Country - Czech Republic
Sale and Purchase
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A. ACQUISITION OF REAL ESTATE
Applicable legislation
Transfer of title to real estate is generally governed by Asct No. 40/1964 Coll. Civil Code as amended ("Civil Code"), with supplementary provisions of Act No. 265/1992 on "registration of ownership and other in rem rights to real estate", as amended ("Registration Act").
Is the purchase of real estate assets by foreign investors subject to restrictions?
Yes. The law distinguishes between two categories of real estate: agricultural land and other real estate.
Agricultural land may only be acquired by foreign entities in exceptional circumstances which are listed in the above-mentioned Act (for example, by inheritance, co-ownership of land with a spouse who is a Czech citizen, or as a gift from a sibling, spouse or other immediate relative).
In addition, agricultural land may be acquired by foreign entities if they run an enterprise or have an organisational unit (permanent establishment) in the Czech Republic and are entitled to do business there.
Do different legal regimes apply to the transfer of title to different kinds of real estate (commercial, residential, manufacturing)?
No.
Do mandatory pre-emption rights apply to the sale of real estate assets?
Yes, but these pre-emption rights apply only in exceptional circumstances. They apply to culturally significant real estate, certain agricultural land and real estate located in an environmentally protected area.
Where a share in co-owned land is disposed of, the co-owners have statutory pre-emption rights.
Is expropriation (compulsory purchase) possible?
If so, under what conditions?
Yes, expropriation is possible under specific conditions. It must be in the public interest and carried out only for certain explicit purposes stated by law. Although expropriation is extremely rare in practice, a special type of proceeding for expropriation matters is set out in Act. 183/2006 Coll. of the Building Code, to protect the owner's interests.
Is real estate registered?
If so, is this official information made available to the public?
All real estate (with the exception of underground structures) is registered in the Cadastral Register. This is administered by special "cadastral offices", which are each responsible for their own district. The Cadastral Register contains general information about real estate, including: the name of the owner; size; type and permitted use (for example, agricultural land, built-up area, wasteland, meadow, residential, industrial, etc.); any specific categories of protection (for example heritage property, agricultural land, etc.); and any encumbrances (such as pledges, mortgages, easements and pre-emption rights). It also records how the title to ownership has been acquired and other significant information.
Some real estate is still registered in a so-called "land register": an institution which predates the Cadastral Register. It still contains residual information on some real estate which has not been carried forward into the Cadastral Register, since the process of incorporating the land register into the Cadastral Register is still ongoing. However, the number of entries remaining in the land register is limited.
Is transfer of title recorded?
Can other related deeds (for example, preliminary sale agreements) be recorded?
Yes, transfer of title must be recorded in the Cadastral Register to be effective. All transfer documents are subject to review by the relevant cadastral office, which examines whether all the legal requirements of the transfer have been met. If this is not found to be the case, the parties to the transaction must remedy the situation, otherwise the transfer cannot be registered. However, since the cadastral office examines only certain aspects of each transaction, it cannot be held responsible if the transfer proves to be invalid for some other reason.
Only three other types of deeds are registered in the Cadastral Register: pledges and mortgages; easements; and certain types of pre-emption rights. Preliminary sale agreements and other deeds related to a transfer cannot be recorded.
Do buyers usually carry out due diligence?
If so, what due diligence is typically conducted and what is its timing (i.e. before or after contract execution)? Is there any protection for the buyer during the due diligence period (for example, an exclusive right to negotiate or buy)?
Yes. The extent of due diligence depends on the type of real estate. In-depth legal due diligence is normally carried out in relation to land since, for historical reasons, the information in the Cadastral Register is not completely reliable. This especially applies to pre-1993 records. Special attention needs to be paid to so-called "restitution claims" which may have been filed by individuals, or by institutions like churches and civic associations, for the restitution of their title to holdings which were nationalised under communist rule. Due to the enormous number of claims made, not all have yet been fully resolved. Due diligence usually provides an accurate evaluation of the history of titles and therefore provides investors with the certainty they require.
Due diligence in relation to buildings is normally less complicated and concentrates on the validity of title and of building and use permits.
Due diligence will also cover any encumbrances on the real estate, and any leases and contracts relating to the property.
Due diligence is normally carried out before purchase.
The buyer will normally provide for a period of exclusivity. This can either be in a non-binding form, such as through letters of intent or heads of terms, or set out in a binding contract for future purchase.
Is title insurance available?
Not normally.
How are deals typically structured?
Deals are normally either in the form of direct acquisition of the real estate (asset deal) or of acquisition of the company holding the title to the property (share deal). The format chosen is mostly dependent upon considerations of tax liability and risk, in the context of the particular type of real estate and the reliability of the other party to the transaction. A share deal provides certain tax benefits but there can be some associated risks for the holding company.
In the case of an asset deal, the purchase price is normally paid via an escrow agent (notary public, bank or attorney at law). This means that the final amount is paid by the buyer into an escrow account. The purchase contract is then signed by all relevant parties and the buyer's title is registered with the Cadastral Register. Only once the formalities have all been completed satisfactorily is the purchase price finally transferred to the seller.
B. STRUCTURE OF THE CONTRACT
Are there formal requirements regarding the content and structure of the sale and purchase contract?
The deed of transfer must be made in writing and the signatures of the parties must be on the same page. The deed must specify exactly what the object of the transfer is, and either what the purchase price is or how it will be determined.
In order to register the contract in the Cadastral Register, the parties' signatures must be authenticated by a notary public, local authority (matrika), attorney at law or by another method prescribed by the Registration Act.
Any preliminary contract must take the same form as the final deed of transfer.
Transfer of title is effective upon the registration of the buyer's ownership in the Cadastral Register.
What is a typical contract like?
The content of the contract is negotiable. In addition to the legal requirements, a typical contract includes the method of payment, and details of any seller's warranties and representations relating to the property.
What seller's warranties are provided under statute (for example, the state of the building, asbestos, etc.)?
Can they be excluded or varied by contractual agreement? Is there a deadline for claims to be made?
According to the Civil Code, the seller must inform the buyer of any defects he is aware of in the property. The term "defects" covers factual defects (such as pollution, asbestos, etc.) as well as legal defects (such as the rights of third parties etc). If he fails to do so, the buyer is entitled to receive a discount on the purchase price and, in some circumstances, to withdraw from the agreement.
If the buyer withdraws from the transaction, he is entitled to receive a refund of the price paid for the property and to obtain compensation for damages.
Claims must be made without "undue delay", and no later than six months after the buyer has had an opportunity to inspect the property.
What are the buyer's remedies against misrepresentation by the seller?
As explained above, the buyer is entitled to receive a discount on the purchase price and, in some circumstances, to withdraw from the agreement.
In addition, the buyer has the right to withdraw from the agreement if the seller assures him that the real estate in question has certain qualities, in particular those required by the buyer, or that it is free from defects, and this is subsequently proved to be untrue.
Are there any interests in real estate other than exclusive ownership?
If so, what are they?
In addition to a standard ownership right, which gives the owner of a property the right to use, encumber and dispose of it, Czech law also recognises the right of easement: the right to use a property either for a definite or indefinite period of time. This right can be held by specific individuals or can be held in rem. In the latter case the right is created for the benefit of another property (usually a neighbouring one), and all owners of that property, regardless of who they are, are entitled to benefit from it.
C. PUBLIC LAW ASPECTS RELATED TO THE ACQUISITION OF REAL ESTATE
What are the most important areas of public law for an investor to consider when purchasing real estate?
The following areas should be verified by the buyer:
- If the building has not yet been erected, then zoning and town planning provisions should be confirmed. This should be done with reference to the general Master Plan (Uzemni plan) and the related technical rules (in Prague: Obecne technicke pozadavky an vystavbu v Praze - OTPP). Checks should include whether the plot of land can be used for its intended purpose and whether the proposed building can be erected on the plot.
- If the building has already been completed, then the "use permit of a building" (kolaudacni rozhodnuti or Kolaudace) should be reviewed. This certifies that the building:
was constructed in accordance with the building permit;
complies with the relevant technical regulations; and
can be used for the purpose stated in the use permit.
- In all cases, the buyer should review the building permit and technical drawings to ensure they comply with the Master Plan, technical regulations, etc.
Is the buyer of a real estate asset responsible for soil pollution or contamination of the building even if it is not caused by him?
The person who originally caused the contamination or pollution of the soil is responsible for the damage.
How can a buyer ascertain the possible uses of an area under the applicable zoning or planning laws?
Can uses be changed?
The Master Plan, together with the local technical rules, gives an overview of the possible uses of specific areas.
Local authorities will issue a confirmation of the possible uses of a plot of land upon receipt of a written request by the owner.
Is it possible to enter into specific development agreements with relevant public authorities in order to facilitate a project?
Can public authorities make a charge for this?
According to the Act on Concessions the public authorities do not charge for entry into a specific development agreement on which basis occurs the Public and Private Partnership.
The current Czech legal environment is not very favourable for Public Private Partnerships. However, the projects initiation can be realised already (e.g. sections of D3 Motorway, Guarded Prison, Justice Courts). In any case, changes in appropriate legislation were enforced, especially in Acts on Public Contracts, Public Property, Budgetary Rules as well as a new Act on Concessions.
D. TAXES RELATED TO ACQUISITION OF REAL ESTATE
Are there transfer taxes or sales taxes?
Real estate transfer tax amounts to 3% of either the purchase price or the value of the real estate as determined by an official assessment, whichever is higher.
VAT may also apply to certain types of transactions.
What are the normal transaction costs?
- A fee for registration with the Cadastral Registry of CZK 500;
- fees for the authentication of signatures (paid to a notary or local authority) at CZK 30 per signature;
- where the purchase price is paid via an escrow agent, an escrow fee will be payable: the amount depends on the value of the transaction;
- other fees, for example the cost of lawyers, technical consultants and agencies.
How are transaction costs shared by the buyer and seller?
The seller is legally responsible for paying real estate transfer tax ("RETT"). The buyer, however, is also liable and may be required to pay the RETT if the seller fails to do so. The registration fee is normally paid by the buyer while the escrow fee is usually shared equally by both parties.
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