In almost every due diligence involving real estate in the Czech Republic, several legal is-sues emerge which are crucial for the existence (or non-existence) of ownership or other rights regarding real estate established in favour of certain subjects. The following legal issues are typically encountered in due diligence projects. It is important to understand and assess these issues correctly.
The real owner of the real estate and the owner registered in the Land Register
The restricted principle of material publicity applies under Czech law. According to Sec. 11 of the act on entries of ownership and other substantive rights relating to real estate, any person who relies on information in the Land Register registered after 1 January 1993 is (only) in good faith that the entry in the Land Register corresponds to the real state of affairs, unless the person knew that the records are not in accordance with reality. This means that if there is a discrepancy between the entry in the Land Register and reality, reality shall prevail.
In accordance with the general legal principle that nobody can transfer more rights than he possesses, a person acquiring real property who is acting in good faith on the entry in the Land Register cannot acquire the real property from the non-owner. The acquiring person can only become the holder of the real property in good faith and can acquire the ownership of the real property by usucaption (provided that the other legal conditions for usucaption are fulfilled).
According to Sec. 134 of the Czech Civil Code (CC), which regulates usucaption, the holder of the real property, taking into account all circumstances, shall become the owner of the thing in good faith if he keeps the thing in his possession for an uninterrupted period of 10 years.
A structure is not part of a plot
According to Sec. 120 of the CC, a structure does not form part of a plot. Therefore, the owner of a plot and the owner of a structure placed on/under the plot may differ. Under these circumstances, the owner of the structure (building, fence, wires, pipelines, etc.) requires a legal title in the form of an easement or lease for placing the structure on/under the plot owned by a third person.
The best way to secure the right to place a structure on/under a plot owned by a third person is to establish an easement as a right in rem, which is appurtenant to the plot owned by the third person regardless of the eventual future ownership change (serving real estate).
Easements are limited rights of use granted in favour of another person's real property, in our case a structure (easements in rem), or in favour of a particular person (easements in personam) granting their beneficiaries the right of use over the serving real estate in a certain manner (in our case, the right to place a structure or the right to pass through a plot or to take water from a plot and other rights).
Easements in rem are appurtenant to the structure (eg, a building or other real estate) - dominant real estate, granting its owner the right to place a structure on the plot owned by a third person. Easements in rem, unlike easements in personam, are transferred with the ownership of the structure to the new owner of the structure.
Easements in personam grant the entitled person or corporation the right to use other real estate in a certain manner, in our case the right to place a structure. Easements in personam are connected only to a certain person or a certain corporation and end at the latest with the death of the person or the dissolution of the corporation. If the ownership of the structure is transferred to another person as an asset deal, the new owner of the structure must obtain a new legal title for placing its structure on a plot owned by a third person.
Agreements on future contract – Specification of time period
According to Sec. 50a of the CC or Sec. 289 of the Czech Commercial Code, if entrepre-neurs want to enter into a contract, one of the prerequisites of agreements on future contract is proper specification of the time period within which the contract is to be closed.
We regularly come across agreements on future contracts in which the time period for conclusion of the contract is specified something like, “within 90 days after the release of the occupancy permit or within 30 days after payment of…”. However, pursuant to deci-sions of the Czech Supreme Court and the Constitutional Court, such uncertain specifica-tion of the time period may cause the invalidity of the agreement on future contract be-cause the time period is set depending upon a future event, and it is not known when this future event will occur, and if ever.
To make the time period certain, the latest possible day for conclusion of the contract must be determined, for example, as follows: “within 90 days after the release of the oc-cupancy permit, at the latest by 31 December 2011.” This kind of provision in an agreement on future contract does not raise doubts about its certainty and, therefore, its validity. This article was originally published in the schoenherr roadmap`11 - if you would like to receive a complimentary copy of this publication, please visit: www.schoenherr.eu/roadmap