Property Ownership Control Will Be Strengthened in Finland — What Will Change?
24 November 2022
Authors: Paavo Romakkaniemi (Associate), Roosa Kellokumpu (Associate Trainee), and Matti Lajunen (Partner)
The Government has submitted its proposal to tighten the permission procedure for real estate transactions by non-EU and non-EEA private individuals and companies. Here is a summary of the key legislative amendments and matters of which foreign purchasers should be aware. The legislative amendments are expected to enter into force at the beginning of 2023.
The legal reforms that entered into force in 2020 strengthened the Finnish authorities' ability to monitor foreign real estate transactions and to intervene in property ownership that poses risks to essential security interests. Purchasers from outside the EU and EEA must apply to the Ministry of Defence for a permission to acquire land either before a real estate transaction or within two months after it. In addition, the State has the right of pre-emption in real estate transactions in the immediate vicinity of strategically important areas. If the State exercises its right, it becomes the acquirer of the property instead of the purchaser on terms agreed in the sale and purchase agreement. So far, these provisions have had minor impact on real estate transactions.
Changes in prerequisites for granting permission
Recent government proposal raises the threshold for obtaining a permit for the acquisition of real estate. Under the amendments, a permit for the real estate transaction may not be granted if the transfer is deemed to threaten national security, if it is obvious that the property to be acquired would not be suitable for the stated use, or if the property is acquired by a person who has been issued with a deportation decision and who resides illegally in the country. Additionally, the permit can also be rejected if, despite a reminder from the Ministry of Defence, the applicant repeatedly fails to comply with the obligation to provide the necessary clarification or intentionally provides false material information.
The key amendment in the proposal concerns the addition according to which a negative decision could be issued in situations where the acquisition of real estate is considered to threaten national security. The amendment extends the scope of application of the law and increases the discretion of the authority in the permission process. The government proposal considers that national security can be endangered in many ways, and not all circumstances can be foreseen in advance.
Threats to national security may include the acquisition of property in the immediate vicinity of a critical infrastructure of society or in a location that is not dangerous from the point of view of strategic sites but from which, for example, large-scale unlawful intelligence operations could be carried out for other essential functions of society. Furthermore, national security may be endangered as a result of the acquisition of property on behalf of an operator whose activities on the property could directly endanger Finnish security or Finland's international position, for example by preparing a sabotage or terrorist attack.
Furthermore, the Ministry of Defence may reject the permit if it is obvious that the property to be acquired would not be suitable for the stated use. This refers to circumstances where the stated use of the property would be implausible to the suitability of the use of the property, for example, based on the zoning or infrastructure of the area. However, the Ministry of Defence would not intervene in situations where the stated use could be carried out, for example through improvements and a credible plan for this is provided with the application.
Greater access to information for authorities and state’s right of pre-emption
The majority of the new amendments concern the administrative procedure for the permission process and the State’s right of pre-emption. The rights of the Ministry of Defence to obtain information are extended by providing the Ministry of Defence with the right to request information needed for the permission process from more authorities than previously. Moreover, the Ministry of Defence will have the right to clarify the funding of the acquisition and the origin of the financing. These amendments are intended to ensure the validity of the decisions and improve the functioning of the permission process.
The amendments concerning the State's right of pre-emption are expected to clarify and harmonise the regulation with the provisions regarding the permission process. Once the amendments enter into force, the State may exercise its right of pre-emption if the acquisition of property threatens national security or if the real estate is located within 1,000 metres of strategic sites. Authorities' access to information will also be significantly improved when deciding whether to exercise the right of pre-emption.
The obligations of non-EU and non-EEA purchasers relate to applying for a permission and contributing during the process
The control system regarding property ownership aims to ensure that purchasers find out the need for a permit in advance and, if necessary, obtain the permit before the transaction takes place. By applying for a permit after the execution of the real estate transaction, the purchaser takes a conscious risk that the permit may not be granted. Recent legislative proposal in this respect may further increase the risks for the purchaser.
If permission to acquire the property is not granted, the purchaser shall sell or otherwise dispose of the real estate within six months of the refusal, instead of the current one-year deadline. The reduction from one year to six months may in some circumstances make it more difficult for the purchaser to obtain a purchase price for the property that corresponds to the paid purchase price, especially in areas or specific locations where the sale times for the properties is generally longer than normal.
The proposal also clarifies the provision on the costs to be reimbursed to the purchaser by the State when the permit is not granted. In this regard, it is considered that the State shall not reimburse costs which the purchaser of the property has decided to incur at its own risk, while also being aware of the possibility of a negative permit decision. Thus, for example, large investments in the land area and estimated return expectations regarding the future use of the purchased property would be excluded from the reasonable costs to be reimbursed. However, the purchaser can effectively prevent the above risks by applying for a permission to acquire the property prior to the execution of the real estate transaction.
In addition, the applicant must actively contribute to the permission process by providing the necessary clarifications and by ensuring the accuracy of the information. Providing false information is not in itself an automatic ground for a negative decision, but the information must be materially false and it must have been given intentionally. A permission for the acquisition may be granted unless the information is clearly given with the intention of misleading the authority.
The proposed legislative amendments will improve the control of real estate transactions and clarify the rights and obligations of purchasers. The political discourse on the tightening of the regulations related to the control of property ownership will continue in the future as well. The Ministry of Defence is currently investigating the restriction and/or prohibition of property transactions by Russian citizens as well as other options for the development of supervision of property owners outside the EU and EEA. This may concern the possibility of extending supervision to share transactions of housing companies or renting by persons outside the EU and EEA. Hannes Snellman's Real Estate Team will stay tuned for possible future amendments and is happy to provide further information on the legislative amendments and practical matters related thereto.