Alternatives for additional development

The main alternatives for the additional development of a housing company in terms of company structure are to sell (or less often rent) part of the plot or to carry out a directed share issue, in which case the new apartments built are a part of the old company. 

Different types of additional development situations require different decision-making procedures within the housing company. The decision-making procedure must also take into account the provisions on decision-making in the articles of association of the housing company. 

If there is free space on the plot, a part of the plot can be parcelled out to be sold (or rented) to the developer of the new building. In this case, the company sells the additional building rights brought about by the change of the local detailed plan. A new plot can also be created by parcelling from several neighbouring plots. On a leasehold plot, the municipality may buy back part of the leasehold plot from the housing company, in which case the lease is renewed for the remaining part.

When part of the property of a housing company is separated for sale to form a new housing company, the decision can be taken by majority vote at a general meeting. A part of a property can be separated by parcelling it out or by constructing a new building on the same plot through a management-sharing agreement. If the transfer of part of the property makes it necessary to amend the articles of association, a 2/3 majority of the votes cast and the shares represented at a general meeting is required. If the transfer concerns premises controlled by the shareholders or significantly affects the use of the shareholders' premises, the consent of all shareholders is required.

When additional development is carried out to be a part of an existing housing company and the number of shares increases, a 2/3 majority of a general meeting can decide on the sale of building rights, amendment of the articles of association and issuing shares. If the buildings are of very different levels, a provision is often added to the articles of association to differentiate the maintenance costs of the buildings on a building specific basis.

Alternative methods for additional development include raising the height of the building, extending it or converting a space in the building to another use. For example an attic or a base floor can be converted into apartments. An old building can be retained or demolished and a new building can be constructed on the plot.

The load bearing structures of blocks of flats can often withstand building one or two additional storeys; the latter is often a prerequisite for the project to be profitable. A structural engineer will study the structural options and costs of the raising solution. There are prefabricated standard solutions for raising the height of a building that reduce the construction time. Lightweight timber elements can be used to add an additional storey to a block of up to seven storeys.

Building additional storeys often requires changes to the local detailed plan. Sometimes it may be possible to obtain a deviation decision to convert an attic space to residential use. This is on a condition that the project does not exceed the threshold for major construction and that a similar deviation could be granted to others in the area. In principle, changes inside the building's exterior may be treated more favourably as deviations than projects that change the character of the building. Urban design reasons may require changes to the local detailed plan if the project involves demolishing the attic floor and replacing it with a residential floor. The assessment is always done case specifically, taking into account the characteristics of the project and the area.

The construction of an additional storey and the generated income will create an opportunity to build lifts and improve the accessibility of the building. Adding an extra storey may also avoid an otherwise imminent roof renovation. However, if additional storeys are built, it may be necessary to renovate the facade.

It may be possible to extend a building for example from the windowless end of the existing building or extend it by adding a balcony zone. If the size of the plot limits the development, a new building can be built taller than the old one. The need for changes in the local detailed plan depends, among other things, on the available building rights and the boundaries of the building site.

It might make sense to convert under-utilised areas of a building, such as above ground basements, to residential or office use. The initiative to convert a shareholder managed commercial building into residential use often comes from the shareholders, as this offers a better return on the building when selling or renting the space. 

For smaller scale additional development, the decision-making process is similar to that of a completely new building: when building an additional floor or attic, or for example, converting an office or commercial space into residential use, a 2/3 majority of a general meeting can decide to amend the articles of association and issue new shares (unless the articles of association contain a stricter provision). However, in the case of change of use, changing the management fee for a commercial space, which can be even two times the amount of a normal fee, requires the consent of all shareholders.

In a housing company, the purpose of a space is defined in the articles of association. To change this, a 2/3 majority of the shares represented and votes cast at the general meeting or a stricter provision, as may be specified in the Articles of Association, is required.

It may be possible to construct a new building on the plot in addition to the existing one, or to replace an old dilapidated building with a completely new one. Depending on the local detailed plan, it might also be possible to implement a building stock that differs from the current one, such as supplementing blocks of flats with detached houses. However, it should be noted that the lower the value of the building right in the area, the larger the additional building needed. When demolishing an old building, the amount of building rights should usually be 2 to 3.5 times that of the old property in order to achieve economic profitability.

If a residential property is in exceptionally high need of renovations, the sale of the company's shares to a property developer and new construction may be an option. This requires negotiations with the municipality on the scope and requirements of the project and a corresponding land use agreement. The scale of the new construction project and the design solutions will affect the value of the existing limited company and the plot. The shareholders of the old housing company can benefit from the increased building rights in the new local detailed plan compared to selling their shares before the plan is adopted.

An amendment to the Limited Liability Housing Companies Act to facilitate the decision-making and implementation of demolition and reconstruction entered into force on 1st of March 2019. A 4/5 majority of a general meeting may decide on such demolition and reconstruction in which the shareholders receive new apartments in the new building in accordance with the principle of equality, and the right of ownership of the apartments and other rights and obligations of the shares in the company are not changed. The law also contains provisions on the preparation of a demolition and reconstruction plan and an independent expert's opinion for decision-making purposes. Shareholders who do not wish to participate in the project have the right to demand redemption of their shares at a fair price. 

Demolition and reconstruction provides one implementation and financing option for renovation projects, especially for housing companies of buildings from the 1960s to the 1980s in growing urban areas. Demolition and reconstruction requires planned, proactive maintenance: the whole process can take 3 to 6 years longer than, for example, a plumbing renovation. Demolition and reconstruction may be the most cost-effective way to meet maintenance needs, even if the immediate investment for demolition and reconstruction was higher than for renovation and repair. The profitability of the project depends, among other things, on the condition of the company's buildings, the company's finances, the location of the property and the value of the building rights in the location area, the amount of additional building rights brought about by the local detailed plan, and parking solutions. Demolition and reconstruction counter(external link, opens in a new window) provides a general idea of how different factors affect profitability and in which housing companies it would make sense to investigate the feasibility of this option.  

Act on the demolition and reconstruction by housing companies(external link, opens in a new window)