Nordicum - Real Estate Annual Finland 2011 | Page 22

WHY INVEST IN FINNISH REAL ESTATE
– LEGAL ASPECTS

After a few difficult years, the Finnish economy is
recovering mainly due to the rapidly improving export
demand. Before long, this will also stimulate the
Finnish real estate market and present opportunities
again for foreign investors as well.

s a whole, the Finnish legal framework can be regarded as investor
friendly and this article purports to
highlight some of these favorable conditions.
Since 2000, there have been no legal
restrictions on the ownership of real estate
by foreigners. Finland has a reliable central land register and the information is also electronically available online. For example, a bona fide purchaser of real estate
has, according to the law, the right to rely on the land registry entries regarding the
seller’s ownership of the real estate and its
encumbrances.
Finland has a rather modern Land
Code (1995) which governs, inter alia, real estate transactions, pledges of real estate
and registrations of title. Even if the disposal of real estate requires that the transaction
document fulfills formal requirements and
is certified by a notary public, these requirements are limited only to certain basic provisions of the transaction, such as the names of
the parties, specifications of the real estate,
purchase price and the parties’ intention to
transfer the ownership. All other terms and

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conditions can be agreed upon by the parties without formal requirements and a notary certification. This flexible system also
means that the transaction costs relating to
documentation remain reasonable.
The Finnish Ministry of Justice is currently preparing a proposal for amending the
Land Code in respect of electronic real estate
transactions. The purpose of the amendment
is to enable electronic documents and handling of real estate transactions by the authorities. The reform would also allow the
integration of electronic payment of the purchase price and transfer tax as well as transfer of real estate pledges into the system. Information on the real estate transfer would
automatically transfer to relevant authorities e.g. for registration of title.
Lease agreements are one of the main
documents in a real estate transaction. In
Finland, commercial leases are regulated
by the Act on Lease of Business Premises (1995). According to the Act, the landlord and the tenant mainly have freedom of
contract in respect of the terms and conditions of the lease agreement. Finnish lease
agreements concerning commercial premis-

es are in practice fairly standardised even if
this is not required by any regulation. Finnish law allows indexation of rent, provided
that the lease term is until further notice or
at least three years.
The ownership of many Finnish real
estates is structured through real estate companies, most of which are limited liability
companies owning only one real estate. A local particularity is a mutual real estate company where the shareholders are entitled to
possess premises in the building located on
the real estate as specified in the articles of
association of the company. In this structure,
the shareholders may lease the premises in
their possession and the rent income flows
directly to the shareholders, not through the
company. The real estate company structure
is also beneficial with respect to transfer tax.
Currently, the tax on transfer of shares in a
real estate company is 1.6 per cent of the
purchase price, while the transfer tax on direct transfer of real estate is 4 per cent. b
Ilmo Korpelainen
Attorney-at-Law
Attorneys-at-Law Juridia Ltd