Real Estate 2020

Last Updated April 14, 2020

Finland

Law and Practice

Authors



DLA Piper Finland Attorneys Ltd has a market-leading real estate offering, with an international multidisciplinary team of lawyers that can serve client needs globally across the real estate sector. The firm has more than 750 real estate lawyers operating in more than 40 countries around the world, serving clients in key real estate markets, with strongly established teams in the Americas, Europe, the Middle East, Africa and Asia Pacific. DLA Piper works with clients through all stages of the real estate life cycle, including planning, acquiring, finding, developing, leasing, completing, trading and divesting. Working through this cycle, it offers legal assistance with the following: financing; acquisitions and disposals; asset management; construction; cross-border investment; development; fund formation; joint ventures; leasing; litigation; planning, zoning and environmental issues; public-private partnerships; REITs; restructuring; and tax. The team works alongside investors, lenders, developers and managers on every aspect of their real estate activities.

Finland operates a codified law system. The main Finnish laws affecting real estate transactions are:

  • the Land Code (540/1995, as amended); 
  • the Land Use and Building Act (132/1999, as amended); 
  • the Real Estate Formation Act (554/1995, as amended); 
  • the Land Lease Act (258/1966, as amended); 
  • the Pre-Emption Act (608/1977, as amended);
  • the Environmental Protection Act (527/2014, as amended); and 
  • the Act on Compensation for Environmental Damage (737/1994, as amended).

As the sale of shares in real estate companies plays a significant role in Finland, the following laws are also applicable as real estate sources: 

  • the Sale of Goods Act (355/1987, as amended); 
  • the Housing Companies Act (1599/2009, as amended); and 
  • the Companies Act (624/2006, as amended). 

Concerning tenancy of real property, either of the following is applicable: 

  • the Act on Commercial Leases (482/1995, as amended); or 
  • the Act on Residential Leases (481/1995, as amended). 

With respect to the taxation of real properties and real estate transactions, the following should be taken into consideration: 

  • the Real Estate Tax Act (654/1992, as amended); and 
  • the Transfer Tax Act (931/1996, as amended). 

The Finnish property market continued fairly strong in 2019, following the trend of recent years, and slower economic growth had only a small impact on the market. Transaction volume reached EUR6.3 billion, which is lower than the previous years’ top results. The number of transactions also dropped substantially from the record level in 2018. 

Some of the most significant deals in 2019 were Hemsö Fastighet’s acquisition of Helsinki District Court House and Elo Mutual Pension Insurance Company’s acquisition of 34% of Jumbo shopping centre. In early 2020 the acquisition of OP Bank’s HQ building in Helsinki was closed by Varma Mutual Pension Insurance Company together with NH Investment & Securities and Shinhan Investment Corp, with the acquisition amounting to EUR480 million. 

In 2019, international investors made property investments worth EUR3.1 billion, which is approximately 49% of all real estate investments. Office properties constituted the most-traded category, the share of offices being 42% of the total transaction volume. In recent years, the share of residential portfolios has been on the rise, and their share of the total volume reached 22% in 2019. Investors are increasingly more interested in care and public-use properties, and in 2019 their share nearly doubled to 13%, compared to 2018.

Helsinki is among the world’s leading start-up hubs and Finland’s start-up scene is thriving thanks to an outstanding support system and a vibrant start-up ecosystem. In the last few years, the wave of start-up-driven innovation has finally started to reach real estate and construction. Private equity real estate investors have started making investments in Finnish proptech companies, and it is likely that the amount invested will increase substantially over the next 12 months. 

The Finnish Companies Act has been amended and the changes came into force in July 2019. As a result, there is no minimum share capital requirement for limited companies, which means that the share capital of a limited company may be zero. The reasoning behind the amendment includes making it easier to found new companies.

Further changes affecting companies derive from recent amendments to anti-money laundering legislation. Nearly all companies are obliged to maintain information regarding the beneficial owners of the company. Housing companies and mutual real estate companies are, however, exempt from the obligation to register this information with the relevant authorities. 

New legislation came into force on 1 January 2020 regarding certain real estate transactions requiring special consent from the relevant authorities before closing or, at the latest, two months from the date of closing. This legislation is applied where the buyer of real estate is from outside the EU/EEC or an entity or person from outside the EU/EEC holds at least 10% of voting rights in the buying entity, or indirectly has actual influence in such entity. However, the legislation is only applied to direct real estate transactions, not to share deals where the target company owns or holds real estate, which decreases the legislation’s impact on the real estate market.

Ownership of real estate in Finland is always connected to a registered land unit. Properties may be held either in freehold or in leasehold. A freehold ownership title gives the owner the right to hold, occupy, encumber and dispose of real property. Leasehold interests provide for the right to occupy and use the land of another owner for an agreed period of time, often in exchange for payment in the form of rent. In most cases, leasehold means that the ground is owned by one party and the buildings by another, and the owner of the buildings has agreed with the landowner on the use of the land for a fixed period.

An essential characteristic of Finnish real estate law is the fact that real estate can be acquired either directly by acquisition of ownership in a property as either a freehold or a leasehold interest (asset deal), or indirectly by acquisition of shares in a company owning a property (share deal). 

Furthermore, there are two different types of real estate companies in Finland: an ordinary real estate company (REC) and a mutual real estate company (MREC). RECs and MRECs are limited liability companies, where the assets of the companies comprise freehold or leasehold plots of land and one or several buildings located on the plot. The main difference between RECs and MRECs is that in an REC the respective rental income is paid to the REC in its capacity as landlord. In MRECs, the shareholders have direct control of predetermined premises in the building(s) as determined in the articles of association, and the respective rental income is paid directly to the shareholders of the MREC.

Transfer of title in asset deals concerning freehold and leasehold properties is subject to the provisions of the Land Code, meaning that the sale and purchase agreement shall follow certain mandatory requirements set out in the Land Code (the agreement shall contain, inter alia, the purpose of divestment, description of the relevant property, names of the parties, purchase price and other consideration). A transfer deed concerning a sale of a freehold asset is to be notarised by a notary public.

In the following situations legislation restricting the transfer of real estate applies: the new legislation concerning buyers outside the EU/EEC, certain residential properties which are subject to the price control of the City of Helsinki (Hitas), real property located in the Åland Islands, and real estate affected by the ARA (the Housing Finance and Development Centre of Finland) social housing policy operated under the supervision of the Ministry of the Environment.

The transfer of title to real estate is typically effected by the seller and the buyer entering into a real estate sale and purchase agreement. Asset deals require that the sale and purchase agreement follows certain mandatory requirements set out in the Land Code and is notarised by a notary public. Changes to a freehold title must be registered with the Land Register within six months of the signing of the transfer deed. Failure to register may result in an increase in the amount of transfer tax due, up to a maximum of 100% of the original tax. The change of title cannot be registered before the transfer tax has been paid. The obligation to register applies only to direct ownership titles. 

Acquisitions of indirect title through the purchase of shares in a real estate company cannot be registered with the Land Register, but are registered in the share and shareholders’ registers of the relevant real estate company. If share certificates have been issued, they are to be delivered, duly endorsed, to the buyer at closing. 

Warranty and indemnity insurance also covering title is available in the Finnish real estate market, but as the Land Register is a reliable source, title insurances are not very common.

In commercial real estate transactions, the advisers designated by the buyer usually conduct legal, financial, tax and technical due diligence. Subject to the significance of the transaction, separate commercial and environmental due diligence reviews are often conducted. 

A market standard real estate sale and purchase agreement typically contains representations and warranties with respect to certain fundamental matters, such as existence, power, shares and shareholding, capitalisation and title to the property. It may also include representations and warranties in relation to, inter alia, taxation, validity and certain terms of the lease agreements, compliance with planning and zoning regulations, environmental damages, insurance, financial statements and disclosure material. The seller's liability for the current technical condition of the property is typically excluded in the sale and purchase agreement. 

In the case of asset deals, the freedom of contract is restricted to some extent by the Land Code, as the buyer's rights, based on certain deficiencies, may be limited in the sale and purchase agreement only by express stipulations. 

Warranty and indemnity insurance to provide coverage for the buyer and to exclude the seller's liability under the sale and purchase agreement, is being used more frequently in Finnish real estate transactions. 

The most laws to consider when purchasing real estate in Finland are the Land Code and the Companies Act.

Finnish environmental legislation is governed by a specific act and, as a general rule, it is governed by the “polluter-pays” principle. That liability applies even if the polluter was not negligent. If the polluter is not able to fulfil its obligations (eg, due to bankruptcy) or if the polluter is unknown, the possessor (eg, the tenant) of the property may be held liable for the remediation. This only applies if the contamination has taken place with the consent of the possessor, or if the possessor was or should have been aware of the contamination when the property was acquired. Lastly, if neither the polluter nor the possessor may be held liable, the remediation obligation lies with the municipality where the real estate is located.

The designated use of real estate is set out in the applicable zoning regulations and documents, such as the applicable city plan. It is possible to agree zoning matters with the public authorities in advance, eg, through a land use agreement, in order to make a development project feasible.

Finnish municipalities have a pre-emption right in connection with asset deals. If the municipality uses its pre-emption right it, rather than the buyer, may accede to the sale and purchase agreement. In practice, municipalities rarely use this right with respect to commercial properties, which have been improved with commercial buildings. Redemption of properties may be permitted by either the Council of State or the National Land Survey, for instance, for the purposes of nature conservation or establishment of air traffic areas. Rights of use may also be granted for energy suppliers. 

The sale of shares in a real estate company is subject to a 2% transfer tax, which is also applied to the partial sale of shares; whereas in asset deals the tax rate is 4%. No transfer tax is payable on the acquisition of partnership interests. In the sale and purchase agreement it is usually agreed that the transfer tax shall be paid by the buyer, which is also the starting point set out in the tax laws. 

The fixed fee to be paid to the notary public for the notarisation of a real estate sale and purchase agreement (asset deal) is currently EUR120. The application for registration of a new owner in the real estate register is subject to a fee of EUR119 per property. 

No stamp duties are payable on mortgages or pledges.

Where the buyer of real estate is from outside the EU/EEC or an entity or person from outside the EU/EEC holds at least 10% of voting rights in the buying entity or otherwise has actual influence in such entity, such acquisition requires special consent from relevant authorities. With the exception of border zones, military areas and real property located in the Åland Islands, there are no legal restrictions on foreign investors acquiring shares in real estate companies owning properties in Finland, provided that the real estate company does not conduct any business related to the defence industry. 

For tax reasons, the vast majority of investments in Finland are executed through the acquisition of shares in a real estate company. The mix of equity and debt in Finnish real estate transactions has followed global trends. Currently, senior loan levels are usually in the 50–70% range. Additional levels of debt (junior or mezzanine loans) can be included in between the senior loan financing and the equity investment. Even though contractual subordination is typical, structural subordination is also sometimes used. 

The tax treatment of profit participation loans should be given diligent consideration when structuring the transaction.

The most common securities granted to lenders by a commercial real estate investor who is acquiring or developing real estate are pledge over shares of a real estate company, pledge over real estate mortgage deeds, pledge over rental income, pledge over intragroup loans, pledge over bank accounts, pledge over insurance receivables and other receivables of the borrower and/or cross-stream guarantees.

In Finland there are no restrictions on granting security over real estate to foreign lenders (other than standard "know-your-customer" precautions). Foreign lenders should, however, be aware of any tax treatment to which they may be subject. 

There are no taxes or notarisation or registration costs associated with the granting of security under Finnish law, other than nominal registration fees. 

If the properties are the target of the acquisition rather than the ownership of shares in the companies owning the properties, the purchasing company’s ability to grant guarantees or to pledge its assets as security is not, at the outset, limited by Finnish law. However, when the target is shares in a Finnish company, the Finnish target company may grant guarantees or security only within the limits set out by the mandatory provisions of the Finnish Companies Act regarding the financial assistance prohibition and corporate benefit requirements.

The financial assistance prohibition applies to the granting of a guarantee or security for the financing of the acquisition of shares in the acquired company or its parent company but, due to the narrow definition of the term “parent company” in Finnish company and accounting law, the prohibition is generally not considered to apply to the acquisition of shares in a foreign parent (however, corporate benefit requirements nonetheless always apply).

Equal treatment of shareholders of the company is also a mandatory requirement under the Companies Act. If a subsidiary is not wholly owned, this may prevent it from granting guarantees or security that would indirectly benefit some but not all of its shareholders.

Breach of the above-described financial assistance prohibition or corporate benefit requirements or other mandatory provisions of the Companies Act can lead to liability for the relevant company’s management. Furthermore, any guarantee or security granted in violation of the Companies Act is generally held invalid, especially if the beneficiary knew or should have known about the violation.

Enforcement procedures vary to some extent, depending on the type of security. Extra-judicial procedures are available for certain types of security, eg, shares. The enforcement procedures may differ depending on whether the pledgor is simultaneously undergoing insolvency proceedings. The enforcement of security interest is usually carried out by an auction or other sale.

The Commercial Code (3/1734, as amended) stipulates a default method for the enforcement of a pledge of movable property (including but not limited to shares). However, the parties may as a rule contract out of most parts of the process (which is also commonly done). Therefore, the method by which the asset is liquidated is typically at the pledgee's discretion, and enforcement is allowed immediately upon default by the debtor. The Commercial Code requires that the pledgee must act diligently and with due consideration for the debtor’s justified interests when liquidating the asset, which in practice means that the asset may not be sold at clearly less than its market value. Regardless of the method of liquidation, any proceeds in excess of the creditor’s receivable shall be returned to the pledgor.

A mortgage deed is enforced by a judicial procedure whereby the creditor must first obtain a court ruling ordering the debt to be paid. If requested by the creditor, the court may at this stage order the real estate to be realised by the district bailiff through an auction or other sale. However, if no such order is given, the district bailiff still has at this stage – at least in principle – the option to enforce the claim against other assets of the debtor.

As a rule, a debt would become subordinated only with the consent of the creditor, and the first created security, if duly perfected, has priority over a later created and perfected security.

Where the debtor is insolvent, the main rule under the Act on Payment Order of Creditors (1578/1992, as amended) is the equal right of the creditors to receive payment in bankruptcy. Secured claims enjoy the precedence applicable to the security in question up to the amount equal to the value of such security. 

In company reorganisation proceedings, upon application by the administrator, the court may decide that certain debt to be incurred during the proceedings shall be secured by a prior or equal ranking security interest over the mortgaged property, provided that this arrangement is necessary for the purposes of the reorganisation and that the risk for that secured creditor does not increase significantly. 

In relation to liability under environmental laws, only an owner or possessor of the real estate may be liable for any pollution caused to the real estate (see 2.7 Soil Pollution or Environmental Contamination). A lender holding or enforcing security cannot be liable under environmental laws if the lender has not actively participated in the decision-making and operations of the borrower.

Provided that the relevant security interest has been perfected properly, the security interest will not be declared void if the borrower becomes insolvent. It should, however, be noted that any security interest granted and/or perfected after the actual day the relevant debt has been incurred and over which the security has been granted, may be subject to claw-back under the Recovery Act (758/1991, as amended). A claim for recovery may be made in a district court by the bankruptcy estate administration or by a creditor who has notified the estate of its claim. The suspect periods are (with some exceptions) calculated from the date of the application for bankruptcy, reorganisation or attachment, as applicable.

To date, there have been very few practical implicationsof this since most real estate financings are EUR-denominated. 

Zoning and planning control take place on three levels: 

  • the Finnish government sets out nationwide goals for land use;
  • regional councils set out regional plans for the use and development of land; and 
  • local municipalities prepare general plans and detailed local plans, which regulate building and development. 

Zoning and planning decisions regulate how and for what purpose a certain area may be used (eg residential, industrial or recreational). Furthermore, general plans and, in particular, detailed local plans contain specific rules on the maximum number of floors, floor space, and location of buildings, among other things. 

The legislative and government controls that are typically applicable to the design, appearance and method of construction of new buildings or the refurbishment of an existing building are mainly the same as those that apply to planning and zoning. The local detailed plan sets out which areas can be built and under what conditions, as well as whether or not buildings and areas are to be preserved and how, if applicable. 

Buildings or townscapes that have historic or architectural value have to be given special consideration and may not be marred when construction work, repairs or alterations are carried out. Some buildings may be protected based on a specific decision by the ELY Centre, for historical or cultural reasons. Such buildings (ie, protected buildings of architectural or historic merit) may not be demolished, and any construction work has to be carried out in accordance with the protection provisions of the building.

The main legislation regulating building and development of real estate is the Land Use and Building Act. The government sets national land use guidelines, which are to be taken into account in all the respective land use plans. 

The ELY Centre is in charge of steering the planning and building activities in the municipalities, but municipalities have a high degree of autonomy when it comes to building and construction in Finland: they approve their own detailed plans regarding the land use and building conditions in their area. The detailed plans are guided by local master plans passed by individual municipalities or by groups of municipalities (joint master plan). 

Municipal planning is guided by regional land use plans, which are drafted and approved by the regional councils. A building may not be built if it conflicts with the valid detailed plan. The designated use of individual parcels of real estate is typically set out in the local detailed plan of municipalities determining the designated use, permitted building area described in floor square metres, parking space requirements and similar matters.

In most cases, development projects, especially if located in densely built areas, need to be based on a detailed plan. If a project is not in line with the valid detailed plan, or if no detailed plan exists, it is often necessary to amend or pass a detailed plan, which is a time-consuming process. A detailed plan is drawn up by the municipality and the plan is either approved, or not approved, by the local municipal council. 

A building permit is applied for from the Building Control Department of the respective municipality for construction projects and large refurbishment projects. The building permit may only be granted if the planned project or construction works are in line with the provisions set out in the detailed plan (eg, permitted building volume and designated use). 

If the planned project is not in line with the relevant zoning provisions, an exemption permit may be required in addition to the building permit. Exemption permits are required, inter alia, when there is not considerable deviation from a detailed plan. In the case of major deviations, the detailed plan may need to be amended. As in a building permit process, the neighbours of the relevant property are usually entitled to participate in an exemption permit process.

There is a right of appeal against the relevant authority's decision on a building permit. Firstly, the applicant itself may appeal against the building permit decision, eg, in a case where the decision deviates from the permit application. Secondly, a person possessing a property adjacent to the relevant property, as well as a third party having a particular relation to the relevant property, may appeal against the decision. Lastly, the municipality may appeal against the decision. A municipal body would typically appeal against a building permit decision in cases where the building permit has been granted, despite the municipality's objection to the permit. A decision concerning the passing of a detailed plan or other land use plan may, in addition to the aforementioned, be appealed by any member of the relevant municipality.

It is possible but not necessary to enter into agreements with local authorities in order to facilitate a development project. Such agreements include land use agreements between municipalities and property owners with respect to the implementation of zoning plans. 

Utility agreements are to be made for all new buildings in the name of the property owner, as well as for development projects if new utility connections are established. All buildings should have at least electricity, heating, water and sewage connection agreements with a utility provider. 

Restrictions on development and designated use may be enforced in several ways, including but not limited to the conditional imposition of a fine, prohibition of use or a demolition order.

The bases for any restrictions on development and designated use are usually set out in the zoning plans. These restrictions are enforced through the building permit application process: a building permit may not be granted contrary to a detailed plan. 

Compliance with the provisions and restrictions set out in building permit decisions are enforced by the municipal Building Control Department. If relevant restrictions or other regulations are not complied with, the building control department may conduct inspections and require the responsible party to acquire a permit for its activities or, if such permit cannot be or is not granted, to discontinue any activities which are not in line with relevant provisions, and to rectify any breach. An order to discontinue unauthorised activities or remedy the unauthorised state of a construction may be reinforced by a conditional fine or a threat that the necessary action will be taken at the expense of the negligent party. 

As set out above, the most commonly used legal forms are RECs and MRECs. In some cases, acquisitions are structured under limited partnerships. A housing company, being a specific type of MREC, is another legal form used as an indirect investment vehicle for predominantly residential properties. Real estate investment trusts (REITs) may also be used as investment vehicles, but are not yet common in Finland.

MRECs

An MREC is a limited liability company. The land areas and buildings are owned by the MREC, but are owned and controlled directly by the shareholders. Therefore, each shareholder – and not the MREC – is entitled to lease out the premises within his/her possession and, consequently, the rental income is paid directly to, and is taxed as income of, the shareholder. The actual role of the MREC is generally limited to the maintenance and operation of the real property, financed by maintenance charges collected from the shareholders and determined by the annual shareholders’ meeting as a fixed amount per square metre. The maintenance charges are generally determined at a level that will make the MREC’s financial result zero.

RECs

An REC is a limited liability company that holds and manages real property. The assets of an REC consist mainly of a freehold or a leasehold property and one or more buildings located thereon. The property and the buildings may be leased out by the company, and the respective rental income shall be paid to the company in its capacity as the landlord. The rights and powers of the shareholders are the same as in any other limited liability company. For a minority shareholder in an REC, this means that the shareholder has the right to vote at shareholders’ meetings and is further entrusted with the powers that fall within standard minority protection (provided that the holding exceeds 10%), including the right to require an extraordinary shareholders’ meeting to be held for a specified purpose and the right to request the appointment of a special auditor. All shareholders are, in principle, entitled to receive profits, but only in accordance with the procedures of the Companies Act. As in ordinary limited liability companies, the shares in an REC are freely disposable unless otherwise agreed, eg, in the articles of association. 

The minimum share capital of an REC and MREC is zero euros. In limited partnerships there is no minimum share capital requirement, however, as the general partner of a limited partnership is typically a limited liability company; the minimum share capital of a limited liability company should be considered also in this context. 

A written memorandum of incorporation is to be prepared to establish a limited liability company, and is to be dated and signed by all shareholders of the company. With the signatures, the shareholders subscribe to the shares in the company as set forth in the memorandum of incorporation. The memorandum of incorporation must include information on or identify the following items: 

  • the articles of association for the company being incorporated; 
  • the shareholder(s) of the company; 
  • the number of shares of the company subscribed to by (each of) the shareholder(s); 
  • the subscription price for the shares; 
  • the deadline for payment of the subscription price; 
  • the members of the board of directors; and 
  • the auditor(s). 

The company's establishment is completed upon entry into the trade register. Management is vested in the company’s board of directors, the members of which are appointed by the shareholders. At least one of the board members must reside in a member state of the EEA, unless exempted by the Finnish Patent and Registration Office.

The board of directors is responsible for the administration of the company, the appropriate organisation of the company's operations, and the preparation of the company's financial statements within four months following the completion of each accounting period. 

The annual entity maintenance and accounting compliance costs consist mainly of fees to be paid for accounting, auditing and property/asset management, which are dependent on the scope of required operations. In most simple single asset structures, the costs can be as low as a few hundred euros per annum.

The only commercially relevant type of arrangement allowing a person, company or other organisation to occupy and use real estate for a limited period of time is entering into a lease agreement concerning the relevant premises or apartment.

Entering into a land lease agreement entitles the tenant to use a property until further notice, or for a fixed term. Land lease agreements are typically used when the landlord owns only the relevant property without the buildings located thereon, and the buildings are owned by the tenant.

Irrespective of the existence of a land lease as a legal instrument, there is only one type of commercial lease in Finland.

Neither the rent levels nor the lease terms (save for certain mandatory provisions in the Act on Commercial Leases) are subject to compulsory regulations in Finland. Periods of commercial lease agreements and rent levels are, in principle, freely negotiable. 

Lease agreements are valid until further notice or for a fixed term. The length of the lease term can be freely agreed between the landlord and the tenant. The termination periods under lease agreements in force until further notice vary, depending on the purpose of use of the lease object and the length of the lease term. Unless otherwise agreed, the notice period for a tenant is one month, and three months for a landlord, but the notice period is, as a rule, agreed in the lease agreement. On a general note, termination periods between three and 12 months are most common. Stipulations concerning the earliest possible termination date are usual. The length of the lease period varies depending on the needs of the parties and the type of lease object. Prime office and retail properties have somewhat longer terms than other lease agreements (ten years or more). Sale and leaseback arrangements are typically also agreed for longer lease periods (ten to 15 years).

It is typical for the tenant to pay all maintenance and repair costs of the premises the tenant has leased, excluding structural repairs, which are the responsibility of the landlord. 

The rent is usually paid monthly upfront on the first day of the month.

The rent payable remains the same for the whole lease period, unless otherwise agreed. It is customary market practice to agree on the adjustment of the rent in accordance with the Finnish cost-of-living index, entitling the landlord to increase the rent annually or biannually, provided that the index value has increased in comparison to the preceding year. 

Under the Act on Residential Leases, the rent may be adjusted by a competent court, if it is substantially higher than the market rent for comparable premises in the area for no apparently justifiable reason.

In the event that the rent is bound to an index, one of the most common formulas for rent adjustment is as follows: adjusted rent = base rent x revision index/base index.

VAT may be charged by the landlord if the landlord has registered for VAT for the transfer of rights to use immovable property and the tenant is using the premises for a purpose entitling VAT deduction. 

Costs other than the rent payable by the tenant at the start of a lease include the provision of lease security, securing the due observance of the obligations of the tenant under the lease agreement, as agreed in the lease agreement.

The property owner is liable for the maintenance and repair of areas, which are not covered by lease agreements, unless otherwise agreed with the tenants.

Electricity is typically charged based on actual usage by each tenant. Costs for other utilities and telecommunications are typically paid by the owner, but borne on a pro rata basis by the tenants and charged as part of the maintenance rent.

The property owner has an obligation to have the property adequately insured, usually for its full value. Additionally, property owners quite often subscribe to liability insurance. The attributable costs are borne by the landlord, but often charged to the tenant as part of the maintenance rent/service charge in accordance with the terms of the lease agreement.

Restrictions on how a tenant may use the real estate may be agreed in the lease agreement. The landlord is entitled to terminate the lease agreement without observing any notice period, if the leased premises are used for a purpose other than that agreed upon. Such termination would be subject to a written warning. In the event that the tenant fulfils their obligations without delay upon receipt of a written warning, or if the matter is otherwise corrected, the landlord is not entitled to terminate the lease agreement. 

Unless otherwise agreed, the tenant is not entitled, without the landlord's consent, to make any other renovation or modification measures than those which are necessary to remedy damage caused by the tenant to the premises or to prevent immediate damage. It is customary market practice to stipulate in the lease agreement that the tenant is entitled to minor modifications, provided that the tenant restores the property to its initial condition by expiry of the lease period. 

Residential lease agreements are subject to the provisions of the Act on Residential Leases, which is to some extent compulsory law protecting the interests of the tenant. 

No other sector-specific laws or regulations exist. 

In the event of a tenant's bankruptcy, the landlord has the right to rescind the lease agreement based on that bankruptcy, unless the bankruptcy estate has announced, within a time limit of no less than one month set by the landlord, that it will fulfil the liabilities arising from the lease agreement after the commencement of the bankruptcy.

Rental deposits, pledged bank accounts or parent company guarantees equaling three to six months' rent are considered customary lease securities both for commercial and residential leases. 

Under residential lease agreements, a stipulation in the lease agreement concerning a lease security corresponding to an amount of more than three months' rent is null and void.

Neither the Act on Commercial Leases nor the Act on Residential Leases includes provisions according to which the tenant would be entitled to automatically prolong the lease term. However, many commercial lease agreements include a provision whereby the tenant has a right of first refusal to re-lease – or in some more rare cases purchase – the premises at the end of the lease term. 

In principle, the tenant shall leave the premises on the first working day following the expiry date of the lease agreement. There are no legal provisions requiring specific measures from the landlord in this context. With respect to commercial leases valid until further notice, at the tenant's request a court may determine a new move-out date no later than six months following the initial move-out date, if obtaining new business premises and ending the business conducted in the leased premises by the initial move-out date would have a material adverse effect on the tenant. Such postponement is not available if the lease term has been fixed or if the tenant has terminated the lease by itself. In residential leases, the new move-out date determined by the court may be no later than twelve months following the initial move-out date. During the court proceedings concerning the new move-out date, the lease agreement remains valid with the same terms as prior to filing the claim. As regards residential leases, the tenant's right to request the competent court to determine a new move-out date cannot be excluded in the lease agreement. 

In accordance with the Act on Commercial Leases, the tenant is not allowed to assign their leasehold interest without the landlord’s permission, except in the case of a business transfer, if such transfer is not prohibited under the lease agreement. In respect of residential leases, the tenant is allowed to assign their leasehold to certain family members. 

The typical contract terms under a commercial lease agreement do not limit the parties' right to terminate a lease that is valid until further notice. Accordingly, no specific events are required for the landlord or the tenant to terminate the lease. However, in accordance with the Act on Commercial Leases, the landlord may not terminate an until-further-notice lease in order to increase the rent if the new rent could be regarded as unreasonable, or if there are no justifiable reasons for the termination and the termination could be regarded as unreasonable in light of the tenant's circumstances. Fixed-term leases may not be terminated but will end automatically at the end of the agreed term. Both fixed-term leases and leases valid until further notice may be rescinded in certain cases after a written warning or without observing any notice period under certain exceptional circumstances. The tenant is entitled to rescission in the event that use of the premises causes definite danger to the health of the tenant or the tenant's employees, or if the landlord is in material breach of the lease agreement. However, neither the landlord nor the tenant has such a rescission right if the breach is of minor significance. 

The termination of residential leases by the tenant is possible under substantially the same conditions as mentioned above. However, termination by the landlord without justifiable reason is prohibited by law to protect the tenants. However, the landlord's own need may be considered as a justifiable reason to terminate the lease agreement.

In addition to the registration of the land lease concerning leasehold, there are no registration requirements concerning lease agreements. 

Court proceedings and execution of a legally binding judgment are required for the eviction of a tenant. If the dispute is completed in the district court without any appeal proceedings, the duration of such a process may be less than one year. In the event of an appeal against the district court's decision, the expected duration can be up to 24 months. 

Notice of termination concerning a lease agreement can be given only by a party to the lease agreement.

Both fixed-price construction projects and construction projects that are invoiced based on accrued costs are customary in Finland. There are also construction projects with a target and maximum prices, meaning that the costs are primarily invoiced based on the accrued costs. 

Finnish market practice acknowledges both turnkey agreements and separate agreements for design and construction works.

The construction agreements are drafted pursuant to YSE 1998 General Conditions for Building Contracts (YSE). KSE 2013 General Conditions for Consulting (KSE) are usually applied to design agreements. The interface of design and construction works should be precisely agreed in the said agreements. In larger construction projects, clients often engage a third-party project management consultant, to ensure that the responsibilities of the designer and the contractor are aligned.

In the turnkey context, if the contractor itself does not provide design services, it will usually engage subcontractors to fulfil its design obligations towards the client. 

According to YSE, in return for the agreed contract price, the contractor is obliged to carry out all the work, measures and procurement required by the contract and the related documents in order to achieve the finished result to be handed over to the client in a form completed in accordance with such contract.

According to YSE, construction works are subject to a guarantee period of 24 months following the approval of the construction works. For certain parts of buildings, such as waterproofing and windows, the guarantee period is up to ten years. The contractor's liability for indirect damages is not excluded in YSE, nor is it capped. However, damage which could not be avoided by complying with all possible duties of care is not recoverable. 

YSE also contains provisions regarding insurance policies to be obtained and maintained by the contractor and the client.

Unless otherwise agreed between the parties, the delay compensation is as set forth in YSE. According to YSE, if the construction works are not completed within the agreed timeline, the contractor shall pay compensation equalling 0.05% of the contract price (exclusive of VAT) for each working day of such delay. The respective percentage for subcontracts and nominated subcontracts is 0.1%. The compensation must be paid for a maximum of 50 working days, unless intermediate due dates are determined, in which case the compensation must be paid for a maximum of 75 working days.

According to YSE, the contractor must provide security for the construction phase equal to 10% of the construction price (exclusive of VAT), and security for the guarantee period equal to 2% of the construction price (exclusive of VAT). It is usually assessed case by case if additional performance bonds and/or parent company guarantees are required.

According to YSE, the ownership transfers from the contractor to the client upon payment of the respective instalment of the contract price. Therefore, it is recommended that the payment schedule is tied to the progress of the works. 

In Finland it is not typical that the property under construction is encumbered, for example with mortgages, in favour of the contractor. 

A building may not be put to use prior to approval by the building control department of the respective municipality. Such approval is normally granted in the acceptance inspection. 

The general VAT rate in Finland is 24%. In principle, VAT included in costs incurred in connection with the renovation or construction of real property is deductible in Finland when the real property is used for a VAT-taxable use. As a result, changes in the taxable use of the property will retrospectively decrease the amount deducted in VAT during a so-called revision period of ten years from the date of completion of the work.

Transfer of real estate is not subject to VAT in Finland: neither the seller nor the buyer is liable to pay VAT in connection with real estate transfers.

Transfer of real estate (4%) or holding shares in a Finnish real estate company (2%) is subject to transfer tax, even when the transfer takes place between non-residents. The transfer tax on real estate has to be paid when applying for the registration of title. With respect to shares in a real estate company, the transfer tax is payable within two months of the date of a binding purchase agreement. There is no specific way to avoid transfer tax, but transfer tax is not payable on transfers of interests in Finnish partnerships or transfers of shares in a foreign company between non-Finnish parties, when ultimately holding Finnish real estate. 

As a general rule, all real estate situated in Finland – except for agricultural and forest land – is subject to annual municipal real estate tax. The registered owner of the real estate at the beginning of the calendar year is liable to pay the tax for said calendar year. When properties are sold during the calendar year, transaction documents usually include a pro rata payment mechanism between the parties, based on which, the buyer is liable to pay part of the annual real estate tax. 

The amount of real estate tax payable is based on the taxation value of the real property, determined on a yearly basis by the local authorities. No exemptions apply to real estate tax, but it is deductible for income tax purposes

Non-residents are liable to pay taxes in Finland on their so-called Finnish source income. This applies to both rental income as well as capital gains. Capital gains of a non-resident individual or a non-resident company are taxed in Finland if Finnish real estate or shares in an REC or MREC are sold. However, capital gain accrued as a consequence of the sale of shares in a holding company with shares in an MREC or REC is generally not subject to tax in Finland. In addition, tax treaties may further restrict Finland’s right to tax capital gains.

Any profit distributed by an REC or MREC to its shareholders is taxed in accordance with tax rules applicable to dividend distributions. The statutory withholding tax rate for cross-border dividends is 30% for individual shareholders and 20% for corporate shareholders. EU-based legislation and tax treaties provide lower rates or even an exemption.

There are no specific tax benefits or reliefs applicable to real estate holdings. 

DLA Piper Finland Attorneys Ltd

Fabianinkatu 23
00130 Helsinki
Finland

+358 9 4176 030

+358 9 4176 0417

mikko.larvala@dlapiper.com www.dlapiper.com/fi/finland/
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Law and Practice

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DLA Piper Finland Attorneys Ltd has a market-leading real estate offering, with an international multidisciplinary team of lawyers that can serve client needs globally across the real estate sector. The firm has more than 750 real estate lawyers operating in more than 40 countries around the world, serving clients in key real estate markets, with strongly established teams in the Americas, Europe, the Middle East, Africa and Asia Pacific. DLA Piper works with clients through all stages of the real estate life cycle, including planning, acquiring, finding, developing, leasing, completing, trading and divesting. Working through this cycle, it offers legal assistance with the following: financing; acquisitions and disposals; asset management; construction; cross-border investment; development; fund formation; joint ventures; leasing; litigation; planning, zoning and environmental issues; public-private partnerships; REITs; restructuring; and tax. The team works alongside investors, lenders, developers and managers on every aspect of their real estate activities.

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