The most common securities created in order to secure real estate financing are the following:
In addition, it is common to enter into agreements in the form of notarial deeds consenting to the direct enforceability of the relevant borrower's payment obligations.
Last modified 22 Mar 2024
Real estate is defined in the Czech Civil Code as including:
(i) plots of land
(ii) underground structures with a separate special-purpose designation
(iii) rights in rem and other rights defined as real estate by law, such as right of superficies
Structures connected to the land are considered to be part of the land.
A mortgage may also cover:
(iv) flats
(v) non-residential premises.
The rights included in a mortgage also affect associated facilities, additions and unharvested production from the land.
Real estate may also be the subject of the pledge of an enterprise in the case that the real estate belongs to such enterprise.
Last modified 22 Mar 2024
The concept of a trust or beneficial ownership is expressly recognized by the Civil Code. According to the relevant provisions, for legal purposes, the trustee acts as a representative of the owner.
Last modified 22 Mar 2024
Generally, a creditor may assign its receivables to third parties, preferably by written agreement and the consent of the debtor is not required. The assignment will also include 'accessories' (ie the right to receive interest, delay penalties, delay fees and costs relating to pursuing the receivable) as well as other rights connected to the receivable. If the assignment conflicts with the agreement concluded with the debtor, the receivable cannot be assigned.
The assignor must notify the debtor of the assignment without undue delay. Until the debtor is notified of the assignment or until the assignee proves the assignment to the debtor, the debtor can discharge its obligation by paying the assignor. If performance of the assigned receivable is secured by a pledge, guarantee, or in any other way, the assignor must notify the person who granted it, otherwise the assignment has no legal effect towards the grantor.
By the perfection of the assignment, the assignee acquires the legal status of the assignor (in place of the original lender). The legal status of the debtor is not changed by the assignment.
Last modified 22 Mar 2024
There are no restrictions on granting security to foreign lenders.
Should the foreign lender be a bank, specific requirements relating in particular to banking licences must be satisfied.
And, of course, all lenders are subject to the Anti-Money-Laundering regulation.
Last modified 22 Mar 2024
Fees related to the registration of a mortgage right over real estate in the cadastral register amount to CZK 2,000.
Notarial fees for a deed relating to any of the following:
are calculated on a scale related to the value of secured receivable.
Fees related to registration in the commercial register of a pledge over an ownership interest amount to CZK2,000.
Fees related to a petition initiating the sale of an asset which is subject to a mortgage amount to CZK5,000 for real estate and to CZK2,000 for movable assets.
Last modified 22 Mar 2024
Where security consisting of a pledge of an enterprise or security granted to a related entity is concerned, a decision of the general meeting of the members of the company is requested. Specific conditions relating to the entry into such a security agreement may also be set out in the entity's articles of association.
Special provisions relating to financial assistance apply when assistance is granted for the purposes of acquiring the shares of limited liability companies and joint-stock companies by these companies, ie acquisition of their own shares. Under the Business Corporations Act, the grant of advance payments, loans and credits or monetary means by a company for the purpose of acquiring its shares or its parent company's shares is prohibited, as is the grant of security by a company for these purposes. However, provided that conditions expressly stipulated in the Business Corporation Act are met, several statutory exceptions apply. These restrictions do not apply to banks and financial institutions which are subject to special legislation.
Last modified 22 Mar 2024
There are no restrictions on payments made to foreign lenders. A borrower may be required to deduct withholding tax in respect of interest which is payable to a foreign lender.
Last modified 22 Mar 2024
The parties may agree to subordinate an existing debt to another by a subordination agreement in which one creditor agrees that claims of another creditor must be fully paid before there is any payment to the subordinated creditor.
The parties may also agree to a second-ranking mortgage over real estate assets.
Last modified 22 Mar 2024
The Regulation Rome I (593/2008/EC) and the act governing private international law state the general rule that the parties to a contract have freedom of choice as to the applicable law.
Under Article 21 of Rome I, the application of a rule of the law of any country specified by the convention may be overruled only if that application is manifestly incompatible with the public policy (ordre public) of the forum.
If the subject of the mortgage is situated in another country, a security document governed by the law of that country will often be suitable. In addition, it is necessary to comply with provisions relating to the relevant public registers (eg the cadastral register).
Last modified 22 Mar 2024
After the instigation of insolvency proceedings claims and other rights relating to the assets may be pursued only by means of an application; the right to have debts paid through the enforcement of security over the assets included in the insolvency may be asserted. Secured creditors assert their claims by lodging a claim application in which they must refer to their security, detail the circumstances supporting their claim and attach relevant deeds. This applies equally to creditors who would be able to satisfy their claims against the debtor solely from assets provided as security.
Should the registered claim entitle the creditor to a right to satisfaction by the realization of security for that registered claim to an extent lower than 50% of the value of security contended for in the application, or should the creditor's ranking be lower than that stated in the application, the creditor's right will not be taken into account. However, this rule will not apply where the court's decision regarding the amount of the registered claim depends on the expert opinion or the court's discretion.
Secured creditors will be satisfied to the extent of their security from the liquidation of the asset, right, receivable or other property value securing their claim. The order of satisfaction is based on the time the pledge or collateral was created.
Secured creditors will be satisfied to the extent of their security from the liquidation of the asset, right, receivable or other property value securing their claim. The order of satisfaction is based on the time the pledge or collateral was created, unless agreed otherwise in writing by the secured creditors.
Last modified 22 Mar 2024
A person entitled to the benefit of security is not liable for any environmental damage related to the assets which are subject to the security.
Last modified 22 Mar 2024
If the debt secured by a pledge is not paid on time, the pledgee has the right to repayment of the debt from the proceeds of the sale of the assets which are subject to the pledge. The same rule applies to a pledgee holding a debt which is due but paid only in part or where the 'accessories' of the debt (ie the right to receive interest, delay penalties, delay fees and costs relating to pursuing the receivable) were not paid. The assets which are subject to the pledge may be sold on the application of the pledgee in a public auction or by way of a judicial sale unless the parties agree on another sale process.
Last modified 22 Mar 2024
In cases where it can justifiably be assumed, having regard to all of the circumstances of the case, that the debtor would be unable to satisfy a substantial portion of its monetary debts in a due and timely manner, the fact itself that insolvency is impending entitles the debtor to file the insolvency petition.
A debtor who engages in a business may, within seven days of the date of delivery of an insolvency petition, (or, in the case of a creditor's proposal for insolvency, within 15 days of the date of its delivery) file a motion with the insolvency court for a protection period or 'moratorium' to be imposed. A legal entity in liquidation, on the other hand, does not have this right. The motion must contain all of the facts, lists and supporting documents required to justify the moratorium. These include written statements of the majority of the creditors (calculated by reference to the proportionate size of their claims in relation to the overall debt) that they agree with a moratorium being imposed. The creditors' signatures on these statements must be authenticated.
The moratorium is effective as from the time the decision to impose the moratorium is published in the insolvency register. It lasts for the period set out in the relevant motion but cannot exceed three months. If the debtor files the motion, the insolvency court may extend the moratorium by up to 30 days, provided that the debtor attaches an updated list of its obligations as at the date of the motion, and a representation by a majority of the debtor's creditors, calculated by reference to the amount of their respective claims, to the effect that they consent to the extension; the creditors' signatures on the representation must be notarized.
While the moratorium is in place, no judicial ruling on an insolvency may be issued. Even during the moratorium, authorised persons may join in the proceedings and creditors may assert their rights by submitting their claims. These claims become effective when the moratorium expires, subject to some exceptions.
The insolvency court may appoint an interim trustee if it granted the moratorium or if that approach is justified by the extent of the assets that need to be ascertained and secured even on an interim basis, or if there are other equally important reasons. The insolvency court may, in order to prevent dealings with the assets which would be detrimental to the creditors grant a ruling that the debtor may only dispose of any of the affected assets with the consent of the interim insolvency trustee.
Last modified 22 Mar 2024
The instigation of insolvency proceedings has the following effects: claims and other rights relating to the assets may not be enforced by virtue of an action, where they may be pursued by means of an application; the right to have debts paid through the enforcement of security over the assets included in the insolvency may be asserted; assets may be newly acquired only subject to the conditions set in the Insolvency Act, and the same applies to the establishment of a judicial lien over real estate or an executor's lien over real estate proposed after the instigation of insolvency proceedings.
Unless the insolvency court rules otherwise, as of the moment when the consequences of the instigation of the insolvency proceedings take effect, the debtor is obliged to refrain from disposing of assets included in the insolvency (ie assets allocated to satisfy the debtor's creditors) or assets that might be included in the insolvency where the disposal might substantially alter the composition, use or allocation of the assets to be included in the insolvency, or might diminish their value to a material extent. The debtor is obliged to make payments in respect of monetary obligations incurred prior to the instigation of the insolvency proceedings only to the extent and on terms stipulated by the Insolvency Act. These restrictions do not apply to acts necessary to satisfy obligations imposed by other legal regulations, acts which are required to operate the business in its ordinary course, to avert an impending loss, to fulfil statutory alimony or child support obligations or to satisfy procedural sanctions. These restrictions do not apply either to the satisfaction of debts payable and related to the assets and debts payable with the same priority; these debts must be settled by their due dates if the state of the assets allows it.
Last modified 22 Mar 2024
Secured creditors assert their claims by lodging a claim application in which they must refer to their security, detail the circumstances supporting their claim and attach relevant deeds. This applies equally to creditors who can justify their claims against the debtor solely from assets provided as security.
Secured creditors will be satisfied to the extent of their security from the liquidation of the asset, right, receivable or other property value securing their claim, unless stipulated otherwise by the Insolvency Act. The order of satisfaction is based on the time the pledge or collateral was created, unless agreed otherwise in writing by secured creditors.
If a review conducted pursuant to the Insolvency Act reveals that a registered secured claim entitles the creditor to a right to satisfaction by the realization of security for that registered claim to an extent lower than 50 percent of its value, or that the creditor's ranking is lower than that stated in the application, then that creditor's right is not be taken into account. However, this rule will not apply where the court's decision regarding the amount of the registered secured claim depends on the expert opinion or the court's discretion. The insolvency court may order any creditor who submits such a claim to pay the amount by which the value of the security stated in the application exceeded the amount actually ascertained to the secured creditors who submitted claims with security over the same asset.
Last modified 22 Mar 2024
Is secured debt traded between lenders? If so, how is a transfer of the debt to another lender effected?
Generally, a creditor may assign its receivables to third parties, preferably by written agreement and the consent of the debtor is not required. The assignment will also include 'accessories' (ie the right to receive interest, delay penalties, delay fees and costs relating to pursuing the receivable) as well as other rights connected to the receivable. If the assignment conflicts with the agreement concluded with the debtor, the receivable cannot be assigned.
The assignor must notify the debtor of the assignment without undue delay. Until the debtor is notified of the assignment or until the assignee proves the assignment to the debtor, the debtor can discharge its obligation by paying the assignor. If performance of the assigned receivable is secured by a pledge, guarantee, or in any other way, the assignor must notify the person who granted it, otherwise the assignment has no legal effect towards the grantor.
By the perfection of the assignment, the assignee acquires the legal status of the assignor (in place of the original lender). The legal status of the debtor is not changed by the assignment.
Last modified 22 Mar 2024