Contracts relating to immovable property

Real estate is often a very important (if not the most important) element of business activities, whether it is office premises, retail outlets or warehouses and other storage facilities. Real estate is where we spend a lot of time, where key moments take place and is simply an indispensable part of the lives of us all. The irreplaceability of real estate is also reflected in its price.

It is therefore indeed necessary that all the contractual and other documents relating to real estate, i.e. particularly contracts for the purchase, management, sale and lease of real estate, are regulated to effectively protect all the rights and legitimate interests of both parties.

Purchasing and selling real estate

A purchase (sale) is a basic disposition of any thing – including real estate. It is a disposition that results in the transfer of the thing and the ownership right to the real estate, or co-ownership, for a consideration (purchase price).

Purchase contract

The basis (legal title) for the transfer of the ownership right to real estate from the seller to the buyer is a purchase contract. The purchase contract should always be given particular attention as there is a number of potential problems to avoid when buying or selling real estate. However, if the parties are aware of the risks arising in connection with the purchase/sale of the property and address them sufficiently in advance, the purchase/sale of the property will take place without any related legal problems.

The general regulation of purchase contracts is of course contained in the Civil Code, which stipulates that a purchase contract must contain at least the following mandatory elements:

• Identification of the parties
• Exact designation of the property
• Arrangements on consideration (the amount of the purchase price is not an essential element of a purchase contract and if it is agreed that the property is sold for consideration but neither the amount nor the method of its calculation is specified, the usual price is used; in terms of legal certainty, we definitely recommend negotiating a purchase price)
• Signatures of the parties

A purchase contract must be concluded in writing, otherwise it is invalid. However, the ownership right is not transferred upon concluding the purchase contract. The ownership right to the property is transferred only by entering into the Land Register, which must be made by the competent Land Registry. In this context, we would like to point out the first risk that the parties may face when buying/selling real estate, namely the risk that the Land Registry will refuse to register the ownership right. This can happen for numerous reasons, but it is usually due to the purchase contract not being an eligible basis for the registration of the ownership right. Therefore, the purchase contract must meet not only the requirements of the Civil Code but also the Land Registry regulations. Cadastral law is very formal in this respect as it is usually not possible to remedy the deficiencies in the purchase contract in proceedings before the cadastral authorities. The existence of deficiencies in the purchase contract may also result in the “forfeiture” of the administrative fee paid upon filing the application for registration, the need for additional resources and time and a substantial delay in the resolution of the matter, which can be very unpleasant, whether it concerns housing or business.

Risks associated with buying/selling real estate

In connection with the purchase of real estate, one of the parties will usually bear other risks, so it is therefore desirable to eliminate such risks as early as possible in the process of negotiating the content of the contract or during its preparation. In this regard, it is advisable to pay particular attention to the following:

• The manner in which the transferor acquired the property
• The existence of debts or other defects of the property (these usually include various easements, liens or prohibitions of alienation and encumbrance of the property, as well as leases, for example)
• The handover and takeover process (e.g. when the property will be handed over and in what condition, i.e. whether the property will be fully vacated or whether the movable assets are subject to the sale as well, whether any house/mailbox keys or chips will be handed over and in how many pieces)
• Relations to the property and the surrounding area (e.g. whether a neighbour is allowed to renovate or a developer to construct in the area as the implementation of development projects may cause an irreversible fall or increase in the price of the property)
• Access to the property and all utilities (water, gas, electricity, etc.)
• The process of concluding the contract and the possibilities of terminating it, especially in situations where the other party fails to fulfil its contractual obligations

When purchasing/selling a property, arrangements on the purchase price are absolutely crucial.

In this respect, the buyer will be primarily interested in having sufficient funds to purchase the property. The process of concluding the purchase contract often involves the bank providing the buyer with a mortgage and the whole matter needs to be addressed in cooperation with the bank, which makes the granting of a mortgage subject to a larger number of conditions, in particular, the establishment of a lien, and if these conditions are not met, the bank will not release the funds and the process of purchasing the property will not be successfully completed. However, if the buyer has the funds, he is primarily interested in ensuring that the property is free of legal defects and in acquiring the ownership right to the property as discussed above.

Of course, the seller will need to know whether the buyer has sufficient funds, especially in connection with their timely transfer to the seller’s account. Timely payment of the purchase price should also be of interest to the buyer as purchase contracts often associate late payment of the purchase price with negative consequences (contractual penalty, withdrawal from the contract). On the other hand, it is in the seller’s interest to sell a legally free property that conforms to the contract, otherwise he is at the risk of incurring liability for damages.

Attorney’s escrow

In connection with the purchase/sale of real estate, it is definitely advisable to use attorney’s escrow for the safekeeping of both funds and documents from the standpoint of legal certainty. Escrow brings an element of security and protection to the real estate transaction, especially in securing the transfer of the ownership right to the property and the transfer of funds. The attorney is bound by a number of obligations, which are strictly controlled by the Czech Bar Association or public administration authorities. In addition, the attorney is required by law to take out insurance (professional indemnity insurance), which also contributes to the security of the buyer’s funds.

Lease of real estate

Another way of disposing of a property is leasing it, i.e. granting the right to use it temporarily for consideration (rent).

Lease agreement

Property is leased under a lease agreement. As with a purchase contract, it is advisable to draw up the lease agreement with particular care to avoid future legal problems for either party, i.e. the lessor or the lessee. Similarly, the general regulation of the lease agreement is provided in the Civil Code, which stipulates that a lease agreement must contain at least the following essential elements:

• Identification of the parties
• Exact designation of the property (leased asset)
• Consideration arrangements (the same applies to consideration as to the purchase price; the amount of the rent is not an essential element of the lease agreement, but it is advisable to agree on it)
• Signatures of the parties

The rights and obligations agreed between the parties arise already upon the conclusion of the lease agreement. There is generally no need to have the lease agreement “approved” by any authority.

Further regulation of the lease agreement varies depending on the leased assets, i.e. whether it is a “general lease”, a lease for residential purposes (e.g. a lease of residential premises or a lease of a house including a garden) or a lease of business premises (offices or warehouses). In any case, it is necessary to legally and factually check the leased asset or to make sure that the potential lessee has sufficiently checked the leased asset. In addition, it is advisable to check the potential lessee/lessor as any skeletons in the closet (such as debts of one of the parties) are always problematic for other entities, often also contractual partners.

Lease for residential purposes

If the property is leased for residential purposes (to provide for the housing need), the law provides the lessee with a great deal of protection of the lessee’s rights and the lessee cannot be deprived of his rights by the lessor or have obligations imposed on him by the lessor contrary to the law, even if they agreed on them in the agreement. A residential lease agreement must be concluded in writing, but only the lessee, not the lessor, may claim that the form has not been complied with.

When negotiating a lease agreement for an apartment or a house, we recommend paying attention to the following:

• Term of the lease
• Date and manner of handover and takeover, including the vacation of the property
• Method of payment and invoicing for services connected with the apartment/house (electricity, water, sewerage, etc.)
• Security deposit
• Distribution of repair obligations in the leased property
• Insurance
• Termination possibilities

Lease for business purposes

The law provides for special provisions regulating the lease of premises or rooms for business purposes. This may include leases of office premises, leases of commercial premises or leases of industrial premises. The law does not provide for any special protection of commercial lease as the regulation proceeds from the fact that the parties are entrepreneurs, i.e. persons who by their nature are professionals aware of their rights. There are no requirements as to the form of a lease agreement for commercial premises, so it can also be concluded orally. However, from the point of view of legal certainty, it is recommended to conclude the lease agreement in writing in any case.

When negotiating a lease agreement for commercial premises, we recommend focusing on the following:

• Term of the lease
• Date and manner of handover and takeover, including the repossession
• Methods of payment and invoicing for services connected with the premises (energy, cleaning, guarding, etc.)
• Distribution of repair obligations in the leased property
• Insurance of the leased asset
• Termination possibilities

Conclusion

Given their irreplaceability, contracts relating to real estate are very important and should be given due care and attention. It is therefore advisable to approach professionals in the field and consult them about the intended contract. We will be happy to provide you with all the necessary legal services in this regard, in particular:

• Preparation and review of all contractual and related documents
• Representation in negotiations with the parties regarding the conclusion of a contract, including the signing of the contract
• Representation in negotiations for the amendment or termination of the contract
• Representation in court proceedings concerning claims under contracts
• Representation before public authorities

What situations do we typically handle for our clients regarding real estate contracts?

• Contracts for the purchase, management, sale and lease of real estate
• Construction in the neighbourhood has devalued my property
• Property owner transfers
• How to draw up a purchase contract
• Garage for sale
• Purchasing an apartment from a developer – what the contract should contain
• Preliminary purchase contract
• Drawing up a reservation contract
• Difference between the Land Register and the actual state
• Calculation and payment of real estate tax
• Co-ownership (termination of division and termination of settlement)
• Resolution of neighbour disputes
• Expropriation of real estate
• Attorney’s escrow
• Access routes
• How to detect hidden defects in real estate
• Pledge of real estate
• Handover certificate
• Easement
• Donation and transfer of real estate
• Purchasing real estate abroad
• Withdrawal from the purchase contract