Real Estate Guide
Principles of ownership
Restrictions on foreign ownership
Title to real estate
Investigation of title - The buyer/ tenant's lawyer will investigate title, carry out searches of public registers, raise enquiries to the seller/landlord and review the applica-ble documents, and where necessary, negotiate the contract. In case of more complicated transac-tion the legal, technical and environmental (sometimes financial, too) due diligence will be carried out.
Transfer of title - the title to shares of condominiums or real estate com-panies must not be registered to the Land Registry but to the company itself. This may be done by the written notification submitted to the Board of Directors of the condominium or real estate company.
Registration - freehold and land leases shall be registered at the Land Register held by National Land Survey of Finland. The obligation to register a title also applies to certain proportions and parcels of real estate. With certain exceptions, registration of a title must be applied for within six months of the date of the deed of conveyance or other document that is the basis for title. The assignee of a real estate cannot seek a mortgage as a security for a debt unless the title is registered or at least the register application is pending.
Information on the register - District Survey Offices of National Land Sur-vey of Finland act as registration authorities. The Land Register is public and provides much infor-mation about registered real estates, such as evidence of title and any kind of registered encum-brances and liens (mortgages, land use rights etc.)
Commercial leases - leases and subleases are legally valid although they are not registered at the Land Register. The lease is valid and binding between the landlord and the tenant. Registration gives protection to the tenant towards the landlord's creditors. The legal effects of a registration to secure a lease in respect of third parties appear in changes of owner-ship. In an enforced auction of real estate, leases secured by registration that has higher priority than those liens or encumbrances based on which the real estate has been executed, must be kept in force. Registration affects freeholds in similar ways.
Structure of a real estate transaction
Negotiation of terms/Agreement - commercial terms are usually negoti-ated between the estate agents/surveyors representing the seller/landlord and buyer/tenant. The agreed commercial terms are then often provided to the parties' lawyers who agree or finalize the legal terms and the agreement itself.
Investigation of title – see above
Contracts - for a real estate conveyance (or preliminary agreement of it) to be legally binding the deed of sale must be written, duly signed and specially attested (by a notary public), containing the terms of the conveyance. Land leases and land lease assignment documents do not have to be attested, nor do share purchase agreements of share deals. Once the parties sign and exchange a formal contract/agreement for lease, they are committed to com-plete at a specified future date (unless the agreement is both signed and completed at once). Completion may sometimes be conditional on other events, such as obtaining a landlord's consent, obtaining planning permission or completing building works. As regards sale of property the man-datory provisions of Finnish Land Code should be noted concerning, inter alia, invalid clauses.
Completion/closing - completion takes place when the conditions for the transfer of title have been met. In case the transaction does not include any conditional events, a separate closing will not be needed and the ownership or leasehold may be transferred once the formal agreement(s) is signed.
Post completion - after completion, asset transfer tax (4% in real estates, 2% in a share deal) must be paid to the Tax Office and the buyer/tenant's interest (for real estate, not for share deal) registered at the Land Register within six months. Also real estate mortgages may need to be registered.
Leases – leases are transferred to the new owner of the real estate. Transfer of ownership of leased property - lease of business premises and lease of land is gener-ally binding upon the transferee. Right of first refusal may not be given to land but may be granted to shares of a real estate company.
Usual commercial lease terms
Summary of available lease types - lease of business premises contain lease of a building or part of it for other purposes than housing. Legal terms applicable to lease of land vary depending on the type of the lease that is determined based on the purpose of the property.
Alterations/modifications - alterations are often permitted only with the landlord's consent with certain exceptions. However, depending on the type of the lease, the ten-ant may be granted a broader right to make alterations.
Assignment and sub/under letting - lease of business premises may gen-erally not be assigned without consent from the landlord. In case of lease of land the right to as-sign is dependent on the type of the lease. As regards business premises less than half of the leased premises may generally be sub lent unless otherwise agreed whereas the lease land may not be sub lent unless the parties to the lease agreement have agreed otherwise.
Destruction/reinstatement - the tenant of the lease of business premises may have the right to terminate the lease should the leased premises be destructed. In case of land lease the tenant usually does not have such right. A party may be entitled to indemnification. It is common for the tenant to be obliged to reinstate any alterations at the end of the term and to deliver the premises back to the landlord in accordance with its repairing covenants. Tenants of land leases are often compensated for improvements.
Duration of lease - commercial leases are valid for a fixed term or until further notice, depending on the type of lease. The possession shall be handed over to the land-lord upon termination of the lease.
Forfeiture/irritancy - it is stipulated in the applicable laws, for the lease of land and for lease of business premises separately, on which grounds the lease agreement may be rescinded.
Insurance - landlords usually insure buildings for which they are responsi-ble for reinstating following damage, however especially in the triple-net leases it is common to agree that the tenant insures or at least pays the costs of the insurance as well. Tenants naturally insure their equipment, machinery and their activities.
Rent review - in certain types of land lease, the rent may be tied to the cost-of-living index or construction cost index and revised annually or otherwise when agreed to be revised. Also in case of lease of business premises it is common to tie the rent to cost-of-living index or to construction cost index. Index adjustment is allowed only if the agreement is for more than two years.
Repair/decoration/furnishing - tenants are usually responsible for repair and decoration where the lease is for the whole building. Where the lease is for part of a building, the tenant is usually liable for internal repairs and decoration, while the landlord carries out struc-tural repairs of the whole building and repair and decoration of the common parts. Landlords usu-ally recover these costs from tenants through service charges.
Service charge - if a landlord repairs the structure and common parts or maintains the premises, the lease will usually provide a service charge regime under which certain costs can be recovered by the landlord from the tenants. The proportion of service charge payable by each tenant is usually calculated by reference to the area occupied by the tenant compared to the building/estate as a whole.
Tenant’s duties – tenant’s duties apply according to the lease agreement.
Termination/break clauses - land leases may be terminated only on the grounds stipulated in the Finnish Land Lease Act which vary depending on the lease type. A lease of business premises may be terminated based on the grounds stipulated in the Act on the Lease of Business Premises unless otherwise agreed between the parties.
Increasing covenant strength
Lease deposit - lease deposit is a common form of security, usually involv-ing the placing of a sum equal to three months' rent in an interest-bearing account and which can be drawn against by the landlord in the event of default. The deposit is usually released upon ter-mination of a lease period.
Surety - a company, such as parent company, or individual may be re-quired to guarantee the tenant's performance of its covenants.
Warranty - warranty can be used if agreed between the parties.
Rent deposit/bank guarantee - bank guarantees are a common form of security.
Security of tenure
Security of tenure - tenants have no statutory right to remain in occupa-tion after the lease expires if the lease term is not renewed or agreed to be lengthened. Lease agreements often contain an option for the tenant to renew the lease period.
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