Do buyers usually carry out due diligence?
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 what are known as 'restitution claims' which may have been filed by individuals, or by institutions such as 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 information they require.
From 1 January 2014, the reliability of the accuracy of the information in Cadastral Register has been strengthened by the rebuttable presumption that rights registered in the Cadastral Register have been registered in compliance with their actual legal status. This presumption may, however, be rebutted by the person with the true legal interest. Nevertheless, if the legal status registered on the Cadastral Register does not comply with the actual status, the registered status prevails provided the person obtained the registered right in good faith and for consideration. Because this regulation has only very recently been introduced into Czech law, it is not yet clear, how the courts will interpret the term "good faith". Proper due diligence should still therefore be carried out.
Due diligence in relation to buildings is normally less complex 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.
It 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.
