On redemption procedure and pre-emption right clauses

This article has been published in Omakotikiinteistö – magazine.

Redemption clauses are often seen in articles of association. This may be a redemption option for all shares or the redemption clause may be limited to, for example, car parking spaces.

Redemption procedure

The representative of the company, that is in practice the estate manager or the Board of directors, must be careful in redemptions. When the information about sale of a share of stock in housing company reaches the company, the company must promptly notify the shareholders about the redemption opportunity. By law, this must be done within a time limit of two weeks, but there might be a shorter time limit defined in the articles of association. The actual redemption period is, in principle, one month from announcement to the company of the transfer of the share, unless this has been shortened in the articles of association. If the company fails to inform the shareholders in time, the shareholder may lose the redemption right if the redemption term expires.

The redemption price shall be paid to the company’s account within the time limit. The deadline is, by law, two weeks after the expiry of the time limit within which the claim for redemption is to be carried out at the latest. This can be shortened by the articles of association, for example, by binding the start of a deadline to the presenting of a concrete claim for redemption. The housing company has to take care of forwarding the purchase price and share certificate. Appropriate registering of transfer must be entered into the share certificate.

Pre-emption right clause

Redemption clauses should be kept separate from so-called pre-emption right clauses, which still can be seen in some old articles of association. They concern the fact that even before the transaction the share has to be offered to others for redemption (for example, in the form “If someone is going to sell the shares, the transfer must be notified …”). So this is not about a traditional redemption situation where the transfer has already taken place and is subsequently notified to the company.

Undoubtedly, most of these dispositions are handled in companies like the redemption procedure in general, and nobody comes up with challenging the procedure. However, in the opinion of legal literature the old law applies to these pre-emption rights clauses, which may mean a difficult offering of a real amount of money to the buyer for the share certificate, or in the alternative, depositing that sum to the Regional State Administrative Agencies. There are no Court rulings about this problem according to my knowledge.

It would be better to clean up such old-fashioned pre-emption right clauses from the articles of association and adjust them to match the current redemption procedure. This would help avoiding difficult situations and interpretation problems in the procedures.