A key duty for boards of directors in real estate companies is to ensure that the property is managed and maintained in accordance with applicable regulations.

What are the responsibilities of the board?

As with other companies, a real estate company must operate within the framework of applicable laws and regulations. This is regulated by Section 6-12 of the Norwegian Public Limited Liability Companies Act (Asl).

This also includes a duty to ensure that the underlying property portfolio complies with regulations.

The nature of this responsibility varies, depending on factors such as the scope of the company's operations and the number of employees.

In companies without employees, the board's responsibility means that the board members themselves must have knowledge of the property or properties. They must ensure that they are in a condition that complies with regulations.

In companies that are organized with a general manager, and possibly also other employees subordinate to this person, responsibility is delegated. This is regulated by cf. Asl § 6-14.

The board is nevertheless obliged to ensure that the management of the company's property portfolio is organized in such a way that employees have the necessary knowledge about the property portfolio and that appropriate procedures are established to ensure the necessary follow-up of regulatory compliance.

When does the board have such a responsibility?

The board's responsibility for ensuring that the property complies with regulations applies throughout the entire period of ownership by the company. This includes when the property is developed.

This places demands on the board in several phases.

If the company undertakes an extension of the property, the board must ensure that it is built in accordance with the technical regulations and permits.

When purchasing, the board is responsible for ensuring that the property in question is inspected. This is done in order to clarify which regulatory requirements apply and whether the property meets these requirements.

If regulatory deficiencies are discovered, the board is responsible for implementing the necessary measures to bring the property into compliance with regulations.

If the regulatory deficiencies restrict access to the property before they are remedied, it is the board's responsibility to ensure that the company refrains from using it. The property must comply with regulations and a use permit must be granted.

During the remainder of the ownership period, the board must ensure that everything is in compliance with regulations. This also applies if new tenants are taken in, as they must operate within the applicable permits.

If, for example, you switch from renting out residential property to office space, you must apply for a new operating license. There are also new requirements for ventilation, etc.

How is responsibility assessed?

In a current liability situation, it is crucial whether the board members have acted responsibly.

If the members of the board do not have the necessary knowledge to understand and assess compliance with regulations, the board is therefore obliged to seek assistance from experts.

For the members of the board, it is not a relevant excuse that the board members themselves lacked the necessary prerequisites to understand the regulatory requirements.

The board's responsibility for regulatory deficiencies will typically come to the fore in connection with transactions involving the property. For example, situations involving purchase, sale, and rental may give rise to requirements.

What happens if you don't follow the rules?

If the board has neglected its duties, its members risk being held liable to third parties for financial losses incurred by them as a result of the regulatory deficiency.

The loss will typically consist of expenses incurred in bringing the property into compliance with regulations. Or it may be a consequence of reduced property value.

• The liability of board members for such losses may vary.
• Shareholders suffer losses because the company has acquired a property that does not comply with regulations and therefore has a lower value.
• The purchaser of a property from the company has incurred a loss because the property does not comply with regulations.
• The tenant suffers losses as a result of the lack of regulations and cannot operate as agreed.

When is the board held accountable?

Normally, claims will be made against the board by third parties, where the company is not insolvent or in liquidation, or the warranty period for claims under the purchase or construction contract has expired.

Shareholders may still make claims if the company has suffered a loss and the company is still in business.