DTZ - Investor Guide Europe

PROPERTY LAW

Types of ownership

Ownership

• Real estates in Finland are usually owned either directly or

indirectly through a limited company.

• In general, real estate investors acquire real estate in Finland

through a mutual real estate company (MREC) or through

an ordinary real estate company (OREC). Both are limited

companies with somewhat similar administrative procedures.

They are both the legal owners of the underlying real estate.

• The difference between an MREC and an OREC is that an

MREC’s shareholders are entitled to possess certain premises

in the real estate on the basis of their shareholdings in the

MREC. The premises possessed by way of the ownership of

the shares are set out in the MREC’s articles of association.

When the premises of an MREC are leased, the lease

agreement is entered into between the tenant and the

shareholder who owns the premises to be leased. Lease

payments are made directly to the shareholder and not to the

MREC. In an OREC, the lease agreement is entered into by

the OREC and the tenant pays the rent to the OREC. An OREC

can distribute profits to its shareholders through dividend

distributions.

• The MREC/OREC is responsible for covering the real estate

costs, that is, costs payable by the owner according to the

lease agreement. With an OREC, the real estate costs are

covered with the OREC’s rental income. In case of an MREC,

the costs are covered with maintenance fees paid by the

shareholders. These fees are typically matched with real

estate costs, aiming to produce a zero net result for the

MREC.

• Title to real estate, a parcel of land or a specified share of

real estate must be registered with the Title and Mortgage

Co-ownership

• The ownership of a real estate may be divided between co-

owners into specified shares of a real estate, i.e. fractions,

which are relative parts of a real estate. A specified share of

a real estate does not have physical borders, and it cannot be

allocated to a specific area of the real estate.

• Agreements on the division of possession of real estate are

used to clarify the possession and the use of the real estate,

which has been divided into specified shares, between the

co-owners of the real estate. Agreements on the division of

possession must be registered with the Finnish Land Register

in order for them to be binding upon third parties.

• If the prerequisites for a partition are fulfilled, a partition

procedure may be carried out on real estate to parcel out

areas of the real estate into specific parcels of land with

physical borders. A parcel may be sold or separated as its own

real estate.

Rights affecting ownership

Easement (servitude)

• An easement is a right of use imposed upon a real estate for

the benefit of another real estate owned by a third party.

• The validity or content of an easement is not affected by a

change in the ownership of the encumbered or the benefiting

real estate.

• Easements are as a rule permanent until amortised, but

easements for a fixed period of time are also recognised in

Finland.

• Easements are registered with the Finnish Land Register.

Mortgage

• Mortgage is a security encumbering a real estate that entitles

the beneficiary to a payment in the order of seniority at the

value of the mortgage through a forced sale of the real estate,

at most.

• Mortgages can be registered to a real estate, a parcel of land

or a specified share of a real estate.

• Mortgages can be created by the owner of the real estate.

• In certain cases, also the leaseholder can register mortgages

to encumber the leasehold including the buildings located

thereon.

• Mortgages are registered with the Finnish Title and Mortgage

As mortgage notes are bearer instruments, the possession of

a mortgage note is required in order to form a valid pledge.

Legislative changes, which took effect on 1 November 2013,

aim to increase electronic contracting (executing purchase

agreements online through an internet-based service provided

by the National Land Survey of Finland), but also make

mortgage notes available in electronic form.

Pre-emption right

• Finnish law provides that the Finnish municipality where the

real estate is located has the right of first refusal to purchase

the real estate in case the area of the real estate exceeds a

certain square meter area.

• In the Helsinki metropolitan area, which also covers the cities

of Espoo and Vantaa, the municipality has a pre-emption

right in case the area of the real estate exceeds 3,000 square

metres. Elsewhere in Finland, the threshold is 5,000 square

metres.

• In practice, the municipalities rarely use their pre-emption

right. In transactions, it is commonplace to apply for a waiver

from the relevant municipality prior to the acquisition,

whereby the municipality will state that it will not exercise its

pre-emption right.

• The pre-emption right is not triggered if the real estate is

owned by a real estate company, in which case the shares

of the company are acquired and not the real estate directly,

since the ownership of the real estate in the former case does

not change as opposed to the latter.

Investors Guide to Europe 2015