New codes (not only) for expats: Real estate rights

Two critical civil law codes came into effect on January 1, 2014: the new Civil Code, and Act on Business Corporations. Replacing the previous Civil and Commercial Codes, they represent the greatest change in civil law in almost 50 years. In this article we focus on how the codes affect the possession and use of property.

Areas of everyday life – Structures vs. lands

In the new Civil Code, structures/buildings stopped being stand-alone subject-matters of transactions and have become inseparable parts of land. That is if the land and the structure belong to the same owner. If a building has a different owner than the underlying plot of land, the new Civil Code can complicate the transfer of the building and the plot of land – this situ­ation is fairly common.

The new legislation established mutual pre-emptive rights for the structure and the land with the purpose of integrating the ownership of the land and the struc­ture as soon as possible. One owner will always be obligated to offer the real estate to the other owner for purchase.

This statutory pre-emptive right may not be eliminated by the structure owner and the land owner or by any of their contracts. Even if they agree otherwise, the pre-emptive right will be applicable and any other agreement will not be taken into consideration.

Effective from 1 January 2014, honest acquirers of real estate relying on the records entered in the Real Estate Cadastre are better protected. On the other hand, if you already are a property owner, it can be easier to lose prop­erty due to your inconsistency and carelessness.

The former Civil Code and Real Estate Cadastre regulations favoured the actual property owners, regardless of what information was entered in the Real Estate Cadastre. Therefore it could happen that you hold real estate purchased in good faith from a person who was recorded in the Real Estate Cadastre illegitimately, in other words its non-proprietor. In that case it would be very hard for you to defend yourself against losing the property.

Under the new regulations, honest acquirers will become property owners thanks to relying upon the information recorded in the Real Estate Cadastre. Logically, if this change enhances the new acquirers’ position on one hand, it weakens the position of the actual property holders on the other hand.

Therefore, if the property of actual holders is transferred, e.g. due to fraudulent conduct, in which the property acquirer did not provably participate (such as using forged or lost ID), the actual property holders may lose their property.

The only thing left to do in such a situation will be damage claims or the potential criminal responsibility of the person who committed fraud. However, the return of such claims is generally not expected to be high.

Given the above, it is necessary to comply with the following preventive steps:

  1. Verify the information in the Real Estate Cadastre immediately – if you really are recorded as the owner of all real estate held by you;
  2. Make regular reviews (ideally every month) of the records in the Real Estate Cadastre – to verify that your property is not being disposed of illegitimately. This can be easily reviewed on the webpage of the Czech Geodetic and Cadastral Office (www.cuzk.cz);
  3. If you find out that an illegitimate transaction was initiated, immediately file an objection with the Real Estate Cadastre that will prevent your losing the prop­erty. Subsequently you will have to make your claim before the court.

If you do not undertake the steps mentioned above, you put your property at potential risk. Remember, law favours the vigilant.

 

Areas of everyday life – Lease agreements

Although the new Civil Code does not apply to contracts concluded before January 1, 2014 and these contracts are still governed by the current legislation, this is not always the case with real estate lease agreements. The new Civil Code applies even to the lease contracts concluded before 2014. Lease givers and tenants will therefore have to cope with a number of new developments that apply to them from the beginning of 2014. Here are the most important ones.

  • An owner of a flat may not prohibit you from keeping animals or from inviting visitors.

The tenant is entitled to keep animals in the flat and the lease giver is not to prohibit this in the lease contracts. However, the tenant’s animal rearing should be within reasonable bounds and should not present excessive trouble either to the lease giver or the other inhabitants of the house. Moreover, should the costs for cleaning of the common parts of the house be increased as a result of the animal rearing, the tenant is obliged to cover them.

The tenant is also entitled to invite visitors and even accept new members of the household. In the latter case, the tenant is obliged to inform the lease giver about the number of household members as this will increase the costs for using the flat. There are also limits to the number of people living in one household: the number of household members should be adequate to the size of the flat, its hygienic conditions and comfort.

  • There is a possibility of making an agreement on all aspects related to tenancy.

The new code does not cling to formalities as strictly as the former one: it is sufficient if the parties agree on the subject of the lease.  In order for the lease contract to be valid, it is no longer necessary to state the amount of the rent. If a lease contract does not include the exact amount of the rent, the tenant is to pay an amount common in the area for a similar flat. It is still expected for a lease contract to be in written form; however, if the parties agreed in an oral form and no written agreement exists, this does not give the lease giver a right to move the tenant out any time he wishes to do so.

This applies even to cases in which a lease contract includes errors, for a lease contract is considered legitimately concluded after a period of three years in which the tenant uses the flat in good faith.

  • You may invite other people to live in the flat with you without the flat owner’s approval.

If a tenant occupies a flat permanently, they may lease a part of the flat to a third person without the flat owner’s approval (e.g. when leasing one room that they do not need to a student who could not get a room in a students’ dormitory). The flat owner’s approval is not necessary as all matters related to the flat will continue to be communicated between the flat owner and the tenant, who will remain responsible for the flat and all related matters. However, if the tenant does not occupy the flat permanently, they may only lease a part of the flat with the lease giver’s approval.

  • The rent may be increased on an annual basis.

If the increase of the rent is not contractually agreed or if it is not fully excluded, the rent may be increased once a year to the amount corresponding to the market price, however, it may not exceed 20 percent for the last three years.

  •  Lease giver is not obliged to find a new flat for the tenant.

The lease giver is no longer obliged to ensure flat replacement, i.e. find flats for the tenants if the tenancy contract is terminated.

  •  If you do not pay, your tenancy contract will be terminated.

When a tenant does not pay the rent and flat related costs for a period of three months, the lease giver is entitled to terminate the contract with immediate effect.

 

About the Author

Tomáš Petyovský is an attorney-at-law who works for Deloitte Czech Republic as the Manager of the Brno Immigration Team. He specialises mainly in employee, labour and immigration law, benefiting from his long-term experience in providing immigration services (in particular arranging work permits, visas, residence permits and citizenship, acting as a lawyer in appellate procedures etc).

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