Legal structures and contractual frameworks in hybrid real estate development: a Finnish perspective

Abstract

Purpose – Hybrid real estate developments – projects that combine multiple property uses such as residential, retail and office spaces in connected buildings and constructions – pose complex legal challenges related to ownership, financing and risk allocation. The purpose of this study is to examine the legal and contractual structures governing these projects in Finland, focusing on land ownership, security arrangements, limited partnership law, co-operation agreements and debt covenants. This study explores how these legal mechanisms can improve project feasibility and mitigate financial risks of the parties. Design/methodology/approach – This study combines legal analysis with qualitative research, incorporating insights from interviews with Finnish real estate investors. The findings of this study are further illustrated through a case study of a hybrid real estate transaction, demonstrating the practical application of legal and contractual frameworks. Findings – This study identifies three key strategies for improving the success of hybrid real estate projects. These are: legal and contractual separation of different project components through vertical (between different floors) and horizontal (area) property segregation to optimise risk allocation; hybrid financing structures, incorporating tailored debt covenants and capital commitments within limited partnership agreements and capitalisation agreements; and governance provisions in co-operation agreements to define stakeholder roles and responsibilities clearly. Practical implications – Hybrid real estate developments often face financial and legal uncertainties that can impact financing, ownership and parties’ willingness to enter into such arrangements. This study highlights how legal structures and contractual mechanisms can enhance certainty, enforceability and investor participation, making hybrid real estate projects more viable under Finnish law and more generally in similar jurisdictions. Originality/value – By integrating legal analysis with empirically analysed financial risks, this paper provides a structured examination of how legal and contractual tools can address optimisation of ownership structure, allocation of risk and management challenges in hybrid developments in a legally sound manner, addressing the impediments identified in the literature. The practices and solutions used in hybrid real estate transactions have not been previously mapped. This study provides a novel way of approaching the stated challenges and solutions to the impediments in such transactions.