The Direct Defense of Europe and Infrastructure Protection: The Case of Finland

The return of direct defense in Europe is very different from the defense of Western Europe in the time of East-West confrontation with the Soviet Union. A key aspect of the difference is the ascendancy of the 21st century authoritarian powers and their direct engagement INSIDE of the liberal democracies.

A key defense decision going forward for the liberal democracies clearly with regard to how to provide for infrastructure protection, whether it be cyber war and security or buying into key defense and security sectors.

In an interview we conducted in Finland at the Centre of Excellence for Countering Hybrid Threats in 2018.

Juha Mustonen, Director of International Relations at the Centre underscored a number of the hybrid threat challenges:

“We have established three core networks to address three key areas of interest.

“The first is hybrid-influencing led by UK;

“The second community of interest headed by a Finn which is addressing “vulnerabilities and resiliencies.”

“And we are looking at a broad set of issues, such as the ability of adversaries to buy property next to Western military bases, issues such as legal resilience, maritime security, energy questions and a wide variety of activities which allow adversaries to more effectively compete in hybrid influencing.”

Recently, Finland has underscored its concern about the sale of property as a strategic issue in a decision to review decisions with regard to property purchases within Finland itselfL

“From the beginning of 2020, buyers from outside the EU and EEA will need a permission to buy property in Finland.”

What follows is the presentation by the Finnish government on the Ministry of Defence website with regard to this new policy:

In which areas are permission requirements in force?

Permission requirements apply throughout Finland, with the exception of the Åland Islands. Åland is governed by the Åland Islands‘ own land acquisition legislation.

Who needs a permission to buy real estate?

A permission must be acquired when one of the following parties buys a real estate:

1. A private individual who is not a national of a state belonging to the European Union or the European Economic Area (EEA). Note! People with dual nationality do not need to obtain a permission if one of the nationalities is in an EU or EEA country.
2. A company or other entity domiciled outside the EU and the EEA.
3. A company or other entity domiciled in the EU or the EEA, but in which a private individual or entity referred to in paragraph 1 or 2 has ownership of at least 10% or equivalent effective influence in the entity.

When assessing ownership or influence, separate owners are not counted together. Therefore, the fact that a total of at least 10% of an entity’s ownership is outside the EU and the EEA does not necessarily result in an obligation to apply for a permission. The decisive factor is whether one of the individual parties has a shareholding or an equivalent de facto influence.

More detailed provisions on the calculation of influence are laid down in section 1 of the Act.

Note! The nationality or domicile of the seller or other supplier of the real estate does not affect the need for a licence.

Examples:

1. The buyer is a Finnish private individual. A permission is not required.
2. The buyer is a Norwegian private individual. A permission is not required.
3. The buyer is an Indian private individual. A permission is required.
4. The buyer is a Finnish limited liability company wholly owned in the EEA. A permission is not required.
5. The buyer is a German limited liability company, 15% of whose shares are controlled by one Canadian limited liability company and 85% are owned by a German party. A permission is required.
6. The buyer is a German limited liability company, 8% of whose shares are controlled by one Canadian limited liability company, 7% controlled by a Chinese limited liability company and the remaining 85% owned by a German party. Foreign holdings are not counted together and no individual entity outside the EU or the EEA has at least 10% ownership of the company within the meaning of the Act. A permission is not required.

Note! However, group structures and artificial arrangements are taken into account, and the obligation to apply for a permission cannot therefore be circumvented by cutting ownership to several formally separate owners or by chaining ownership. A permission is always required if an individual entity outside the EU and the EEA has an effective influence of 10% ownership or equivalent to it in the entity buying the real estate.

The Ministry of Defence may also require that a permission is applied for if it is evident that the real estate has been bought on behalf of another person in order to circumvent the obligation to apply for a licence.

Who applies for permission to acquire foreign real estate?

The buyer of real estate or an agent authorized by the buyer.

When will the reform enter into force?

The permission requirement applies to property transactions that are confirmed on or after 1 January 2020.

Is a permission required to buy a housing share or renting a real estate?

No. A permission is only required to buy a real estate. Buying a real estate means a legal act by which the ownership of a real estate or specified share or parcel of it is transferred to another party.

At what stage must a permission be applied for?

A permission application should be made as early as possible when the object of the real estate transaction is known.

Will the real estate deal be cancelled if a permission is not granted?

Not automatically. The granting or refusal of a permission does not in itself generate a real estate transaction or the granting of a legal appeal.

If the real estate transaction has been confirmed despite a refusal of a permission or before the application was turned down, the buyer shall sell or otherwise dispose of the real estate within one year. The deadline will be calculated from the date on which the refusal of authorisation entered into force. If the buyer does not relinquish the real estate within one year, the authorities shall sell the real estate by means of an expropriation or other similar method.

Do you need a separate permission for each real estate?

The permission is real estate-specific, i.e. a separate permission must be applied for for each real estate that is bought.

A refusal to grant a permission is also real estate-specific and does not necessarily prevent the same person or entity from buying another real estate in Finland.

Who will receive the applications?

Permission applications shall be submitted to the Ministry of Defence electronically.

What information must be provided in the permission application?

The permission application shall indicate the parties to the transaction and the intended use of the real estate. The Ministry of Defence is also entitled, if necessary, to request further information from the permission  applicant.

The Ministry issues more detailed instructions on applying for a permission nearer to the entry into force of the Act.

In which languages can a permission application be submitted?

Applications can be submitted in Finnish or Swedish. The decision shall be issued in the official languages; Finnish or Swedish.

How long will it take to process permission applications?

The aim is to process the applications within 3 months.

How much does it cost to apply for a permission?

A permission application is subject to a processing fee, which shall be paid in advance of the processing. The amount of the fee shall be confirmed at the end of 2019. The fee is charged irrespective of the outcome of the application process and will not be refunded even if a permission is refused.

Can a negative decision be appealed against?

An appeal against a decision may be made to an administrative court.

Where are licence applications sent?

They are sent either by e-mail to [email protected] or by post to address Ministry of Defence, PO BOX 31, 00131 Helsinki, Finland.

Applications cannot be brought in person to the Ministry.

Further information on foreign property ownership can be required from the Ministry of Defence by email: [email protected]

You may contact the Ministry of Defense by phone in questions concerning the foreign ownership of real estate and state´s pre-emption on weekdays between 09.00 – 16.00. The phone number is +358 (0) 295 140 090.
If you don´t reach us by phone immediately, please contact us by e-mail. Unfortunately we can´t answer the question by phone on the week 4, between 20. – 24.1. Please contact us by e-mail during that time!

Further information and links to legislation

The legislation on ensuring national security in land use and real estate ownership will enter into force on 1 January 2020. The acts will make it easier to take national security into account in the selling and buying real estate and land use planning.

The legislative package contains a total of eight acts:

1. Act on Permission Requirements in Real Estate Acquisitions
2. Act on the State’s Right of Pre-emption in Certain Areas
3. Act on the Redemption of Immovable Property and Special Rights to Ensure National Security
4. Act amending the Land Use and Building Act
5. Act on amending Chapter 12, section 2 of the land code
6. Act on amending section 6 of the Act on Cooperation with Notaries.
7. Act amending section 6 of the Act on the Land Information System and Related Information Service 
8. Act amending the Act on the Official Purchase Price Register
9. Government Decree on the duty to approve certain property acquisitions

Who is responsible for supervising business acquisitions?

If the real estate purchase is related to business acquisition, Ministry of Economic Affairs and Employment provides further information concerning the matter.

https://tem.fi/en/acquisitions

State’s right of pre-emption

The new Act on the State’s pre-emptive right will enter into force on 1 January 2020. Under the Act, the State has the pre-emptive right in real estate transactions in the immediate vicinity of strategic sites. If the State exercises its right, it becomes the acquirer of the real estate instead of the purchaser on terms agreed in the deed.

Since the State’s right of pre-emption is only valid in strictly limited areas, it affects a very small proportion of real estate transactions in Finland. If the real estate being traded is located in an area where the State has the right of pre-emption, registration of title to real estate will be issued only after the three-month period set for the exercise of the pre-emptive right to buy the real estate has expired or the State has declared that it will not exercise its right. In other respects, the State’s right of pre-emption has the same legal effects and procedures as the municipality’s right of pre-emption in force since the 1970s.

The real estate owner may, if they so wish, request prior information from the Ministry of Defence on whether the State intends to exercise the pre-emptive right. A fee shall be charged for requesting this information and the State is not obliged to provide the requested advance information.

 Scope of the State’s right of pre-emption

The State has the right to buy real estate located or part of which is located:

1) in areas designated in the regional plan, local master plan or local detailed plan for the needs of the Defence Forces or the Border Guard or at a distance not exceeding 500 metres from them;

2) at a distance of not more than 1,000 metres from communications stations, radar stations, aerodromes or ports, or from lesser sites than these serving the water traffic or aviation of the Defence Forces or the Border Guard under normal conditions, during incidents or emergencies;

3) at a distance not exceeding 500 metres from real estates, used by the Defence Forces or the Border Guard, that are not the same as those referred to in paragraphs 1 and 2, where the activities carried out require a protected area.

The State’s right of pre-emption is not valid in the Province of Åland.