies Register and the association has held its first meeting, which is known as the organizational meeting, it is time to send a notice of interest in the conversion to the landlord.

A notice of interest must contain:

  • An original of the common notice of interest from the tenant owned cooperative housing association
  • Originals of individual declarations of interest from at least half of the primary tenants of the property
  • A copy of the registration certificate of the tenant owned cooperative housing association

Only those whose names are on a lease (i.e. primary tenants) and are also officially registered as residing on the property may sign the notice of interest. If more than one name is on the lease, each person must sign the notice of interest in order for it to be valid.

Signing a notice of interest does not mean a person is bound to purchase his or her apartment as a tenant-owner. It is not until later, in conjunction with the purchase decision meeting that the tenants will vote on the conversion and decide whether to purchase their apartments.

Important facts

The last day to submit to the landlord a complete notice of interest in conversion, approved by the landlord was 31 December 2019. In order to be certain that the notice of interest is complete and approved by the landlord, it is important that the tenant owned cooperative housing association submit its notice of interest well in advance of the end of this year.

A notice of interest is not a guarantee that the conversion will occur. The City of Stockholm has set a limit for the number of conversions. If you live in an area where many other conversions are in progress, no additional conversions may be allowed in that area. The City of Stockholm has decided that the option to convert will end once the percentage of rental apartments falls below 60 per cent or the percentage of rental apartments owned by the City’s three municipal housing companies falls below 50 per cent. If this should happen, all tenant owned cooperative housing association s that are affected will be informed.

The City of Stockholm actively monitors the interest in conversions in the areas selected. If many associations are established in an area, the date by which a correct, complete and approved notice of interest is received by the landlord can be a factor in determining which associations will be given an offer to purchase the property in question at a given price, before the process is terminated in a given area.

The notice of interest must be mailed to your landlord, as shown below:

Familjebostäder
Box 92100, 120 07 Stockholm

Stockholmshem
Box 9003, 102 71 Stockholm

Svenska Bostäder
Box 95, 162 12 Vällingby

Forms

Form for a tenant owned cooperative housing association ’s notice of interest, in Swedish (docx, 131 kB, new window)

Form for an individual notice of interest, in Swedish (docx, 67 kB, new window)

Appraisal of the property

Once the landlord has received and registered a complete and approved notice of interest, an independent company of appraisers issues an appraisal of the property. The independent company of appraisers is chosen through a procurement tender proceeding by the City of Stockholm. Once the appraisal is completed, the landlord usually sends an offer to acquire the property to the tenant owned cooperative housing association

Time to consider the offer and make a financial plan

When the tenant owned cooperative housing association has received an offer to acquire the property from the landlord, the association has a period of three months to consider the offer and either accept or reject it. If the association requires more time, the period can be extended by up to three months.

If the tenant owned cooperative housing association wishes to go forward with the conversion, a financial plan must be prepared. The financial plan is an important document and contains, among other things, a calculation of the monthly service fee and the price for tenant-ownership of any give apartment.

Once the independent appraisal has been done, the landlord’s board of directors usually decide on the price of the offer and other terms and conditions of purchase that are then sent to the tenant owned cooperative housing association . The offer indicates, among other thing, what it will cost the tenant owned cooperative housing association to purchase the property. The price that the landlord indicates is non-negotiable.

The tenant owned cooperative housing association has three months to consider the offer and either accept or reject it. If the association needs more time, this period can be extended by an additional three months after contact with the landlord. A request to extend this period must be received by the landlord prior to the expiry of the first three-month period.

Financial plan

If the members of the association wish to go forward with the conversion process, the next step is to prepare a financial plan. The financial plan is an important document in a conversion, and is prepared by the board of the tenant owned cooperative housing association. This plan serves as documentation for a decision at the purchase decision meeting, as well as for decisions by banks, lending institutions and other stakeholders.

The plan includes, inter alia, the following calculations:

  • The monthly service fee for each owner-occupied apartment
  • The purchase price of each owner-occupied apartment.
  • The expected costs the association for managing and operating the property, such as for daily maintenance of common areas and grounds, electric and heating costs, waste disposal and insurance.
  • Financial planning for future renovations and maintenance required by the property

Once the financial plan has been adopted, it must be examined by two external inspectors appointed by the National Board of Housing, Building and Planning (Boverket). These inspectors are tasked with auditing the plan and determining that the calculations are correct. An examined and approved financial plan must also be registered with the Swedish Companies Register before the tenant owned cooperative housing association can send out a notice of an extraordinary general meeting, often known as a purchase decision meeting (köpestämma), at which the residents vote in favour of or against the conversion

If the tenant owned cooperative housing association has not previously decided to enlist the assistance of a conversion consultant or similar expert, it is wise to solicit the assistance of a consultant in preparing the financial plan. The cost of a consultant varies, depending, for example, on how many apartments the association will own.

Negotiating bank loans

Both tenant owned cooperative housing association s and their members often need to borrow money in order to complete the purchase. Both the association and individuals need a loan commitment from a bank of lending institution. As the loans are often for appreciable amounts, there can be opportunities to negotiate excellent terms for the association, as well as individuals in the event that everyone applies for loans from the same bank or lending institution, rather than doing so separately.

Make a decision – Purchase decision meeting

In order to be able to accept the offer and purchase the property, at least two-thirds of the tenants must vote in favour of the purchase. Everyone entitled to vote must have received documents that describe the financial plan. In addition, other terms and conditions relating to the purchase must be satisfied. For example, at least 50 % of the tenants must have signed advance agreements with the association to purchase their respective apartments as tenant-owners.

The purchase decision meeting is the point at which the tenants of the property decide whether or not the tenant owned cooperative housing association should purchase the property from the landlord. The financial plan will be presented to everyone who resides at the property. It is crucial that the information about what a conversion will mean and what it will cost to purchase one’s apartment is clear and understandable to everyone.

It is also crucial that everything at the purchase decision meeting be done in a proper manner. In order to ensure that this is the case, an independent observer, retained by the City of Stockholm is always present. The observers possess the relevant legal expertise, and their presence is a requirement in order for the decision of the purchase decision meeting is to be valid. The role of the observers is to examine the decision of the meeting and ensure that the correct legal procedures and requirements are followed.

Conditions for the effectuation of a conversion

  • At least two-thirds of the primary tenants of the apartments currently rented must vote in favour of a conversion at the purchase decision meeting.
  • At least 50 per cent of the primary tenants of the property must sign advance contracts to purchase their respective tenant-owned apartments after the purchase decision meeting.

Who is entitled to vote at the purchase decision meeting?

Only primary tenants who are also officially registered as residing at the property may vote at the purchase decision meeting. If there is more than one person on the lease, the persons on the lease will only have a total of one vote at the meeting, and must therefore agree before the meeting as to whether they will vote in favour or against the conversion.

Tenants entitled to vote can give a written power of attorney to someone else to vote in their stead. Tenants who neither attend the purchase decision meeting nor have given a power of attorney to someone else to vote will be counted as having voted no to conversion.

If the residents of the property vote in favour of conversion, the next step is to complete the purchase.

Complete the purchase and take possession of the property

If enough members of the association at the purchase decision meeting vote in favour of conversion, and the rest of the terms and conditions of purchase are satisfied, the landlord and the tenant owned cooperative housing association then sign a contract of purchase and sale. In order to the tenant owned cooperative housing association to become the owner of the property, the association must pay the landlord for the property. Once the members who wish to purchase their respective owner-occupied apartments have paid the association for those apartments, the conversion is complete.

The sales contract contains an agreement as to the date on which tenant owned cooperative housing association will take title and possession of the property. This means that the association will then assume ownership of and responsibility for the property. The tenant owned cooperative housing association therefore must plan well in advance for how the daily maintenance of the property should function from the very first day of ownership, and must have informed all its members and tenants of this.

Ahead of the purchase, the tenant owned cooperative housing association should review all the agreements that the landlord seller has with regard to the property, such as for lifts, electricity and heating supply, as well as agreements with the Swedish Union of Tenants regarding interior maintenance. The tenant owned cooperative housing association must decide whether they want to assume the agreements or negotiate their own.

Responsibility for the building – management

As the owners of the property, the members of the tenant owned cooperative housing association are responsible for all management and maintenance. The association is also responsible in its capacity as a landlord for those who have chosen to remain as tenants. It is common for tenant owned cooperative housing association s to retain companies that are specialized in property management to take care of tasks such as cleaning stairways, mowing the lawn and making repairs.