Special features of real estate transactions in Finland: Formal requirements, permit requirements and pre-emption rights

Formal requirements under the Finnish Code of Real Estate

Transactions involving real estate located in Finland are governed by the Code of Real Estate (540/1995, as amended), which lays down the formal requirements for real estate transactions and the related preliminary agreements.

For example, the property transfer deed and the preliminary agreement concerning a real estate transaction must be signed in the presence of all parties or their authorised representatives as well as a notary, unless the agreement is signed via the electronic Property Transaction Service maintained by the National Land Survey of Finland. In practice, however, the technical requirements of the Property Transaction Service render it a rarely viable option for real estate transactions between professional and corporate operators. The signatories must bring their identity documents and any relevant powers of attorney to the execution meeting, with the power of attorney of the seller’s representative required to be in wet ink. As laid down in the Code of Real Estate, this power of attorney must indicate the attorney and the real estate to be sold.

After the transaction, the buyer needs to apply for registration of title. The title registration must be applied for only after the transfer tax relating to the transaction has been paid and the transfer tax return filed, but in any event within six months of the completion of the transaction. It is worth noting that, once confirmed, the preliminary agreement and the property transfer deed of a real estate transaction are generally available to the public from the National Land Survey of Finland upon request.

Permit from the Ministry of Defence for buyers from outside the EU and EEA

Private individuals or entities from outside the European Union (EU) and the European Economic Area (EEA) must obtain a permit from the Ministry of Defence in order to purchase real estate in Finland. As a rule, this requirement applies to all buyers who are not EU/EEA nationals and to all entities domiciled outside the EU/EEA. Entities in which a single non-EU/EEA party has ownership of at least a 10% or equivalent effective influence in the entity are also required to obtain a permit, even if the purchasing entity itself is domiciled in the EU/EEA.

The buyer should note that the permit application must include, for example, certain information on the financing of the transaction as well as a draft property transfer deed or a preliminary agreement relating to the transaction. The permit application must be submitted as soon as possible once the object of the real estate transaction and other key details, such as the method of financing, are known, and no later than two months after the transaction.

As the duration of the permit process varies on a case-by-case basis, it is advisable to initiate the process in a timely manner. However, material changes to the information required in the permit application may necessitate a new application.

It is also possible to request advance information from the Ministry of Defence on whether a particular buyer needs a permit. In practice, however, the tight timelines of transaction processes often mean that buyers apply for a permit directly, without a separate inquiry to determine whether it is required.

Prerequisites for the municipality’s right of pre-emption

In certain circumstances, the municipality in which the real estate is located has a right of pre-emption in real estate transactions, i.e. the right to redeem the real estate being sold on the terms agreed in the transaction. In such cases, the municipality is deemed to have replaced the buyer named in the property transfer deed at the time of the transaction.

The scope of the right of pre-emption is laid down in more detail in the Finnish Pre-emption Act. As a general rule, the municipality’s right of pre-emption applies, for example, when the real estate – or multiple real estate assets sold in a transfer that is considered to constitute the same transaction – comprises more than 5,000 m2 and the municipality would acquire the land for urban development or for recreational or conservation purposes. However, in the case of the cities of Helsinki, Espoo, Kauniainen and Vantaa, the threshold is 3,000 m2 and the condition regarding the intended use does not apply. If real estate located in the areas of two or more municipalities is sold under the same property transfer deed, the right of pre-emption belongs to the municipality in whose area the largest proportion of the combined area of the real estate is located.

A municipality may issue a preliminary opinion to state that it will not exercise its right of pre-emption if the real estate is sold on the stated terms within two years of the municipality’s decision. However, there is no obligation to issue such a preliminary opinion, and the procedures, practices and processing times for requesting one may vary considerably between municipalities. It is therefore advisable to determine whether the municipality’s right of pre-emption applies and to clarify the practices of the relevant municipality at an early stage of the transaction process.

The State’s right of pre-emption in areas of importance to national defence and border security

In certain circumstances, the Finnish State also has a right of pre-emption. This generally applies only to areas that are of importance to national defence, border control or border security, or the monitoring and safeguarding of territorial integrity.

The State has the right of pre-emption in respect of real estate located, in full or in part, (i) in areas allocated to the Defence Forces or Border Guard in the zoning plan or located within 1,000 metres from the same, (ii) within 1,000 metres of communication centres, radar stations, airstrips or ports or other less significant sites used by the Defence Forces or Border Guard for waterborne or air transport purposes under normal, disruptive or emergency conditions, and (iii) within 1,000 metres of other sites used by the Defence Forces and Border Guard when the safeguarding of the activities carried out at such sites calls for an exclusion zone.

The owner of the real estate, i.e. the seller, may ask or authorise another person to ask the National Land Survey of Finland whether the real estate is potentially located within an area subject to the State’s right of pre-emption. If the real estate were to be located in such an area, it is advisable to request advance information from the Ministry of Defence on whether the State intends to exercise its right of pre-emption. The advance information is binding on the State for the period specified therein, up to a maximum of two years from the date on which it was given.

Preparation is key

The special features described above do not, as a general rule, constitute an obstacle to a transaction. The most important thing is to be aware of the formal requirements, permit requirements and pre-emption rights well in advance, so that the transaction documents can be drafted taking them into account and the varying processing times of permits and preliminary opinions can be approached with adequate information and timeline expectations.