Investor Guide to Europe 2014
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TYPES of oWnERSHIP
Î
freehold
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 com-
panies 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 di-
rectly 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 Register
held by the National Land Survey of Finland.
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.
•
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
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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 ease-
ments for a fixed period of time are also recognised in Finland.
•
Easements are registered with the Finnish Land Register.
Î
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, but
also by the leaseholder to encumber the leasehold, including
the buildings on the real estate.
•
Mortgages are registered with the Finnish Title and Mortgage
Register, upon which the registrar issues the mortgage notes.
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 agree-
ments online through an internet-based service provided by
the National Land Survey of Finland), but also make mortgage
notes available in electronic form.
Î
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-emp-
tion 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.
aCQuISITIon PRoCESS:
KEY STaGES
Finland does not impose restrictions or reporting requirements
on foreign individuals or entities wishing to carry out real estate
transactions.
In the province of Åland, however, only those with a right of
domicile are entitled to own or possess real estate. A permit from
the provincial government is required of those without a right of
domicile.
PRoPERTY LaW
