THE SUPREME Administrative Court of Finland (KHO) on Monday ruled that renting an owner-occupied house to a tenant for even a short period of time constitutes an interruption in continuous occupancy, thus potentially affecting the tax implications of selling the house.
The Finnish legislation stipulates that people who sell a house they have owned and occupied continuously for at least two years are exempt from capital gains tax at the time of sale.
Kristel Pynnönen, a deputy chief legal counsel at the Finnish Real Estate Federation, told Helsingin Sanomat on Monday that the ruling indicates that renting an owner-occupied house for even a single night will be regarded as an interruption in the occupancy period.
“If you think about it from a tax viewpoint, it’s definitely understandable. When the flat is your own home and you don’t get any income from it, you don’t have to pay a tax when you sell it. The seller gets a tax break. But if you rent the flat and get even a bit of income, it doesn’t matter how long the flat was rented,” she said.
KHO on Monday also issued a ruling in another case with potential ramifications for short-term rental operations.
Easy Home Helsinki, it ruled, had infringed on the law by renting 11 furnished units in the same housing company to short-term tenants, as such recurrent renting was comparable to an accommodation operation and thus in violation of specifications laid down in the zoning plan and building permit.
The same conclusion had been drawn by the Helsinki Administrative Court.
Pynnönen said to Helsingin Sanomat that the ruling clarifies the rules on accommodation operations in housing companies but does not automatically prohibit the provision of short-term accommodation services. It remains possible, she explained, to rent a flat for the duration of a holiday, for example, as long as it is not in violation of the zoning plan or building permit.
In a case linked to a unit in a terrace house in Rovaniemi, the court ruled that short-term renting cannot be considered typical activity for a residential area in Northern Finland.
Veli-Matti Aittoniemi, the director of legal affairs at the Finnish Hospitality Association (Mara), stated to YLE that the rulings are interesting in that they were justified with the impact of accommodation operations.
“The impact of an accommodation operation differs from that of permanent occupancy, as people come and go constantly,” he noted. “The zoning plan, among other things, protects residents by allowing them to assume there’s no accommodation-like operation. This is a perfectly justified viewpoint from the court.”
KHO in its ruling referred to expectations that are “predictable and justified”.
Jenni Hupli, the chief legal counsel at the Finnish Real Estate Federation, similarly viewed to the public broadcaster that examining the impact of use is a rational approach to the question.
“KHO has also in its earlier decisions taken into account the effects, such as the lack of so-called social control brought on an area of detached homes by a short-term accommodation operation,” she reminded.
Individuals engaged infrequently in the rental business should not draw any conclusions from the rulings, given their case-specific nature. Experts at Mara and the Finnish Real Estate Federation are presently trying to figure out what the ruling would have been if three or seven flats had been rented instead of 11 or if the commercial property downstairs had functioned as a reception.
“Changing any element would make it a new case that’s subject to interpretation. Our hope is that there issues are resolved as quickly as possible with laws rather than independent rulings based on interpretations,” stated Hupli.
Aleksi Teivainen – HT