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.
The case law of the Czech Supreme Court is consistent in the opinion that when assessing the good faith of the acquirer of the right in rem, it is always necessary to take into account whether the contracting party, with the ordinary (usual) caution which may be required of anyone in view of the circumstances and nature of the case, did not or could not have had reasonable doubts that the information in the Cadastral Register corresponded to the actual legal situation. The ordinary (usual) caution does not, in principle, include its obligation to take active steps (investigations) regarding the registered status. However, if there are objective circumstances giving rise to doubts, it is for the acquiring person to verify (actively ascertain) whether the entry in the public register is in accordance with the actual situation. If he fails to do so, the acquisition will not normally be a bona fide acquisition.
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.
