Purchasing a co-op apartment – things to consider

Tips when buying a co-op apartment 

• Arrange for a loan commitment well in advance, preferably before viewing properties. It can be very useful if there is a quick bidding war for the property.  

• You may borrow a maximum of 85% of the appraised market value of the property; the remainder of the purchase price you need to finance with your own cash down payment. Borrowing money even for the down payment means a higher interest rate because the property will not be used as collateral. 

• Examine the apartment carefully. Look under carpets, behind paintings, and turn on the taps and so on. If you feel unsure about anything, get help from a property inspector. 

• Go through the annual accounts of the co-op association and see if the finances of the association are stable, as this affects the monthly homeowners association fee. 

What is a share in a co-op? 

Buying a share in a co-op, does not mean that you are buying the apartment itself. You are actually buying a share in the co-op association, and attached to that is the right to live in a designated apartment for an unrestricted period of time. It consists partly of a right of occupancy and use (of an apartment) and partly of a right of co-ownership in the co-op association. You own the entire property, collectively together with all the other members of the co-op association. The real property includes the land, the residential buildings (i.e. the apartments), all the common areas, any built outdoor areas and facilities such as a car park as well as premises such as offices. As a member of the co-op association, you must of course abide by the established rules and regulations. 

The Sale of Goods Act applies between you and the seller 

When you purchase a co-op apartment from another private party, the Sale of Goods Act applies. If you and the seller agree on something that differs from the provisions of the Sales of Goods Act, your agreement applies instead of the Sales of Goods Act. 

Further information about the Swedish Sales of Goods Act 

Obtain a loan commitment 

When you are thinking about buying a co-op apartment, it is advisable to get a loan commitment. This means that you receive a promise from a bank to lend you a certain amount of money. Even if you have a loan commitment, the bank may later deny you the loan if it finds that the assessed value of the property you want to purchase does not justify the amount of the loan you are seeking. The loan commitment is valid for a certain period of time; the actual duration varies from bank to bank. The loan commitment is based on your income and living expenses. 

You may borrow a maximum of 85% of the appraised value of the property. You can finance the rest with your own down payment. If you don’t have sufficient funds to pay the entire down payment with your own money, you can borrow for that as well. Some lenders offer unsecured loans for the amount above 85% of the value of the property. Before you take out a loan for the down payment, it is important to understand the costs and risks involved. Since the property is not pledged as collateral, you will need to pay a higher interest rate. The repayment period may also be shorter compared to the first mortgage. 

Further information about mortgages is available on the website of the Swedish Consumers’ Banking and Finance Bureau (In Swedish)

Inspect and assess your prospective new property 

Be careful to inspect and investigate the property you are thinking of buying. The duty to inspect and investigate is not explicitly written in the Sales of Goods Act or the Housing Cooperatives Act, but nevertheless it is very important that you thoroughly inspect and investigate the apartment and property before you purchase it. If you have inspected the property, or failed to do so after being urged to do so, you may be faced with not being able to obtain compensation from the seller for defects you should have detected during the inspection. 

It may be wise to hire a professional property inspector to inspect the property, but you should also inspect the property yourself. Test everything to make sure everything is working properly. Turn on the taps, flush the toilet, look under carpets and behind paintings and so on. If the seller has renovated the bathroom, it’s a good idea to find out if it was done by a contractor or the seller himself. If the seller renovated it himself, make sure that the damp-proofing moisture barriers are done properly. 

Find out if there is a mortgage on the property 

Once you have decided to buy, ask the seller for a copy of the title report for the co-op apartment (lägenhetsförteckningen). This will tell you whether the title to the co-op apartment is encumbered. 

An encumbered property means that the current owner has taken out a loan with the property pledged as security. It is quite normal for a property to be encumbered due to a mortgage, as most homeowners have some form of mortgage on their property. It is important however to check whether the property is mortgaged, due to that the mortgage is attached to the property and not personally on the party selling the property. 

So if the property is mortgaged, the mortgage on the property remains payable even if the property is sold. The seller must pay off the mortgage before the buyer takes over ownership of the co-op apartment. However, if this does not happen and the lender calls in the loan, you, as the new co-op owner, may be forced to pay on that mortgage to keep the property. 

Check out the co-op association 

Speak with some people in the building (potential new neighbours) and see if they seem happy. Go through the annual accounts of the co-op association and see if the finances of the association are stable, as this affects the monthly homeowners association fee. Also ask the Co-op Board about relevant matters that are currently going on in the co-op association and the building. Major renovations or upgrades may affect the maintenance fees. Even if the bathroom in the co-op apartment you are interested in has been renovated, the co-op association may be planning to replace the main trunk or distribution line, in which case all the bathrooms are usually renovated. It’s not pleasant to have paid a higher price for the co-op apartment because it was newly renovated and then see it torn out and redone, resulting in a higher monthly fee. 

Membership in the co-op association 

To be able to purchase a co-op apartment, the Co-op Board must approve you as a member of the co-op association. This is in accordance with the relevant statute regarding co-op apartments, the Housing Cooperatives Act. 

If the co-op association declines your application for membership, you can appeal to a regional Rent and Tenancies Tribunal. The co-op association cannot refuse membership without having a very good cause. If you have signed a presale agreement, the co-op association cannot refuse you membership. The co-op association must decide whether you can become a member when the presale agreement is signed. One acceptable reason for refusal may be that the co-op housing is restricted to persons over a certain age, i.e. a retirement community. This is quite common in senior housing. Discrimination on the grounds of ethnicity, religion or creed or any similar grounds is prohibited by law. 

Your obligations and the co-op association’s 

You are responsible for keeping the apartment in good condition. This means that you are responsible for repairing any damage that occurs in your apartment. This also applies if there is an accident. As a co-op apartment owner, you may make changes to the apartment, but you will need to apply for the Co-op Board’s permission if you want to make a change to the apartment that involves an intervention in a load-bearing support structure, changing existing pipes for water, drainage, heating or gas, or any other substantial change to the apartment. 

As a co-op apartment owner, you are also under the obligation: 

• not to sublet without the Co-op Board’s consent 

• not to disturb your neighbours 

• pay the annual homeowners fee (a fee paid monthly). 

The boundary for responsibility is usually at the front door 

It is commonly said that the boundary for responsibility for maintenance stops at your entrance door. You are responsible for all painting and maintenance inside the apartment, while the co-op association is responsible for painting and maintenance on the exterior side of your front door and beyond. An exception is that the co-op association is responsible for repairs to the water pipes and wastewater pipes, plumbing for heating and gas, and electrical wiring up to the unit, if the co-op association has provided the utility lines to the apartment and they serve more than one apartment. The same applies to ventilation ducts. 

You can read more about your responsibilities in the co-op association’s bylaws. It also sets out the obligations that co-op apartment owners and the co-op association have to each other. You should contact the Co-op Board if you have any doubts at all about what you can or cannot do. 

The co-op association must set aside money for maintenance 

The co-op association is required to set aside money regularly for the maintenance and repair of façades, stairwells, pipes, drains, etc. But quite often the funds for external maintenance are not sufficient, so many associations take out loans for such measures. 

It is not uncommon for there to be a fund for internal maintenance as well. This means that part of the annual homeowners fee is earmarked for the maintenance and repair of individual apartments. You can take money from this fund if you want to renovate your co-op apartment.