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Eversheds Global Estate Management

Czech Republic

Real Estate Guide

Principles of ownership

Principles of ownership

Freehold/Ownership - (under Czech law called only ‘ownership’) is unlimited in time. The owner has the right to hold the property, to use it, to take interest from it and to dispose with it. These rights include the right to let another person use the property temporarily (eg to lease the property). The owner may sell the property, may mortgage the property or encumber it.

Leasehold - there is no concept of leasehold in Czech law; the temporary use of a property for consideration is agreed contractually in lease agreements. The most usual duration of a fixed-term lease is from eight to ten years; many leases are agreed for an unlimited period with the possibility for either party to terminate it. The tenant pays rent and, in case of the lease of premises, pays separately for services connected with the lease.

Common hold/Usufruct - not applicable

Condominium ownership - not applicable

Utilisation right - not applicable

Joint/Co-ownership - not applicable

Registration - a (freehold) owner only becomes the legal owner once he is registered in the Land Register. However, registration is not a guarantee of ownership by the state. The registration may be challenged, for example by invalidity of the purchase contract. Leases are not registered in the Land Register, but mortgages and easements are.

 

Title to real estate

Title to real estate

Investigation of title - the buyer/tenant’s lawyers usually investigate the title, possible encumbrances on the property and any restriction on disposal. They carry out searches of public registers and particularly the Land Register and its archives.

Transfer of title - the legal title passes upon registration in the Land Register.

Registration - a (freehold) owner only becomes the legal owner once he is registered in the Land Register. However, registration is not a guarantee of ownership by the state. The registration may be challenged, for example by invalidity of the purchase contract. Leases are not registered in the Land Register, but mortgages and easements are.

Information on the register - the Land Register is a public record containing detailed information about each registered property, such as area, type of property, the identity of the owner(s), acquisition title, mortgages, easements, filed applications for registration of any changes to registrable rights.

Commercial leases - not applicable

 

Structure of a real estate transaction

Structure of a real estate transaction

Negotiation of terms/Agreement - the commercial terms of an agreement are usually first negotiated between real estate agents representing the seller/landlord and the buyer/tenant and simultaneously or subsequently by the parties’ lawyers.

Heads of terms – not applicable

Investigation of title - the buyer/tenant’s lawyers usually investigate the title, possible encumbrances on the property and any restriction on disposal. They carry out searches of public registers and particularly the Land Register and its archives.

Purchase deed - not applicable

Contracts - Sale and purchase of property: the draft agreement is usually prepared by either the seller’s or the purchaser’s lawyer. All parties are bound upon signing the contract. The parties usually agree which of them will file the application for registration in the Land Register.

Completion/closing - in relation to leases takes place when the agreements are executed and security/deposits are provided. Completion in relation to the sale and purchase of a property usually occurs when the total purchase price is paid, which is usually after the registration of the new owner in the Land Register.

Post completion - after completion the seller must pay the transfer tax, when applicable, VAT is also payable.

Leases - a lease of newly constructed premises is usually first concluded as an agreement on a future lease agreement to which the lease is annexed. The lease becomes effective either as of the agreed date or upon fulfilment of a certain condition. A lease of already existing premises is usually concluded only a short time before the agreement becomes effective.

Transfer of ownership of leased property (alienation) - Leased premises may be sublet or assigned only after an agreement with the landlord.

Language requirement – not applicable

Governance of lease signature/administration – not applicable

 

Usual commercial lease terms

Usual commercial lease terms

Summary of available lease types - not applicable

Alterations/modifications - can usually be made only by the landlord and at his costs. Tenants may also make alterations with the landlord’s consent and at the tenants’ costs.

Assignment and sub/under letting - leased premises may be sublet or assigned only after an agreement with the landlord.

Destruction/reinstatement - not applicable

Duration of lease - usual duration of leases is between five and ten years. Leases on older properties are often concluded for an unlimited time period with the possibility to terminate with three months’ notice.

Forfeiture/irritancy - not applicable

Insurance - a landlord usually insures the building and recovers the contribution of the costs from its tenants. It is usual that the rent is reduced or suspended in case of an insurance event (damage in the premises that may fully or partially limit their use), but this is not always linked to compensation paid by the insurer.

Rent review - is usually agreed as being indexed yearly by reference to the Czech or EU inflation rate.

Repair/decoration/furnishing - small repairs (often defined in the agreement) and decoration are usually paid by tenants.

Service charge - as the landlord maintains the building, common parts and often also adjacent public areas, lease agreements include a service charge by which landlords recover these and other costs from tenants.

Tenant’s duties - not applicable

Termination/break clauses - it is generally possible to negotiate an earlier termination, but landlords are rarely prepared for such an agreement. Therefore this is possible only in a limited scope.

Transfer of ownership of leased property - not applicable

 

Increasing covenant strength

Increasing covenant strength

Lease deposit - Rent deposit of three to six months’ rent is the most common means of security for a tenant’s financial obligations.

Surety - in the case of reputable tenants a landlord will also accept a parent company guarantee.

Warranty - bank guarantees are used only rarely.

Rent deposit/bank guarantee - rent deposit of three to six months’ rent is the most common means of security for a tenant’s financial obligations. Bank guarantees are used only rarely.

 

Security of tenure

Security of tenure

If the tenant continues to occupy the premises after termination of the lease and the landlord fails to file a court action against the tenant to force it to vacate the premises within the following month, the lease is extended by the operation of law for the duration of the original term of the lease, however for a maximum period of one year.

 

Taxes

Taxes

On sale/acquisition of real estate - a transfer of real estate due to which the owner of the real estate changes is subject to a transfer tax, which amounts to 4% of the purchase price or of the value of the property as assessed by an expert, whichever amount is higher. The duty to pay is upon the seller and the purchaser is a statutory guarantor.

VAT is applicable to the transfer of buildings, apartments and non-residential premises if the transfer takes place within three years after the approval for use of the premises was issued. The transfer of land is free of VAT with some exceptions.

A lease is generally free of VAT, but if the lease is concluded between VAT payers, they may agree to pay VAT. The basic rate is 20% ; an amendment to the VAT Act being prepared by the government intends to lower the rate to 17.5% in 2013.

The Immovable property tax is payable on buildings, apartments or separate non-residential space. The tax rate depends on the kind of property, its area and its location. Tax payers are owners of the property.

The Land tax rate depends on the value of the land and its zoning (built-up area, arable area, garden, forest, etc.) and location. Tax payers are owners of the property.

Income tax - not applicable

Lease tax - not applicable

Local tax - not applicable

Mortgage - not applicable

Other taxes - not applicable

Property lease tax - not applicable

Value added tax - not applicable