After the new Finnish Act on a Register for Housing Company Information and the amendment to the Finnish Housing Companies Act came into force on 1 January 2019, a new electronic register for housing company information (Register) maintained by the National Land Survey of Finland (NLS) was introduced. The purpose of this Register is to collect the share registers of housing companies and, as such, to centralise all information on shares and share pledges in one register.
In Finland, the ownership of shares in a housing company has previously been based on the possession of physical share certificates. This new development marks the end of a certain era as all new housing companies and mutual real estate companies (MREC) must be established digitally from 1 January 2019 onwards, and the ownership of shares in housing companies and MRECs will be based solely on a digital entry in the Register from now on. MRECs are companies often used by professional real estate investors in indirect ownership of commercial and office buildings. The shares of an MREC entitles the shareholder to occupy a specific part of the building (and sometimes land) owned by the real estate company as stipulated in its articles of association.
Along with the reform, a new platform for the digital trading of shares in a housing company or an MREC has been introduced. This platform will enable the digital trading of these shares once banks, real estate developers and other market players as well as the authorities gradually begin using the platform.
The following key changes took effect on 1 January 2019 and apply to all housing companies and MRECs that are established after 1 January 2019:
- all new housing companies and MRECs can only be established digitally;
- the share registers of new housing companies and MRECs are kept in digital form in the Register maintained by the NLS;
- ownership of and pledges on shares are based on a digital entry in the Register; and
- physical share certificates will no longer be printed.
- The following key changes will take effect on 1 May 2019 and apply to all housing companies and MRECs that were established prior to 1 January 2019:
- existing housing companies are obliged to transfer their share registers to the Register maintained by the NLS by 31 December 2022;
- MRECs may join the Register, but they are not obliged to do so;
- shareholders can apply for the digital entry of their share ownership as well as for the cancellation of their physical share certificates within 10 years after the relevant housing company has transferred its share register to the Register; and
- in the event of a change in ownership, all new shareholders must apply for the digital entry of their share ownership within two months from the signing of the transfer deed if the housing company has transferred its share register to the Register and the previous shareholder has not yet applied for the digital entry.
The reform will have a practical effect on real estate investors, owners and developers. The Register is public and allows anyone to purchase information e.g. on the shareholders of any housing company. In principle, nothing changes in terms of publicity since share registers have already been public as companies in Finland have the duty to disclose information regarding their shareholders upon request. However, information will become more easily available as it can now be directly obtained from the Register.
The amendments will also have an impact on the different phases of real estate transactions. In terms of due diligence processes, reliable information concerning ownership and pledges will from now on be available directly from the Register. Furthermore, the amendments will affect the completion of real estate transactions as the new owner must apply for the digital entry of their ownership upon completion by presenting the seller’s consent (or physical share certificates if they still exist) to the NLS. In terms of a share pledge, the pledgee can apply for the digital entry of the share pledge by presenting the owner’s consent to the NLS.
Existing housing companies can transfer their share registers to the Register free of charge from 1 May 2019 to 31 December 2022. Any failure to meet this deadline results in the transfer becoming subject to a fee. Pursuant to a recently issued government bill concerning this topic, the size of this fee will depend on how many companies do not transfer their share registers by the deadline. As such, the current deadline is not absolute, and the share register can be transferred even if the housing company misses the deadline. It is inadvisable, however, to miss the deadline since the resulting costs may be unpredictable. Further, it is in the best interests of all players to be involved in the Register as relevant information will be centralised and safe in the Register, and transactions can be carried out more conveniently as a result. For example, missing share certificates or mortgage notes will no longer affect the completion of transaction.
Implications for mutual real estate companies
All new MRECs will be established digitally from 1 January 2019 onwards, regardless of whether they apply the Finnish Companies Act or the Finnish Housing Companies Act. Therefore, even if a new MREC wishes to rule out the application of the Finnish Housing Companies Act in its articles of association, the MREC cannot opt out of it in its entirety. This is because MRECs must apply Chapter 2 Section 1a of the said Act that pertains to the Register.
MRECs established prior to 1 January 2019 can transfer their share registers to the Register, if they wish to do so, from 1 May 2019 to 31 December 2022. In practice, this transfer will be implemented by adding a provision to the relevant MREC’s articles of association stating that the MREC’s shares are included in the Register. After this provision is implemented, the share register must then be transferred to the Register. As mentioned above, the share registers of MRECs do not necessarily have to be transferred to the Register. However, on the above-mentioned grounds, it is also in the best interests of MRECs to join the Register.
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