A package of legislation concerning foreign ownership of a real estate entered into force in the beginning of the year, facilitating the state to intervene with such real estate ownership that is considered a threat to national security. As a result of the new legislation, every limited liability company at least 10% of the shares of which are held by an actor outside of the European Union (EU) or the European Economic Area (EEA), for example an owner of the shares from in Great Britain or in the United States, must apply for a permission to purchase a real estate in Finland. The background for the amended legislation is the inadequacy of the previous legislation to meet the needs of the authorities in the changed security situation.
From now on, the Act on Transfers of Real Estate Requiring Special Permission (470/2019), that entered into force in the beginning of 2020, requires that buyers from outside the EU and EEA will need a permission for real estate transactions in Finland. With the adoption of the Act, authorities will acquire a more comprehensive understanding of foreign ownership. The purpose is to ensure that adequate and up-to-date information of the parties involved in a transaction will be received in due time. Buyers that fall within the scope of the Act must apply for a permission either before the real estate transaction is completed or within two months from the complition. The permission authority is the Ministry of Defence of Finland. The Ministry will process permission applications and make decisions on permissions in Finland (except for the Åland Islands). The aim of the permission process is not to slow down or hinder foreign real estate transactions in Finland, but it allows the state to intervene in such real estate acquisition that can be considered a threat to national security.
A permission must be acquired when one of the following parties purchases a real estate:
- A private person who does not have a citizenship of an EU member state or a state belonging to the European Economic Area (EAA).
- A company or other entity domiciled outside the EU and the EAA.
- A company or other entity domiciled in the EU or the EAA but in which a private person or entity referred to in paragraphs 1 or 2 has the minimum of ten percent ownership or equivalent effective power over such entity.
The citizenship or domicile of the seller or other transferor of the real estate does not affect the need for a permission.
The permission requirement applies to real estate transactions to be confirmed on or after 1 January 2020. The acquisition of a real estate refers to a legal act by which the ownership of a real estate or a specific share or parcel of it will be transferred to another party. The permission requirement does not apply to transactions concerning purchases of shares of housing or real estate companies, transfers of rental rights or renting real estate. The permission is real estate-specific, and the application shall indicate i.a. the real estate, the parties to the transaction and the intended use of the real estate. It is also possible to request prior information from the Ministry of Defence on whether a permission is needed.
Granting a permission is subject to the condition that the transaction does not cause any risk to national defence, border control or maintenance of emergency stocks of critical supplies. It is worth noting that a real estate transaction is not automatically cancelled upon the refusal of a permission. The granting or refusal of a permission does not in itself affect the consummation of a real estate transaction or the granting of a title. If a real estate transaction has been confirmed despite a refusal of a permission or before the refusal, the buyer will be obligated to sell or otherwise transfer the real estate. If a permission for an acquisition of a real estate is refused, the state shall reimburse the transferee for the financial and other necessary expenses arising from the transaction as well as necessary expenses related to the administration, management and maintenance of the real estate.
In addition, the Act on the State’s Right to Pre-emption in Certain Areas (469/2019) entered into force in the beginning of 2020, giving the state a pre-emptive right to buy real estate in the immediate vicinity of strategic sites. The act facilitates intervening in a real estate transaction before the registration of title. The act facilitates intervention e.g. in a situation in which the actual ownership of a real estate has been hidden by a false arrangement and thus, the permission requirement does not apply. The state has the pre-emptive right regardless of a citizenship of the buyer. In practice, the act affects a very small proportion of real estate transactions, because for its provisions to be applied, the real estate would have to be located in protected areas that are defined for the specific needs of the Defence Forces or the Border Guard. If the state chooses to exercise its pre-emptive right, it will replace the buyer as the transferee of the property at the previously agreed-upon terms and conditions of real estate sale and purchase agreement. It is possible to request prior information from the Ministry of Defence on whether the state intends to exercise its pre-emptive right.
At the same time as the aforementioned acts promoting national security, the Act on the Right of Redemption of Immovable Property and Special Rights in Order to Protect National Security (468/2019) entered into force. The act facilitates intervening in existing ownerships. The act applies to the right of redemption of immovable property and special rights for the purpose of safeguarding the national defence, territorial integrity, internal security, government administration, border security, border control, maintenance of emergency stock of critical supplies, the continued operation of the infrastructure necessary for the vital functions of society or other equivalent public interest. The full compensation payable for the asset subject to redemption shall be equivalent to the highest fair market price.
Redemption of a real estate would always be the last resort in relation to a refusal of a permission and pre-emptive right, as it intervenes with the civil rights. However, the Redemption Act has the widest scope of application and application grounds, meaning that it may be applied in situations where neither refusing a permission nor exercising the pre-emptive right is possible. The Redemption Act complements the package of legislation described above so that the authorities will have the possibility to effectively intervene in different types of situations.
Due to the renewed legislation, the new obligations must be taken into account in real estate transactions where the buyer is an actor outside of the EU or the EEA regardless of the domicile of the actor. Determining the ownership of the parties, the procedure of obtaining possible prior information and applying for the permission as well as the time needed for these measures must be considered as a part of the transaction process. However, since it is estimated that no more than 500 real estate transactions involving buyers outside the EU or the EAA take place annually, the new obligations only affect a small proportion of all real estate transactions in practice.
Jari Tuomala
Partner
Johanna Roine
Associate
