Navigating the Norwegian market for apartment hotels

In recent years, apartment hotels have gained significant popularity in Norway, offering a combination of independence and comfort that traditional hotels often can't match. These establishments provide guests with the opportunity to stay more independently and comfortably, with facilities such as kitchens, washing machines, and separate living areas. These conveniences allow guests to feel more at home and tailor their stay to their specific needs and preferences.

For operators and investors, apartment hotels also present a range of benefits. Apartment hotels offer high rental yields and robust demand driven by both tourism and business travel. This combination of profitability and consistent demand makes apartment hotels an attractive investment opportunity in the Norwegian hospitality market.

However, to capitalize on these opportunities, operators have to approach their operations with strategic planning and a thorough understanding of legal and regulatory requirements. By adopting a deliberate approach from the planning stage, operators can ensure they comply with laws and regulations, optimize operations, and maximize returns.

 

Public law regulations

Permission to use

Under Norwegian law, the use of a building always has to comply with the permit granted by the municipality. If the actual use of a building conflicts with its approved use and the municipality becomes aware of this discrepancy, it's generally obliged to initiate enforcement actions. So operators should be fully aware of the building's permitted use.

A change of use requires an application if the operation, in this case apartment hotel, deviates from the purpose stated in the current permit, or if parts of structures may affect the considerations that are protected by or pursuant to the Planning and Building Act regarding the structure, outdoor areas, or surroundings. Examples of considerations include noise and traffic. To determine whether the operation deviates from the purpose stated in the current permit, the planned use must be compared to the current permitted use. This assessment is not based on the extent of the difference between the permitted use and the new use but rather on whether the new use contradicts the assumptions of the current permit.

It can be difficult to assess whether the current use permit covers the intended use. One challenge that has arisen is the distinction between a use permit for a residential property and apartment hotels.

Whether the operation requires a change of use application is a concrete assessment. The length of the rental period will be a key factor to consider. Rentals that extend beyond the typical duration of a hotel stay are more likely to be categorized as residential rentals. Properties rented on a short-term basis are more likely to be classified as hotels. But it can be difficult to distinguish between long-term and short-term stays. The Norwegian Tax authorities use the term "short-term rental" to describe any rental period of less than 30 days, which can be useful. However, local municipalities may have their own definitions of what constitutes short-term rental.

Other factors that must be considered in the assessment include how the rent is organized and the services offered. The more "hotel services" that are offered, such as reception and cleaning, the more likely the use will be classified as hotel rather than residential use.

Zoning

Operators must also recognize that local zoning regulations might grant municipalities the legal authority to prohibit the development of apartment hotels. The municipality has a broad right to make zoning regulations for areas in the municipality, including the use of buildings, prohibitions or restrictions on certain forms of use. All zoning regulations must "promote or safeguard the purpose of zoning." Through such regulations, the municipality can introduce restrictions or prohibitions on the use of buildings for apartment hotels.

Regulations on technical requirements for construction works

A change of use will require the technical condition of the building to comply with the requirements set out for the specific use. For example, a change of use from residential to apartment hotel may require additional fire prevention measures and upgraded ventilation systems.

 

Tenancy law regulations

Contracts between hotels, boarding houses, and similar accommodation operators and their guests are exempt from the Norwegian Tenancy Act. If there's any doubt about whether the Tenancy Act applies, a comprehensive assessment is needed. Factors such as the length of the rental period (if it extends beyond typical hotel stays), whether the tenant cleans the room themselves, and whether the tenant has another permanent home will be considered to determine if the rental agreement should be treated as a standard residential rental.

 

Value-added tax

In Norway, renting in relation to hotels, boarding houses, and similar business activities requires operators to charge VAT on their services. But renting out apartments for residential purposes isn't subject to VAT. To determine whether an apartment hotel should be classified as a hotel (subject to VAT) or residence (not subject to VAT), it's necessary to assess what the concept most closely resembles. This evaluation has similarities to the assessments required for a change of use permit. According to a statement from the Norwegian Tax Directorate, the factors outlined below are relevant in determining whether the rental should be considered as a rental of hotels, boarding houses and similar business activities subject to VAT or rental for residential purposes not subject to VAT. This list is not exhaustive, and an overall evaluation of the concept in question is necessary:

• length of lease
• whether there are facilities for self-catering
• what is included in the rental price: change of bed linen/towels, cleaning and tidying, room service, minibar, reception and any other services it offers.
• the marketing of the rental, which segment is targeting?
• how payment is made
• home address
• allocation of room/accommodation upon request

 

Conclusion

The apartment hotel industry is an area of great interest as it continues to evolve and adapt to changing market demands and consumer preferences. Operators who stay ahead of the curve and plan the development and use of buildings at an early stage and in a purposeful manner will find significant opportunities. Early and thoughtful planning allows for better alignment with regulatory requirements, more efficient use of resources, and the ability to incorporate innovative solutions that enhance the guest experience.