The statutory pre-emptive right of joint owners, widely defined and valid for several decades, has been abolished within the process of Czech civil law recodification. However, it is now becoming evident this change has not been accepted by the public and brings certain negative consequences. Therefore a “resurrection” of this institute is being contemplated within the process of amending the Czech Civil Code, which is currently being prepared by the Ministry of Justice.
Under the current legal regulation, joint owners are not entitled to a general pre-emptive right; nevertheless, statutory provisions anticipate specific situations in which pre-emptive right will be granted. In the opinion of legislator, this ‘extraordinary’ approach is justified in situations when joint ownership has been established otherwise than by an agreement concluded between joint owners, i.e. when these owners have not been given the chance to formulate their rights and obligations according to their will. In such cases, joint owners are granted statutory pre-emptive right which is limited by six-month period starting from the establishment of joint ownership. The legislator has sought to preserve the essence of ownership but wished to provide joint owners with enough time to consider their situation and arrange it as they wish. Joint owners are granted pre-emptive right regardless of whether the joint owner’s share is to be transferred for monetary consideration or not, but never in case of transfer to other joint owner or one of the closest family members (e.g. spouse, sibling).
The second exemption is applied in case of joint ownership of agricultural enterprise. The legislator, inspired by foreign regulations, and taking into account local traditions, decided to enact this exemption to protect farmhouses, especially to prevent their fragmentation. Joint owners of these agriculture-related enterprises are granted pre-emptive rights permanently, but only in cases where their joint ownership had not been established exclusively according to their own will. When being established by agreement, the contracting parties are free to agree on pre-emptive right in scope and extent they wish. Again, the pre-emptive right is applied to transfers of the joint owner’s share regardless of monetary consideration in order to prevent obstruction of law by feigning transfers free of charge. The pre-emptive right is not granted when the share is to be transferred to other joint owners or to person who would become heirs to the joint owner according to statutory provisions.
Both abovementioned situations are subject to a condition, unless parties agreed otherwise, that joint owners are entitled to buy out shares proportionally according to size of their shares. If the transfer is without monetary consideration, joint owners are entitled to buy out the share for the usual price. Joint owners are allowed to waive their statutory pre-emptive right or to agree on its limitation by time, conditions, etc.
The explanatory memorandum justifying the new Czech Civil Code gives the reason for abolishing the statutory pre-emptive right by reference to its origin and the nature of this institute. The pre-emptive right granted for every case of the joint owner’s share transfer has been perceived by the legislator of the new Civil Code as the element unnatural to the essence of joint ownership, which shall be based on free will only. It seems that inspiration by foreign legal regulations also played its role.
The Ministry of Justice has prepared and disclosed for review, already within one year after the new Czech Civil Code becoming effective, a procedure which is called the little “technical” amendment. The purpose of this amendment is to remove the “most pressing” problems of the new legal regulation, which requires quick legislative intervention. The concerned areas include also the institute of statutory pre-emptive right of joint owners which shall be, according to the proposal, generally reintroduced.
In the words of the explanatory memorandum to the “technical amendment,” the experience has shown that replacing the previous regulation was not a good step. “The statutory pre-emptive right was present in the Czech legal system for several decades, and thus it constituted a well-established instrument that could be relied on by its users. Its abolishment did not bring any improvement; on the contrary, it made regulation of joint owner’s share transfers and settlements thereof more complicated.” The reasoning lies in the fact that joint owners are not able to prevent objectionable third persons from entering joint ownership arrangements. Therefore, the “technical” amendment as proposed meets demands of general practice and restores the statutory pre-emptive right for joint owners. The principle is based on the abolished regulation and grants pre-emptive right to all joint owners generally, except for cases of transfers to a “close” person. In contrast with the abolished regulation, the pre-emptive right shall be applied also to transfers carried out for no monetary consideration. The restored pre-emptive right shall apply to all joint owners’ shares except for shares acquired between 1 January 2014 (day on which the new Civil Code became effective and abolished the general pre-emptive right) and the day of effectiveness of this amendment.
It remains unclear whether the final amendment will keep this wide wording or shall indeed include this restoration of statutory pre-emptive right at all. Some legal experts already expressed their disagreement with reintroduction within the review procedure. According to the memorandum of Czech Bar Association, the proposed change is not of a “technical” nature, but represents a material change to the regulation of joint ownership. At the same time, the memorandum refers to disrespecting the conclusions of expert discussions, which previously lead to uniform preference of abolishing this former pre-emptive right. In either case, the abolishment of pre-emptive right and the current debate about its reintroduction causes serious legal uncertainty for joint owners.