Building law and regulation in Finland during Covid-19

The traffic at the border crossing points of Finland has been temporarily restricted as of 19 March 2020 pursuant to the Finnish Border Guard Act (578/2005) which is relevant for foreign construction workers. As of 14 May 2020, these restrictions were partially lifted and employment or commission-related commuting as well as other essential traffic is now allowed across the Schengen internal borders. At border checks, a person arriving from abroad to work in Finland may be asked to present documents proving their work-related grounds for entry. Employment or commission-related traffic is not allowed across external borders, i.e. between Finland and a non-Schengen state. However, the restrictions do not apply to essential and justified traffic, such as work that is important for the functioning of society or security of supply that cannot tolerate delay. It is also recommended that all persons arriving in Finland self-isolate for a period of 14 days. Transport of goods from abroad, such as construction materials and equipment, has not been restricted at any point. Please note that these restrictions may be subject to change at a short notice.

The Finnish Government has prepared a financial support package mainly through Finnvera Oyj, a Finnish state-owned financing company, to support companies and minimize the negative effects of the COVID-19 outbreak. The primary operating model of Finnvera is to offer guarantees to banks that grant loans to companies. Finnvera also grants loans. Additional funding has been made available through Business Finland (for SMEs and midcap companies whose business is affected by the COVID-19 outbreak), Finnish Industry Investment (for private equity funds and its investee companies as well as for medium-sized companies affected by the COVID-19 epidemic) and the Centres for Economic Development, Transport and the Environment (for SMEs).

"If a party is prevented from or delayed in fulfilling its contractual liabilities due to the effects of the COVID-19 pandemic, there may be grounds for invoking force majeure either based on the contract in question or the Finnish law. The threshold for invoking a force majeure event in commercial contracts is high and always subjec to a case-by-case assessment. 

The Finnish law in general recognises force majeure as a general principle for limiting a party’s liability even without an express contract provision. As a rule, invoking a force majeure event requires that the event could not be foreseen at the time of entering into the contract and the event prevents or delays the performing party from fulfilling its contractual duty. The affected party should notify the other party of the force majeure event without delay. As a consequence of a force majeure event, the affected party may be relieved from its obligation to perform for the duration of the force majeure event. The Finnish Sale of Goods Act (355/1987) recognises also situations in which a performing party may be relieved from its obligation to perform due to an impediment that the party cannot overcome, and may be relieved from its obligation to pay damages if the damage was caused by an impediment beyond its control. A party’s contractual obligation may also be adjusted or entirely set aside, if the application of the contractual provision in question would lead to an unfair result pursuant to the Finnish Contracts Act (228/1929). 

If the contract in question includes a force majeure clause, such clause may limit the potential force majeure events to only those listed in the clause, and these provisions cannot generally be interpreted expansively. A contract may also set out a specific procedure for invoking a force majeure event, such as a notice period and form requirements for the notice. Further, the contract may also specify the consequences of the force majeure event, such as the price and time.

So-called Finnish General Conditions for Building Contracts (‘YSE 1998’) are widely used in the construction contracts in Finland. The YSE 1998 terms include a list of potential force majeure events. The list does not comprise e.g. disease, epidemic or pandemic, but includes e.g. exceptional cirumstances referred to in the Finnish Emergency Powers Act (1552/2011) that may affect the contractor’s possibility to engage necessary workforce or procure materials and equipment as well as other similar unforeseeable and exceptional events beyond the control of the party. Under the YSE 1998 terms, as a rule, a force majeure event may entitle the contractor to a reasonable extension of time. Further, the client may be liable to compensate certain costs to the contractor, such as the site security expenses, heating and other energy costs and the costs of protecting, servicing and maintaining the site. The client is also liable to contribute towards the other costs incurred by the contractor, the size of the contribution amounting to 2 % of the average daily cost of the building contract per working day for the first 5 working days of the interruption and 1 % per working day thereafter. The average daily cost is calculated by dividing the contract price (excl. VAT) by the number of working days in the building contract period."

Under the Finnish law, a party may terminate a contract due to a material breach of the contract by the other party. The contract in question may also set out an express right to terminate the contract in certain circumstances due to a force majeure event. For example, under the YSE 1998 terms, both the client and the contractor (each individually) are entitled to terminate the contract if it is necessary to interrupt the building work for a long and indefinite time due to exceptional circumstances referred to in the Finnish State of Defence Act (1083/1991) or the Finnish Emergency Powers Act (1552/2011) or a similar force majeure event. 

In general, the measures affecting the construction sector taken by 22 May 2020 have generally been founded on existing legislation, but the measures have been implemented by means of new Government Decrees, Government Decisions and local authority decisions issued based on such existing legislation. For example, the adoption of the new Government Decision on 17 March 2020 which implemented the restriction on the traffic at the borders of Finland pursuant to the Finnish Border Guard Act (578/2005) may amount to grounds for invoking a change in law depending on the wording of the 'change in law' provision of the contract in question. Please note that the construction contracts seldom include any explicit 'change in law' provision separate of force majeure provisions in Finland, but change in law circumstances may fall under the scope of force majeure events depending on their concrete effects in which case their price and time consequences are generally the same as above.

Employers are liable to take care of the safety and health of their employees at work by taking the necessary measures pursuant to the Finnish Occupational Safety and Health Act (738/2002). Further, on a shared construction site, the employer in main contractor position is liable to ensure the general safety and health of the working conditions and the working environment. Further provisions targeted at ensuring safety in different stages of a construction project are set out in the Government Decree on the Safety of Construction Work (205/2009). These provisions may set out liabilities to the employers and contractors that should be observed e.g. in the working conditions.

"The Ministry of Environment has set up a working group to follow the situation in the housing and construction sectors and to give proposals for necessary measures. The working group has not provided such proposals yet. 

In the private sector, the Finnish Association of Property Owners and Construction Clients (Rakli ry) has proposed a set of measures to support the housing and construction sectors. These measures include legislative measures targeted at increasing new housing construction projects (e.g. reduced value added taxation of new construction of rental apartments), promoting carbon-neutral investments (e.g. subsidies for energy efficiency improvement projects) and state aid to property owners for loss of rental yield due to COVID-19 outbreak. The proposed measures also include such measures that do not involve direct financial support from the state, such as streamlining planning and permitting procedures of construction projects."