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Real Estate
1. Legal Sources
Here is a list of the most important legislative acts and laws influencing the real estate market in the Czech Republic:
(i) Act No. 40/1964 Coll., the Civil Code, as amended;
(ii) Act No. 513/1991 Coll., the Commercial Code, as amended;
(iii) Act No. 116/1990 Coll., on the lease and sub-lease of commercial premises, as amended;
(iv) Act No. 72/1994 Coll., on property of apartments, as amended;
(v) Act No. 344/1992 Coll., on Cadastre of the Czech Republic (Cadastral Act), as amended;
(vi) Act No. 265/1992 Coll., on entering of ownership and other material rights to real estate, as amended;
(vii) Act No. 219/1995 Coll., the Exchange Act, as amended (the latest: 354/2004 Coll.); and
(viii) Act No. 219/2000 Coll., on the property of the Czech Republic, as amended.
There are also two restitution laws that may still influence the real estate market:
(ix) Act No. 229/1991 Coll., on dealing with ownership relations to the land and to other agricultural property (the Land Act), as amended; and
(x) Act No. 87/1991 Coll., on non-judicial rehabilitation, as amended.
2. Real estate (notion, definition),
According to Act No. 40/1964 Coll., Civil Code, as amended (hereinafter referred to as the "Civil Code"), real estate is defined as lands and buildings connected with ground by fixed base. All other assets not falling within the scope of this definition are deemed to be movables.
3. Classification of real estate objects
Real estate splits further into two categories; real estate which is subject to registration in the Cadastral Register ("katastr nemovitostí") of the Czech Republic (hereinafter referred to as the "Cadastre") and the other.
The following real estate is subject to registration in the Cadastre:
(i) Plots of land;
(ii) Buildings ;
(iii) Residential units and non-residential premises as parts of buildings ;
(iv) Residential units, non-residential premises and buildings under construction; and
(v) Other structures identified by law .
All other structures are not subject to registration in the Cadastre. These include mainly:
(i) Structures that serve as appurtenances of other buildings and that do not bear an independent evidentiary number;
(ii) Small structures, it means those which occupy less than 16 sq. m. and are lower than 4.5 sq. m. This encompasses fences, forest structures, sewage and drainage lines but not garages, warehouses, structures for fire departments; and
(iii) Other structures which are not buildings, such as mines, dams and underground structures.
4. Classification of rights to real estate
OWNER´S RIGHTS
The owner is traditionally entitled to exercise the following rights to real estate:
(i) Control use of the real estate;
(ii) Benefit from the real estate (e.g. mining rights and rent);
(iii) Transfer or sell the real estate; and
(iv) Exclude others from the real estate.
THIRD PERSON´S RIGHTS
Third persons may exercise the following rights to another person's real estate:
(i) Easements; and
(ii) Liens.
EASEMENT
An easement places some restriction on the owner of a real estate in favor of another person in such a way that the owner is obliged to tolerate something or perform something. The rights arising from an easement are either attached to ownership of a specific immovable asset (real estate), or pertain to a particular person. An easement attached to ownership of an immovable always passes together with ownership right to the transferee of such real estate.
Easements arise on the basis of a written contract or on the basis of a will (testament) in connection with the results of inheritance proceedings, or on the basis of an approved agreement of heirs, a ruling of the competent administrative authority or by operation of law. A right corresponding to an easement can also be acquired by the exercise of such right (acquisitive prescription). In order to be effective, the rights corresponding to an easement must be entered in the Cadastre.
Easements terminate when a relevant decision ruling is taken by the competent administrative authority, or by operation of law (ex lege). In order to terminate rights corresponding to an easement on the basis of a contract, the relevant entry must be made in the Cadastre.
If a right corresponding to an easement belongs to a particular individual or legal entity, it shall terminate no later than upon the death of the individual or dissolution of the legal entity.
LIEN
A lien is used to secure a receivable in case a debt of the corresponding value is not paid (performed) in time whereupon satisfaction can be obtained from the proceeds of realization of the thing encumbered by lien.
A thing being subject to a lien may be a movable or immovable thing, an enterprise or another collective thing, or a set of things, a receivable or another property right if its nature so admits, a flat (an apartment) or non-residential premises owned in accordance with the Act No. 72/1994 Coll., as amended, a business share, security or a certain industrial property right.
A lien arises either on the basis of a written contract or the court ruling approving an agreement on the settlement of inheritance. A lien may further arise by operation of law (ex lege).
A lien on real estate, flats or non-residential premises which are owned in accordance with the Act No. 72/1994 Coll., as amended, arises on its entry in the Cadastre, unless this Act provides otherwise. With respect to an immovable which is not subject to entry in the Cadastre, a contract on lien must be elaborated in form of a Notary deed. In this case a lien shall arise on entry in the Register of Liens kept by the Chamber of Notaries of the Czech Republic; this shall not apply if a lien was established on the basis of a ruling issued by a court or an administrative authority.
5. Registration of title to real estate
CADASTRE OF REAL ESTATE
The Cadastre is a public register maintained by Cadastral Authorities ("katastrální ú?ad") organized on geographical basis according to former district. Because it is public, anybody may access the information in the Cadastre without being obliged to demonstrate any legitimate interest or entitlement with respect to the property.
Ownership of the land and buildings is registered in the Cadastre (except for minor buildings ("drobné stavby") that are not registered in the Cadastre). Transfer of the ownership title is effective upon its registration in the Cadastre as of the date of submission of an application for the registration with the Cadastre.
The Cadastre of real estate contains the following data:
(i) Header of the extract includes information about the location of the real estate, number of List of Title;
(ii) Section "A" contains particulars of the owner and classification of the interest to the property (ownership, co-ownership, right of administration etc.);
(iii) Section "B" contains information about the real estate including the number of the plot of land, the use, the type of protection, and if any change is pending with respect to the interest in the property then indication thereof by mark "P" next to the number of the plot;
(iv) Section "B1" contains information about other rights in real estate including other than the one recorded such as affirmative easements;
(v) Section "C´" contains information about the encumbrances on the real estate (i.e. mortgages, easements and rights of pre-emption);
(vi) Section "D" contains additional information about the real estate such as claims pending, bankruptcy proceedings, judgment execution and expropriation and further information with respect to data given in sections A, B, B1 and C;
(vii) Section "E" contains additional information about documents which were basis for an entry into the Cadastre;
(viii) Section "F" contains classification of land for agricultural purposes.
A person relying on the title information registered in the Cadastral Register after January 1, 1993 is in a good faith that the Cadastre represents true status of the ownership titles. Nevertheless, under the Czech law, ownership of real property cannot be effectively acquired from a party who, despite being registered in the Cadastre, did not properly acquired title. A good faith possessor of real property may become the legal owner providing such possessor (or together with his predecessor) stays in possession continuously for at least 10 years and is genuinely unaware of any ownership claims or rights challenging its possession.
6. Holders of rights to real estate
The real estate may be owned by:
(i) Individuals as sole owners, co-owners, or spouses holding the real estate as common property of spouses;
(ii) Legal entities;
(iii) Territorial communities (for real estate pertaining to municipal assets);
(iv) The Czech Republic implementing its ownership right through respective state authorities.
Only persons with permanent residency in the territory of the Czech Republic may acquire ownership of any real estate in the Czech Republic, except agricultural land. Exemptions to these rules are stipulated by the Act No. 219/1995 Coll., as amended. With the accession of the Czech Republic to the EU, the former restrictions on foreigners who are nationals of an EU member state acquiring real estate in the Czech Republic have been abolished, with the exception of two transitional periods: 5 years for individuals for the direct acquisition of a secondary residence and 7 years for both individuals and legal entities for the direct acquisition of agricultural land fund or forests. The definition of secondary residence is not clear. The transitional periods can be prolonged (up to three years) if there is sufficient evidence that, upon expiry of the transitional period, there will be serious disruption or a threat of serious disruption to the agricultural land market of the Czech Republic.
7. Financing of real estate
The purchase of real estate is usually financed in these ways:
(i) Direct payment of the purchase price from own sources of the purchaser; and
(ii) Payment by means of a third person loan (mostly a bank) in one or more installments.
There is no restriction on the level of foreign investment in the Czech Republic or on the payment of dividends abroad or on the remittance abroad of the proceeds of disposal.
8. Mortgage
Mortgages are provided by most of the banks in the Czech Republic. In order to obtain mortgage the applicant must fulfill vast number of obligations and with respect to the amount and purpose of a loan must meet strict terms requested by the bank.
The loan is usually provided upon recordation of the mortgage with the Cadastre. Mortgage is effective upon its registration in the Cadastre as of the date of submission of an application for its registration with the Cadastre. In certain areas (especially in Prague) the registration may take up several months despite of the fact that the Cadastre should administer the registration within 30 days.
The mortgage can be established only by the owner of the property or with its explicit consent. A mortgage cannot be taken over by the mortgagee for repayment of the secured debt. It can be only sold in a public auction or through a judicial execution; the secured debt is repaid from the proceeds from such sale.
Unlike ownership of a real estate mortgages are available without any restriction to persons without permanent residency in the territory of the Czech Republic.
9. Real estate taxation
REAL ESTATE TAX
The owner of a real estate (i.e., land or a building) is obliged to pay real estate tax, according to Act No. 338/1992 Coll., on real estate tax, as amended. This tax is determined according to the surface area occupied by the real estate, and the type and location of the real estate. The tax should be considered as a deductible expense for income tax purposes, when actually paid.
For part of a land plot occupied by a building, the basic tax rate is CZK 0.1 (approximately EUR 0.003) per square meter. The basic tax rate for plots of land intended for construction is CZK 1 (approximately EUR 0.03) per square meter. However, the basic tax rate applicable to plots intended for construction may increase up to a multiple of 5, according to the location.
The basic tax rate for buildings ranges from between CZK 1 per square meter of land occupied by a residential building and CZK 10 (approximately EUR 0.3) per square meter of land occupied by a commercial building. The basic tax rate is increased by CZK 0.75 (approximately EUR 0.02) for every floor above the ground floor and up to a multiple of 5 according to the location of the building (in the case of residential buildings). The tax rate for commercial buildings may be increased by a multiple 1.5 wherever a decree of the municipality where such the building is located so provides.
REAL ESTATE TRANSFER TAX
The real estate transfer tax is generally applicable to any transfer of real estate (i.e., land and buildings) for consideration in the Czech Republic. This implies from the Act No. 357/1992 Coll., on inheritance tax, gift tax and real estate transfer tax, as amended. As an exception to this rule, an in-kind contribution of real estate to the registered capital of a company which has its seat in the Czech Republic (under certain conditions) and the transfer of real estate within a merger transaction, are tax exempt. The exemption also applies to the first transfer of a new building by a developer. In general, the real estate transfer tax is borne by the seller of the real estate; the buyer of the real estate guarantees the due payment of the tax by the seller.
Transfer of ownership rights in land and buildings for consideration is subject to real estate transfer tax amounting to 3% (5% prior to January 1, 2004). The tax base is the higher of the value determined according to statutory evaluation rules and the purchase price. The transferor pays the real estate transfer tax, while the transferee guarantees its due and timely payment. The main exemption from real property transfer tax is the first transfer of a newly built building which has not been used yet and a contribution in kind of real estate to the registered capital of a company, provided that the transferor keeps a share in the company for at least five years following the transfer. Transfer of ownership rights in real estate without consideration is taxed by way of gift tax. Gift tax rates applicable to legal entities amount to 7%-40% depending on the value of the transferred property determined according to statutory evaluation rules.
VALUE ADDED TAX (VAT)
Many changes have been made to the VAT regime upon the accession of the Czech Republic to the EU. Transfer of land is generally exempt from VAT (although in certain cases where undeveloped land has the status of construction land on the basis of a building permit, VAT would be levied). Transfer of buildings is also generally exempt from VAT, saves for transfer of ownership to a building under construction or a building within three years after issuance of a permit to use it or within three years after it has been acquired by the transferor. The applicable VAT rate is currently 19%. Leases of land and buildings are also exempt from VAT; however, owners of real estate leased for business purposes to other VAT payers may opt to waive the exemption from VAT on the rent.
GENERAL
When investing in real estate through a company incorporated in the Czech Republic, the following should be borne in mind:
(i) Thin capitalization/interest deductions
Interest paid on debt provided by "related lenders" (see below) is non tax-deductible to the extent that the debt exceeds four times the borrower's equity, i.e. a maximum debt-to-equity ratio of 4:1 (generally - there are exceptions) is imposed on financing from related lenders. Such non tax-deductible interest is considered to be a dividend for tax purposes if paid to a non-resident. For companies incorporated prior to December 31, 2003, these thin capitalization restrictions do not apply in the year of the borrower's incorporation or in the three years following incorporation. For thin capitalisation purposes, a lender is related if either:
- It has more than a 25% direct or indirect participation in the borrower's equity capital or voting rights; or
- Is otherwise related by capital to the borrower to the extent of at least a 25% share of the borrower's equity capital or voting rights; or
- The lender and borrower are personally related.
However, loans taken before the end of 2004 will only be caught if provided by the direct or indirect parent company of the borrower.
(ii) Withholding taxes
Generally, interest and dividends paid to parties abroad are subject to a 15% withholding tax. The Czech Republic is a party to double tax treaties with most major jurisdictions, which reduce or eliminate entirely the withholding taxes. Further, in line with the EU parent subsidiary Directive, withholding tax on dividends, interest and royalties to parent companies has been eliminated where the parent company has at least a 20% stake (this target shareholding is reduced to 15% from 2007 and to 10% from 2009) and has held (or will hold) such stake for a minimum of two years. In addition to dividends payable to foreign companies, the Czech Republic also exempts from withholding tax dividends payable to local parent companies.
10. Real estate transactions
Most sale and purchases of commercial real estate in the Czech Republic are structured as a sale and purchase of the shares in the company owning the property rather than a sale and purchase of the asset directly. There are various reasons for this. Apart from the absence of any real estate transfer taxes on a share deal, it is mechanically simpler - the transaction can be completed on the same day without the need subsequently to register the transfer of the real estate with the Cadastre.
10.1. Acquisition of real estate (share deal, asset deal)
In general, there are three different ways how to acquire ownership rights to the real estate:
(i) Asset deal;
(ii) Purchase of enterprise or its part; and
(iii) Share deal.
ASSET DEAL
Asset deal means that the real estate is directly purchased from its owner. Ownership rights to the real estate are effectively transferred upon registration of the transfer with the Cadastre.
The advantage of the asset deal is the fact that the purchaser does not take over all risks or other liabilities with exception to that directly connected to the real estate. Asset deal may be accomplished directly by a foreign company or through its subsidiary established and incorporated in the Czech Republic for this special purpose.
As soon as the ownership rights to the real estate are transferred, the purchaser of the real estate becomes liable in particular for the following:
(i) Liabilities recorded in the Cadastre;
(ii) Liabilities arising out from environmental legislature;
(iii) Taxation liabilities;
(iv) Contractual liabilities pertaining to the real estate (e.g. past liabilities of the seller including lease of the real estate to third parties etc.); and
(v) Liabilities included in the contract itself.
The following costs shall be considered with respect to asset deal:
(i) Fees for legal assistance;
(ii) Notary or attorney fees for verification of signatures on the contract;
(iii) Administrative fees for submission for registration; and
(iv) Related fees for identification of plots, procurement and verification of a geometric plan etc.
PURCHASE OF ENTERPRISE
Real estate can be acquired indirectly through purchase of an enterprise on the basis of the Contract on Transfer of Enterprise. Under Act No. 513/1991 Coll., Commercial Code, as amended (hereinafter referred to as the "Commercial Code").
Enterprise means a complex of tangible as well as personal and intangible components of business. This type of transaction is rather complex and the acquirer also takes over a bulk of obligations and liabilities not directly related to the real estate.
Contract on Transfer of Enterprise shall be executed in writing and signatures of transferor as well as acquirer shall be verified by Notary and be on the same document. According to the Commercial Code, transfer of enterprise or its part is subject to approval of the General Assembly of the transferor. Transfer of real estate included in the enterprise shall be effective upon registration with the Cadastre. When the contract enters into force, the transferor shall hand over and the acquirer shall accept assets forming the enterprise. This shall be recorded by a deed on hand over of assets. At the moment when assets are taken over by the acquirer, also danger of damages thereon shall be transferred. According to the Commercial Code, if the transferor is a company registered with the Commercial Registry, it must submit an application for registration of the transfer of the enterprise or its part with the Commercial Registry.
As the acquirer take over all rights and liabilities related to the transfer of enterprise, it is crucial to determine in the contract what rights and liabilities shall be related to the transfer. If not restricted in the contract, general principle in the Commercial Code shall apply and practically all rights and liabilities related to the enterprise being transferred will be taken over.
When acquiring real estate through a purchase of enterprise the following costs shall be considered:
(i) Fees for legal assistance with transfer of enterprise;
(ii) Notary or attorney fees for verification of signatures on the contract;
(iii) Administrative fees for submission for registration at the Cadastre; and
(iv) Judicial fee for registration corporate changes with the Commercial Registry.
SHARE DEAL
Share deal is a method of indirect acquisition of ownership to real estate. It means that real estate is acquired through acquisition of business interest (shares) in the local company currently owning target real estate. It is a preferred approach due to advantages from the perspective of tax law (i.e. avoidance of real estate transfer tax). On the other hand, however, the acquirer of the business interest will, as a general rule, assume all liabilities connected to the local company, which may in certain cases turn out to be risky.
Unlike in asset deal, acquirer of 100% business interest in the limited liability company or 100 % shares of the joint stock company takes over all liabilities related to the target company. Therefore, the acquirer shall be careful and execute entire due diligence of legal and economic standing of the target company. Furthermore, share purchase agreement on the basis of which share deal is accomplished shall include proper list of representations and warranties of transferor and possibly outline what liabilities remain with the transferor.
When acquiring real estate indirectly by means of share deal the following costs shall be expected:
(i) Fees for legal assistance with drafting of the business share transfer contract and due diligence;
(ii) Notary or attorney fees for verification of signatures on the business share transfer contract;
(iii) Administrative fees for submission for registration to the Commercial Registry; and
(iv) Possible fees for registration of transfer of immaterialized stock shares into the register of owners of these shares.
10.2. Real estate lease
GENERAL
Unlike purchasing freehold land, there are no restrictions on foreign companies leasing real estate in the Czech Republic. This is because a lease does not actually grant a tenant legal title to the real estate - a lease is deemed to be only a contractual arrangement. Czech leasehold law distinguishes between 'premises' on the one hand, and 'land' or 'buildings' on the other. The former is (other than in the case of residential premises) governed by the Act No. 116/1990 Coll. as amended and the latter by the Act No. 40/1964 Coll., Civil Code, as amended (hereinafter referred to as the "Civil Code"). 'Land' or 'buildings' comprise any land on its own or a separate whole building unit whereas 'premises' are rooms or a suite of rooms within a building. Czech leasehold law is not particularly well developed and can often appear contradictory. This is compounded by the fact that the Act No. 116/1990 Coll. was adopted only a few months after the communist regime collapsed in 1989. The Act has been criticized from all quarters, as it contains provisions which are outmoded in the context of the current property market and also because the Act is difficult to interpret. On October 18, 2005, the Act was substantially amended and now allows for more contractual freedom in relation to new leases of commercial premises including termination rights which were previously statutorily determined. There is little standardization in the form of commercial lease used in the market, although English common law influences have been strong, so that full-length leases, which seek to provide extensive protection to the landlord independently of the Czech legal framework, are quite usual.
10.2.1. Lease of Non-residential Premises
CONCLUSION OF LEASE AGREEMENT
Lease agreements are concluded either for an indefinite period or a fixed period. The law regulates the right of the parties to terminate the lease by setting out certain reasons for termination. As a general rule, fixed-term leases terminate upon expiry of the agreed term and, indefinite-term leases, except for leases of apartments, can be terminated by either party without specifying the reason with a three-month notice. In case the landlord terminates the lease of an apartment, which was concluded for an indefinite term, substitute accommodation must be provided by the landlord to the tenant.
The parties should always check that the intended use of premises is permitted by the relevant building authorities, who will have issued an occupancy permit or other relevant permit. This is particularly important if the premises have been previously used for residential purposes. If the use of the leased premises indicated in the lease agreement is not covered by the relevant occupancy or other permit then the lease is void. The amendment to the Act No. 119/1990 Coll. effective from October 18, 2005 enabled the parties to enter into leases prior to obtaining the final occupancy permit provided there was at least a building or similar permit. It is, though, unclear whether the premises to be leased on the basis of a building permit must be effectively constructed (in order to determine their exact and final location and area) or whether they can be leased even at a construction or preconstruction phase. Although theoretically this particular amendment to the Act No. 119/1990 Coll.seems to be a significant change, due to many uncertainties it has not yet been generally accepted by the market. It used to be the case that, where the use of premises was for services or shops, the approval of the local authority was also required, but not only is that no longer the case, but a recent Supreme Court of the Czech Republic decision has ruled that, even in the case of older leases where consent should have been obtained, the lack of such consent will not now render the lease agreement void, as used to be the case.
CHANGE OF OWNER OF REAL ESTATE
Previously, Czech law used to automatically trigger a right on the part of the tenant to terminate its lease upon a change of the direct owner of a commercial property, which was subject to a lease. Although most leases included prohibitions on tenants exercising such right, such prohibitions were generally viewed as being unenforceable and therefore had limited value. As of October 18, 2005 on which date the Act No. 116/1990 Coll., on the lease of commercial premises, was amended, such right of the tenant to terminate the lease may only arise where specifically agreed between the parties.
RENT
The law requires the lease to make clear the level of the rent, and also when it is payable. There is a residual concern among lawyers as to whether turnover-related rent fulfils this requirement, since it is not determinable in terms of absolute amounts on signing the lease. Nonetheless, turnover-related rent is common in retail leases, and so far as we know the point has never been tested. The rent is usually subject to indexation. If the currency of the rent is in Czech crowns then the general inflation rate announced by the Czech Statistical Office is likely to be the relevant index. Foreign currency rent was usually denominated, prior to creation of the EURO zone, in DEM, indexed on the basis of the annual rate of the German Consumer Price Index for a four person household with medium income as published by German Statistische Bundesamt. The Euro has now become the market standard, with EUROSTAT's harmonized index of consumer prices (for EU 15, EU-25 or Eurozone) being the commonly used index. Rent is usually paid quarterly in advance.
SERVICE CHARGE
The parties are free to contract for the landlord to provide the tenant with services in return for the tenant paying a service charge. The scope of services provided by the landlord to the tenant is also subject to debate within the Czech legal community. Some lawyers cast doubt on whether the landlord can charge the tenant fees incurred in providing services that are not directly linked to the use of the premises (e.g. management fees). The lack of court decisions does not help to clarify this issue, but in practice such doubts do not inhibit landlords and tenants agreeing to whatever service charge arrangements are considered commercially appropriate. The service charge may be payable in advance by the tenant. However, on the expiry of a fixed period (such as a calendar year), any components of the service charge that are not agreed in advance as fixed amounts must be calculated, the service charge properly invoiced, and a balancing payment made by the landlord or the tenant as necessary. A court decision has made it clear that service charges cannot be simply included as part of the rent without a proper specification of the services provided. In such a case, the whole lease agreement would be held to be void, since the rent would not be capable of being determined (see above). Services which are provided to all the tenants in a building (such as insurance or security services) and paid for by each tenant must (in the absence of agreement to the contrary) be calculated pro rata with regard to the proportion of the floor area of the tenant's premises against the floor area of the lettable premises of the whole building. If any lettable premises in the building are not leased then this must not count against the tenant in the calculation of the service charge (i.e. unlet premises must always be included in the calculation of the total floor area).
SECURITY AND DEPOSIT
It has become common practice for landlords to require a deposit of three months' rent as well as a bank or parent company guarantee of an amount equal to six to twelve months' rent (and, where applicable, an advance payment of the service charge), although this will of course depend upon the strength of the parties' negotiating position, as will the arrangements as to how well segregated the deposit is from the landlord's own funds.
TENANT´S WORK
Tenant's improvements form part of the premises and therefore of the landlord's assets, but the landlord and tenant may agree that the tenant can take advantage of the depreciation of its investment in the building, rather than the landlord having to revalue the building for accounting and tax purposes during the subsistence of the lease. At the end of the lease, however, if the improvements are not removed, the landlord has to reimburse the tenant for the amount by which the value of the premises has increased as a result of the tenant's works (or, if agreed between the parties, for the cost of the works), and revalue the building in its books accordingly, depreciating the increased value on the same basis as the rest of the building. This is unlikely to be attractive to the landlord, who will therefore usually want the tenant to reinstate the premises to their original condition at the end of the lease in order to avoid the revaluation, although this raises an issue as to whether the tenant can write off for tax purposes the undepreciated cost of the works.
SUBLET
The tenant cannot sublet its premises without obtaining the landlord's approval. It is advisable for the landlord's approval to be expressed in the lease itself. If the tenant sublets the premises without the landlord's approval then the landlord has a statutory right to terminate the agreement.
TERMINATION
The Act provided for the termination of a fixed term lease in various circumstances which, since the amendment effective from October 18, 2005, can finally be contracted out of (it is still unclear whether this contractual freedom on termination applies to leases entered into prior to this date). Unless agreed otherwise in leases entered into from 18 October 2005, the Landlord has the statutory right to terminate the lease if, inter alia:
(i) The tenant uses the premises otherwise than as allowed in the lease;
(ii) The tenant is more than a month late in payment of the rent and/or the service charge; or
(iii) The tenant sublets the premises without the landlord's approval.
In the case of a fixed term contract, any right of termination conferred on the landlord beyond these statutory rights is likely to be unenforceable. However, Czech law distinguishes between a right of "termination" and a right of "withdrawal", although the effect is in practice the same, and it is possible to incorporate into a lease agreement, even one for a fixed term, a right of withdrawal for reasons beyond the statutory termination rights - the drafting will therefore be important. Unless agreed otherwise in leases entered into from October 18, 2005, the tenant has the right to terminate a fixed term lease if he loses his authorization to carry out the activities for which he has leased the premises. This statutory right is open to abuse by the tenant, since the authorization to carry out such activities can be voluntarily waived, although there are ways of structuring the relationship to address this. Leases for an indefinite period can be terminated by either party for reasons agreed in the lease. The lease terminates after the expiry of the relevant notice period. If the parties fail to agree otherwise, the statutory notice period is three months.
VACATION OF PREMISES
If the tenant refuses to vacate the premises, the landlord may regain possession only with a court judgment against the tenant. Court proceedings in the Czech Republic tend to be lengthy and bureaucratic and in extreme cases it can take up to three years for the court to force the tenant to vacate the premises. If a tenant uses premises without contractual authorization, it is obliged to pay the landlord an amount equivalent to a market rent for the whole of such period. In the case of termination of the lease, such period would be from the date the lease is terminated until the date the premises are vacated.
10.2.2. Lease of Land and Buildings
The general principles regarding use, rent, security and vacation in a lease of 'Land' or 'Buildings' are similar to the law for the lease of commercial premises as described above. However, there are a few differences. For example, the tenant of land or buildings is allowed to sub-let unless it is agreed to the contrary in the lease. There are also different termination rights.
11. Real estate construction
11.1. Licensing of construction activities
Permission to build a structure may be applied for by the owner of the land on which the structure will be built or by another person having a special right to the land. If an applicant is not the owner of the land, a special right to the land includes:
(i) Right to build a structure under a lease agreement or an agreement on future purchase contract entered into between the owner of the land and the applicant; and
(ii) Right to build a structure under an easement on the land created by the owner of the land for the benefit of the applicant.
The proposed structure must comply with the zoning plan of the relevant locality. The zoning plans are prepared by the municipalities and state authorities. The first step to be taken when planning any construction is to apply for a zoning permit. The Building Authority will consider whether a particular structure, with generally defined parameters, can be built in a particular area.
11.2. Building contract
By a building contract the contractor undertakes to execute for the principal agreed work as well as to remove any eventual defects and incompletion of the work, and the principal undertakes to pay the contractor the agreed contract sum. The building contract is dependent on the size and character of the work to be constructed. The building contract may be concluded in accordance with the Civil Code or the Commercial Code. Only in cases of private investment (when at least one of the contracting parties of the building contract is a private person) the Civil Code may apply. On the other hand the Commercial Code may apply in all cases (obligatory in strict business relationship or if agreed by the parties in any other cases). Although both of the mentioned legal rules contain many provisions that govern wide range of mutual rights and obligations arising from the relationship between the principal and the contractor, it is advised to agree on specific terms in each building contract. The major part of the Commercial Code pertaining to the building contract may be excluded by mutual agreement of parties and their particular rights and obligations may be thus agreed differently.
11.3. Functions of the general contractor
The manner of construction and of the work to be provided by the contractor is also subject to particular arrangements in each building contract. Basically there may be two ways by which the contractor implements the work:
(i) The first one is construction of all the work at costs and liability of the contractor. Such frame is advantageous for the principle with respect to possible defects and incompletion of the work, because the principle takes over the work only if it is free of factual and legal defects. This way may by, however, rather costly for the principal.
(ii) The latter way is construction of the work at costs and liability of the principle. The principle therefore finances the construction of the work throughout its implementation. Payments are usually fixed to completion of agreed parts of the work. Such adjustment usually provides more reasonable price for the construction of the work, however on the other hand the principal bears risk of potential problems with the construction (defects, delays or even non-performance of the contractor).
Of course, both of the mentioned ways may be altered by particular modifications. Especially with respect to defects of the work or non-performance of the contractor special guarantees are agreed in the building contract to avoid or at least minimize potential damage or losses on the side of the principal.
11.4. Building phases
In general, prior to a zoning decision and building permit being issued, all environmental and hygienic permits, including a final decision on reclassifying agricultural land (if need be) and
There are four stages of the building process, which must be achieved before real estate development is allowed to commence. This whole procedure can, as would be expected, be complex and lengthy; for major developments one should allow between twelve and twenty-four months, and in the case of complex developments even longer. It is important to co-operate fully with the relevant local authorities, as failure to do so will inevitably lead to further delay and may result in permission being refused.
(i) Zoning;
(ii) Planning Permit;
(iii) Building Permit; and
(iv) Occupancy Permit.
11.4.1. Zoning
The first step is to the get the right 'zoning' ("územní plan") assigned to the site. This is a broad classification denoting whether the land will be designated as residential, commercial, agricultural, industrial etc. The application requires the approval of several departments within the relevant local authority and then final ratification by the City Assembly. It consists of many stages including the preparation of the area plan, the posting of public announcements, public feedback and the final approval of the area plan. It is hard to predict how long this will take, but a reasonable estimate would be six months to one year.
11.4.2. Planning Permit
Next comes the 'planning permit' ("územní rozhodnutí"), which approves the specific purpose for which the site is to be used. It is also the process whereby the precise location of the building is approved. The planning permit can take up to a year to obtain, but occasionally may be pushed through in as little as three months. This stage requires disclosure of the preliminary plans and details of the scheme. It involves obtaining the approval of many departments and authorities within local government such as the environmental, fire protection and traffic authorities. As a part of the proceedings leading to the issue of the planning permit, a new development must in certain cases defined by law be assessed for environmental impact ("EIA" process). The proceedings for obtaining the planning permit (including the EIA process) for significant developments is, from time to time, delayed by environmental associations (which can be formed by any three individuals) which can by operation of law become participants in the proceedings with full rights (including the right to appeal against the decision). The abuse of such rights can lead to significant delays in the planning process.
The planning permit is usually valid for two years within which period the developer has to apply for the building permit (see below). The validity can be prolonged upon an application being filed within the original validity of the planning permit.
11.4.3. Building Permit
This final stage involves obtaining the 'building permit' ("stavební povolení"), which essentially approves the actual construction of the building. Obtaining this permission can take anything up to six months and requires a formal application along with final plans and project specifications. Once the building permit is granted, construction may commence. Local authorities are obliged to issue this permit if the project complies with the planning permit.
11.4.4. Occupancy Permit
Upon the completion of the project and the construction of the building, there will be a further inspection to ascertain whether the construction has been carried out in accordance with the building permit ("kolaudace"). The building may not be used before this permit is issued. Local authorities are obliged to issue this permit if the construction work complies with the building permit. It is also possible to obtain a preliminary occupancy permit if (for formal reasons only) the conditions for obtaining the definitive occupancy permit have not yet been fully satisfied. Although the preliminary occupancy permit allows the development to become operational (usually for a period of three months which can be further prolonged), the registration of the newly developed building with the Cadastre and depreciation of the development costs is possible only after obtaining the definitive occupancy permit.
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