Stay Alert in Financing Transactions – Finland’s Digital Residential and Commercial Property Information System is in Transition

Though the purpose of the new digital system is to clarify the availability and reliability of information on residential properties, the adoption of the system has not been without its problems. The original plan was to obligate housing and real estate companies established before 1 January 2019 to transfer the maintenance of their share registers to the National Land Survey of Finland by the end of 2022, but this transition period has now been extended to 31 December 2023. We are currently in an interim period in which the old and new system are in use side by side.

Impact of Pledging Shares

The current situation has a particular impact on financing transactions when deciding the measures required to implement and perfect share pledges, i.e. to ensure that pledges are binding on third parties. In particular, the parties must determine whether the company’s share register has been transferred into the Residential and Commercial Property Information System and whether the ownership of the shares to be pledged has been registered. Ambiguity is typically caused by incomplete authority processes, failure of the company to disclose share information and failure to register ownership.

If a company’s share register has been transferred and the shareholder’s ownership has been registered in the Residential and Commercial Property Information System, the shares are pledged based on an application by the pledgee and the pledge is registered in the system. The registration of the pledge also requires the pledgor’s consent. After registration, the pledge will be visible on the printout of owner apartments for each pledged group of shares. Thus, the share pledge will not be registered in the share register as before. The registration of a share pledge can also be applied for when the shareholder applies for the registration of their ownership of the property.

If the share register has not yet been transferred into the Residential and Commercial Property Information System or the transfer is pending, the pledge is implemented by physically transferring share certificates and by a pledge notice to the company whose shares are being pledged. In this case, the pledge is also entered in the share register maintained by the company. In these cases it is necessary to enter the pledge in the Residential and Commercial Property Information System when the company’s share register has been transferred into the system and the ownership registered.   

A Tool for Smoother Transactions

A public register for shares in housing companies, and to a certain extent real estate companies, is a step towards more modern property transactions. However, at least for the duration of the transition, we will have to put up with uncertainty. This being the case, it is necessary to determine in each case whether the company’s share register has been transferred into the Residential and Commercial Property Information System and whether the shareholders ownership has been registered.

Once share information is fully transferred into the new system and the technical features of the system are developed further, the register could be a genuinely useful and reliable tool for the smooth, digital implementation of transactions.