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When it comes to buying real estate in Finland, making sure you fully grasp the property sales contract is essential.
Indeed, not fully understanding the document you will sign can lead to financial losses, including the forfeiture of deposits, payment of penalties, unexpected costs, legal expenses, and potential poor investment decisions.
We've heard countless stories of people making costly mistakes when signing their property agreement in Finland. We want to help you avoid the same experience.
We'll give here a very brief overview regarding the property sales contract in Finland ; if you want a full checklist, please check our property pack for Finland.
What is the Kauppakirja in Finland?
In Finland, the property purchase agreement is a crucial document in real estate transactions, known locally as "kauppakirja."
This agreement formalizes the terms and conditions of the sale, including details about the property, the sale price, and any other pertinent conditions.
The kauppakirja is legally binding once signed by both parties, the buyer and the seller. It serves as a guarantee for both, ensuring that the seller commits to transferring the property and the buyer commits to paying the agreed price.
The agreement typically includes details such as the property's exact location, size, and any liabilities or restrictions associated with it.
For international buyers or non-residents, the process is generally similar to that for Finnish residents.
However, there might be additional considerations regarding financing and legal representation. It's always advisable for international buyers to seek legal advice to navigate any specific regulations or requirements that may apply to them.
The signing of the kauppakirja usually occurs after preliminary discussions and once both parties agree on the terms.
Before signing, a deposit is often paid by the buyer. This deposit, usually a percentage of the purchase price, serves as a demonstration of the buyer's commitment. The exact amount can vary but is typically around 4-10% of the purchase price in Finland.
Comparing Finland to other countries, the real estate transaction process might have some differences, particularly in terms of legal requirements, the role of real estate agents, and the details included in the purchase agreement.
For instance, in some countries, additional steps like a formal property inspection or an appraisal might be standard, whereas in Finland, the emphasis is more on the buyer's responsibility to inspect the property.
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What should be included in the property purchase agreement in Finland?
In Finland, the property purchase agreement, or "kauppakirja," is governed by the Finnish Code of Real Estate, specifically the Real Estate Transaction Act (Maakaaren).
This act stipulates the essential elements and conditions that must be included in any property purchase agreement to ensure its legality and effectiveness.
The kauppakirja must contain specific mandatory clauses.
These include the identification details of both the buyer and the seller, a detailed description of the property (including its location, size, and any buildings or structures on it), the purchase price and terms of payment, and the date of possession transfer.
Additionally, it should detail any encumbrances or liabilities associated with the property, such as mortgages or easements.
Apart from these mandatory clauses, there are additional clauses that can be included based on the agreement between the buyer and the seller. These could cover aspects such as the condition of the property, any fixtures or fittings included in the sale, and arrangements regarding property inspection.
The agreement can also include various conditions or contingencies.
Common ones are subject to financing (where the purchase is contingent on the buyer obtaining a mortgage) and subject to inspection (where the purchase depends on the outcome of a property inspection). These contingencies provide security to the buyer, allowing them to withdraw from the agreement under specific circumstances.
In terms of authentication, the Finnish law requires that the property purchase agreement be made in writing and signed by both parties.
While notarization is not a mandatory requirement in Finland for the kauppakirja, it's often recommended, especially in transactions involving significant amounts or complex terms.
Real estate agents in Finland play a significant role in the preparation and execution of the kauppakirja. They often draft the agreement, ensuring that it meets all legal requirements and reflects the terms agreed upon by both parties.
They also facilitate negotiations and can provide advice on the inclusion of additional clauses or contingencies.
What's the signing process like?
In Finland, the process of signing a property purchase agreement, known as "kauppakirja," in a real estate transaction is structured and detailed, ensuring clarity and legal compliance for both parties involved.
Both the buyer and the seller must sign the kauppakirja, making it a bilateral agreement.
It's important to note that both "the buyer" and "the seller" can indeed be multiple people. For instance, a couple purchasing a home together would both be signatories as buyers, just as a property owned by several individuals would require all their signatures as sellers.
Regarding the required documents and information, both parties need to provide personal identification and any relevant legal documents pertaining to the property. This includes proof of ownership from the seller and, in some cases, proof of financing from the buyer.
The signing process typically follows these steps:
| Step | Description |
|---|---|
Preparation of the Agreement |
This involves drafting the kauppakirja, usually done with the help of a real estate agent or a legal representative. It includes all necessary details about the property, the transaction, and the parties involved. |
Review and Agreement |
Both parties review the draft, negotiate terms if necessary, and agree on the final version. |
Signing the Agreement |
The kauppakirja can be signed in a face-to-face meeting or remotely. Remote signing is often facilitated through digital platforms or via power of attorney, but it's essential to ensure that the method chosen complies with Finnish legal requirements. |
Deadline for Signing |
There's no fixed statutory deadline for signing the kauppakirja, but it's usually determined based on the agreement between the buyer and seller. Often, the timing is linked to other factors in the transaction, such as the availability of financing or the completion of a property inspection. |
Duration of Contract Validity |
Once signed, the kauppakirja remains valid until the obligations of both parties are fulfilled - typically, until the property is transferred to the buyer and the seller receives full payment. |
Registration |
After signing, the transaction must be registered with the Finnish National Land Survey to legally transfer ownership. This process involves submitting the signed kauppakirja along with any other required documents. |
Amendments Post-Signing |
Any amendments to the contract after signing require mutual agreement from both parties and typically a supplementary agreement or addendum to the original kauppakirja. |
Completion of Paperwork and Approvals |
The timeframe for completing all necessary paperwork and approvals varies depending on individual circumstances like mortgage arrangements, property inspections, and the efficiency of the registration process. Usually, this process can take anywhere from a few weeks to several months. |
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How is the payment handled when signing a property purchase contract in Finland?
Understanding the financial aspects of a property purchase agreement in Finland involves several key components, from initial payments to tax implications.
When you sign the sales agreement for a property in Finland, you're usually required to pay a down payment.
The typical down payment percentage for a property sale varies but is commonly around 4-10% of the purchase price. This amount can be negotiated with the seller and may depend on factors like the property's value and the buyer's financial situation.
There are upfront fees or costs associated with signing the sales agreement. These can include legal fees, real estate agent commissions (if applicable), and possibly a fee for registering the sale. These costs vary and should be clarified before signing the agreement.
The payment of the down payment is typically made to an escrow account, not directly to the seller. This ensures that the funds are secure and will be properly handled during the property transfer process.
The due date for the payment can vary.
Usually, it's agreed upon in the sales agreement and can be upon signing or set for a later date. The specific terms are negotiable and should be clearly outlined in the agreement.
Regarding tax implications, there are property transfer taxes in Finland. The buyer is usually responsible for paying these taxes, which are a percentage of the property’s purchase price.
The rate can vary, so it’s essential to understand the current tax laws.
Negotiating the down payment amount with the seller is possible. This negotiation is part of the broader discussion about the terms of the sale.
If the sale falls through, what happens to the down payment depends on the terms of the agreement.
Typically, if the sale doesn't proceed due to a failed inspection or financing contingency, the down payment may be refundable. However, this should be explicitly stated in the contract.
Regarding the source of the down payment, it can be from personal funds or a mortgage loan, depending on your financial arrangements and the lender's policies.
An attorney or real estate agent in Finland can play a significant role in handling the payment process. They ensure that all financial transactions comply with legal requirements and the terms of the agreement.
They also assist in setting up escrow accounts and managing funds.
When you make the down payment, you can and should request a receipt or confirmation of payment. This serves as proof of your compliance with the agreement’s terms and secures your financial interest in the property.
Finally, the tax implications associated with the agreement for both the seller and the buyer mainly revolve around capital gains taxes for the seller and property transfer taxes for the buyer.
The seller may be subject to capital gains tax on the profit made from the sale, while the buyer's primary tax concern is the property transfer tax.
What are the potentials risks and pitfalls?
You might be interested in reading our article about the common risks and pitfalls surrounding a property transaction in Finland.
In Finland, the property purchase agreement in real estate transactions comes with its own set of risks and pitfalls that both buyers and sellers should be aware of.
Firstly, regarding withdrawal from the agreement, the conditions under which a buyer or seller can withdraw are typically outlined in the contract itself.
In general, once the kauppakirja (property purchase agreement) is signed, backing out without a valid reason can have legal and financial consequences.
There's no standard cooling-off period in Finnish real estate law, meaning once signed, the agreement is binding unless specific conditions for withdrawal are included in the contract.
If a buyer backs out due to an inability to secure financing, the consequences depend on whether this contingency was included in the agreement. If it was, the buyer might be able to withdraw without penalty. Without such a clause,
However, the buyer could lose their down payment or be subject to further legal action.
In cases where one party fails to fulfill their obligations, the penalties are typically outlined in the agreement.
For the buyer, this could mean the loss of the down payment or being sued for breach of contract. For the seller, it could involve returning the down payment and potentially paying additional damages.
The handling of money in case of contract termination depends on the terms of the agreement. If a party is found in breach, they may lose their financial stake or be required to compensate the other party.
Comparatively, real estate transactions in other countries often include a cooling-off period, allowing buyers to back out within a certain time frame without major penalties. In some jurisdictions, contingencies such as financing or property inspections are more standardized in the purchase process.
Potential risks and pitfalls in Finnish real estate transactions include misunderstanding the contract terms, overlooking property defects, and failing to account for all financial obligations.
It's not extremely common for disputes to arise, but they can occur, particularly around property conditions or contract misunderstandings. These disputes are usually resolved through negotiation, mediation, or, as a last resort, legal action.
The process for resolving disputes typically involves legal representation and, depending on the terms of the agreement, might go through mediation or court.
In Finland, there are legal frameworks and services that assist in dispute resolution in real estate transactions.
If the property is discovered to have defects or issues after signing, the buyer's recourse depends on what was disclosed and agreed upon in the contract.
Finnish law requires sellers to disclose known defects, but buyers are also expected to conduct their due diligence. Post-purchase discoveries can lead to renegotiations, compensation claims, or even contract annulment, depending on the severity of the issue and the terms of the agreement.
This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.