Legal Alerts/4 Apr 2017

Legal Alert – Three-Dimensional Real Estate Formation Provisions To Be Included in Legislation

The legislative working group established by the Finnish Ministry of Agriculture and Forestry has finished its proposal for bill regarding a three-dimensional (3D) real estate formation. The aim of the proposal is to amend the Finnish Real Estate Formation Act, Real Estate Register Act, and Land Use and Building Act to enable the creation of 3D real properties both above and underground in a city plan zone. The Ministry has sent the draft proposal for comments on 15 March 2017. If the Finnish government decides to present the proposal in accordance with the draft proposal and the Finnish Parliament adopts it, new provisions would take effect and real properties could be formed in a 3D form in addition to the traditional two-dimensional (2D) form, i.e. both vertically and horizontally. The traditional 2D real properties would, nevertheless, remain as the principal rule in real estate formation.

Proposed amendments

  • No changes to the real estate formulation. The current formulation process used in 2D real properties applies to 3D real estate formulation as well, i.e. they would be formulated through subdivision or partitioning. When forming a 3D real property for the first time, the property formation’s object would be the two-dimensionally restricted real property i.e. the “basic real property” situated at the ground, which would serve as a basis for forming two or several 3D real properties. The number of 3D real properties formed above or under the basic real property would not be restricted. The 3D real estate formation would always require a city plan and a binding subdivision plan in a building block area. After these amendments, law would allow the creation of a binding underground subdivision plan as well.
  • You can establish three-dimensional easements, for example, for allowing access to a 3D real property situated in a city plan area. In addition, the Finnish Land Use and Building Act would be amended to enable you to form building easements and joint arrangement agreements for organising 3D real properties’ interrelations and their necessary relations to basic real properties
  • Commissioning of 3D real properties would not fully change the current real estate system into 3D form. The purpose is not to change the characteristics of a traditional 2D real property. Instead, a 3D real property would be a three-dimensional closed space marked off from a 2D real property. The legislation would not require three-dimensionality but 3D real estate formation would be an option if legal requirements were met.

Effects of the proposed amendments

Currently hybrid building projects, i.e. spaces built above each other for different owners and for different purposes of use, are executed by forming a fractional part-ownership of a real estate. As a result of this, the joint owners  have usually agreed on the possession of different real estate elevations in a joint possession agreement under the Finnish Code of Real Estate. After the reform, new projects could still be executed through joint possession agreements and this legislative change would not bring any changes to previously executed projects or to agreements regarding these previous projects.

The 3D real estate formation would form an alternative way of owning and managing hybrid projects’ areas and spaces. The benefit of the 3D real estate formation compared to the joint possession agreement model would be its stronger permanency. Depending on the final phrasing and interpretation of the new provisions, the owners of 3D real properties could face a more independent position and control compared to the joint owners of a real property acting under a joint possession agreement.

Borenius’ lawyers are available to assist in addressing any questions you may have regarding this client alert. Please feel free to contact any of the Borenius attorneys listed in this alert or those with whom you usually work.

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