A relatively new trend in Finnish city planning is the creation of so-called 3D-real estates, i.e. significant underground constructions and constructions built in the air. While these 3D-real estates may not cause many problems for the zoning authorities, the property laws currently in force are not equipped to deal with complex situations where the owners of the land area (i.e. the property registered in the official land register) and of the constructions underground and in the air above that land area are different persons.
The Finnish Land Code (540/1995), as currently in force, recognizes only traditional real estates (i.e. areas that can be specified on a 2D-map), leaseholds and fractions of real estates as the object of a mortgage. In order to register a mortgage, title to the object must first be registered with the official land register. Currently it is not possible to separately register title to, or a mortgage against, constructions underground or in the air. Title is always registered to the property, leasehold or fraction of property in its entirety and by law includes all buildings, constituents and appurtenances thereon (unless explicitly registered as belonging to a third party). A mortgage in its turn, always covers the entire property, i.e. the scope of the mortgage is identical with the scope of the property. This becomes a problem when a third party is prepared to invest in constructions situated above or beneath a property owned by another party and needs external financing for this purpose.
Although it is clear under current regulation and doctrine that a property (and a mortgage registered against the same) comprise not only the ground but also all buildings, constituents and appurtenances thereon, the scope of these items belonging to the property is not always clear. It is e.g. uncertain in some situations whether a building owned by a third party belongs to the property or not. Ensuring that a building situated on the property is covered by a mortgage is obviously of essence for any financier. Furthermore, the Land Code does not regulate the vertical scope of the property or of the mortgage, i.e. it is unclear as to how far underground and up in the air the property owner’s or mortgage holder’s rights actually extend. This has caused both controversy and litigation. When the City of Helsinki was quarrying parking spaces beneath a shopping mall in the city centre, the owners of the properties situated above ground wanted their share of the blasted rock extracted in the process.
The court ruled in favor of the city by stating that the property owners in question had no right of remuneration or any other rights to the space quarried underneath. This ruling has not, however, eliminated the problem of the property laws being open to interpretation in relation to 3D-real estates.
In the absence of regulation suitable for 3D-real estates as such, property owners have devised means to attain the desired arrangement with the help of current legislation. For example, by a possession agreement, joint owners of property can specify which part of the property belongs to which owner and thus create specified shares, which then define the scope of the mortgage registered against a certain owner’s fraction of the property. A specified share created this way can be mortgaged separately from the other owners’ specified shares, although the Land Code as such does not allow the registration of mortgage against a certain area of a property. In a recent case, property owners resorted to a 3D-possession agreement, with the purpose of forming such specified shares both beneath and above the ground. After rejecting a solution in which the specified shares would only have been floating in the air, the district court agreed to register a possession agreement, where each share located at a different level always belonged to the area located on ground level directly above or beneath that share. Division of ownership and possession rights relating to buildings is currently also possible to achieve with the help of a housing company or a real estate company. While this does not make it possible for a shareholder to mortgage the real estate, adequate security can be established through a pledge of the shares entitling to the possession of certain premises.
The City of Helsinki has lobbied hard for legislation recognizing 3D-real estates. These 3D-areas would be recorded in the land register as special units located on the property similar to a parcel or leasehold. The proposed regulation would also enable the creation of 3D-areas not only on one, but on several levels underground as well as above ground, i.e. one and the same area specified on a 2D-map could have several owners on separate levels (e.g. 5 floors underground and 5 floors above ground, all levels having different owners). To avoid the registration of 3D-areas that are never realized, the proposed regulation would provide that a 3D-area could not be registered before a building license has been issued in respect of it.
The government has taken certain initiatives aimed at the enactment of legislation recognizing 3D-real estates. In May 2006, a working group was appointed by the Ministry of Agriculture and Forestry to investigate and find solutions to the problems arisen in respect of 3D-real estates under current law. A report is expected to be issued by the working group at the end of 2007. Even though the working group has only had its initial meeting discussing the matter in general, it is clear that the overall opinion of the group already leans towards recommending a law reform that would recognize 3D-real estates. The working group plans to harvest ideas and legislative models from jurisdictions that have already implemented legislation on 3D-real estates, such as Sweden, Norway, Denmark and Australia. It is likely that the Finnish regulation of 3D-real estates will be similar to that in e.g. Sweden, due to regional and legislative similarities.
Sweden has already implemented property laws recognizing 3D-real estates by a new act which came into force at the beginning of 2004. The act makes a distinction between two kinds of 3D-real estates, a so-called pure 3D-real estate, in which the entire real estate is defined and confined both horizontally and vertically, and a so-called 3D-real estate space, which is space, confined both horizontally and vertically, but which is located in another, non-3D-real estate. The act limits the formation of 3D-real estates by requiring that the creation of a 3D-real estate must be the most appropriate measure considering the desired purpose, i.e. the formation of a 3D-real estate must serve the legislative purpose of the act, being, inter alia, to enable a more practical administration/ownership of the property and/or to facilitate the financing of the property.
According to the legislative history of the act, one of the aims of the reform was to enable the selling, mortgaging and title registration of 3D-real estates. Before the new act entered into force Sweden battled with the same problems concerning 3D-real estates as Finland. Swedish property owners and investors also devised similar means of artificially creating 3D-real estates as in Finland.
According to Swedish land register statistics, by October 2005, a total of 54 3D-real estates, of which 27 pure 3D-real estates and 27 3D-real estate spaces had been formed.
Conclusion
Until proper legislation on 3D-real estates is enacted, property investors and owners will have to resort to other means, such as possession agreements, to reach the desired outcome. Unfortunately these alternative methods require extensive judicial planning and can often easily be disassembled, which makes them difficult to manage and also risky in relation to reliability and predictability.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
