How to Buy Real Estate in the Czech Republic - Expat Advice
Complete Buyer’s Checklist for Purchasing Czech Property
Buying real estate in the Czech Republic (or anywhere for that matter) can lead to many sleepless nights. Let’s be honest here, you simply cannot trust every seller or realtor on the property market. It’s as true for Czech real estate agencies and sellers as it is for those in any country. And because of the significant amount of money involved, it goes without saying that you have to exercise caution.
From investigating sellers, to inspecting property, contracts, reservations, transferring ownership, taxes and avoiding legal issues, there are many important steps. In fact, most problems for buyers often result from inexperience, lack of due diligence, or even incredible naivety. While unfortunate, it’s true there are real estate entrepreneurs looking to “flip” properties and take advantage of buyers' ignorance.
But let’s help you avoid the most common buying mistakes. If you’re considering buying property in Prague or the Czech Republic, this buyer’s checklist is for you. Read on for 10 steps to follow when buying Czech real estate. We’ll help you get the best deal, stay out of legal trouble, and not get swindled in purchase agreements.
Where to begin when buying Czech Real Estate
With introductions out of the way, let’s get right into it, shall we? This guide focuses specifically on purchasing second-hand properties in the Czech Republic. It is not intended for buying new buildings with a warranty period, however it can somewhat help there, too. So let’s begin.
Are you currently eye-ing some property and considering making a purchase? Follow these tips to greatly reduce or eliminate the likelihood of getting bamboozled on the Czech Real Estate market.
1 - Inspect the property thoroughly
The very first step you should take is to check the legal and physical condition of the property. Always do this before signing a booking or any legally binding contract.
Check the physical condition of the property
Physically inspect the property, both personally and, if necessary, with a certified Property Inspection company. Especially if you know little about construction, get an expert opinion on the technical condition of the estate. Even bringing along a builder friend or family member is better than going it alone. Many architectural defects aren’t obvious to the untrained eye, nor is it easy to assess their severity.
Sometimes, sellers and agents might even intentionally try to conceal defects, although more often than not they’re simply unaware. It’s these cases you tend to find at the center of lengthy legal disputes. Given, the Civil Code does recognize the seller’s responsibility for concealed defects in property. Nonetheless, it’s best to identify any defects from the start. In this way, you avoid the need to resolve hidden defects through submitting evidence and potential litigation.
Never sign on the dotted line too early
In one instance, a buyer signed a reservation contract without thoroughly inspecting the property. Little did they know when signing (for a significant amount) the broker had not disclosed that the house had a basement. Nor that the basement concealed flooded groundwater. Want to guess what happened next?
Obviously, the buyer wanted to appeal to refund the reservation deposit. However, there was one simple line they missed, one which you’ll find in most reservation contracts with agencies or dealers.
“The buyer declares they are aware of all facts pertaining to the property, and that they have duly inspected it before signing this contract.”
This one line can cost, just as it did in the case of this particular buyer. There was no reservation refund provided. And truly, anybody who neglects to inspect a property before signing on the dotted line, is taking a risk.
This clause is typically common in every contract, and it’s non-negotiable. However, it does not completely free the seller from liability for undisclosed defects. Buyers have within 5 years from property acquisition to apply for damages according to the Civil Code (§ 2129 obč).
Now, sellers can attempt to draft a reservation contract including Civil Code Provisions (§ 1916) that waive the buyer’s right to defective damages. But it’s highly recommended you avoid getting into these contracts.
Really, the best option remains getting familiar with the condition of the property before you sign a reservation contract. Also, be sure to take into account the surrounding area, and any risks it might entail for your property.
Investigate the legal status of the real estate
Next, it’s equally crucial to investigate the legal status of the property in question. The best way to investigate the legal status of a property is through the Czech real estate cadastre. This registry lists property ownership, detailed information about the real estate, land size and the cadastral map. You can also check if the property is subject to any property rights restrictions, such as liens, easements, or other limitations.
If all the basic property information is in order, request more details from the seller or agency. Be sure to collect:
- The Original Acquisition Title (which is usually the purchase contract, although it may be a court-ordered inheritance or Gift of Equity contract)
- A new, real estate cadastre original Title Deed
- Any documents pertaining to property restriction rights (liens, mortgage agreements, easements, etc) if transferred to the buyer
- Certificate of building approval (which is particularly important if buying a new building and its approval is unclear)
If the seller refuses to transfer any liens, like a mortgage loan, ask how these will be terminated. In this case, it’s important to investigate how realistic or genuine the seller’s intentions might be.
End negotiations if refused information or pressured
If a seller refuses to give you ample time, documents or space to investigate the property, they’re likely hiding something. Be wary of any excuses about not having enough time, or anything that might pressure you into making a decision. If they aren’t willing to co-operate on your time table, it’s a major red flag.
Also keep in mind that sellers and agents are not required to share documents with you that you have not requested. Always exercise due diligence, and never settle for a verbal agreement with a seller or representative. Instead, if you aren’t completely certain about something, hire a lawyer or a reputable real estate agent to represent you.
Calculate all operational costs
The final concern when investigating a property will be its operational costs: heating, repairs, and anything additional. These can in fact pose quite a strain on the budget. Make sure the seller provides annual operating costs, affording extra attention to the heating and repair funds.
- Heating - As one of the most important items to consider, start by asking for the heating bill. Although this may not give you complete information, as it wholly depends on property usage. However, the seller is also required by law to provide an Energy Performance Certificate. These provide more reliable information, including energy loss in the building and other important details regarding insulation.
- Repairs fund - Another potentially high-cost item, the repair fund may include loan repayments by the owners’ association or a cooperative. This is especially important if buying an apartment in the Czech Republic. As the owner, you share responsibility for the obligations of the community of owners. Be sure to ask for the minutes from the association’s last meeting. Look for any changes to the repair fund which may not be listed in the previous year’s statement.
- Other costs - Investigate if there are any additional billing items, such as: parking, security, reception or anything you might have overlooked.
2 - Investigate the seller
Now, you might ask, why check the seller? After all, you’re buying the seller’s property, and they get no money until ownership is transferred to the Cadastre. Well, think again. The seller may in fact not be authorized to sell the property. One of the greatest risks is called a general inhibitor, which prohibits debtors from disposing of their real estate after receiving a court order.
If you do enter into a purchase agreement with a seller to whom a general inhibitor applies, your agreement is relatively invalid. What this means in courts is that if an executor or creditor challenges the agreement, it becomes invalid. Invalidity can be invoked for up to 3 years.
And while you might expect foreclosure information to be in the title deed, this isn’t always the case. If the foreclosure information is present in the deed, it’s a special inhibitor, making the purchase agreement completely invalid. In this instance, the cadastre will reject any purchase agreement, and you lose any money you paid towards the purchase price.
Check for any ongoing proceedings
Keep in mind debtors may try to monetize property to prevent losing it. Borrowers also often hide foreclosure from applicants. One way to check if there are any proceedings against the seller is the Central Register of Executions of the Czech Republic. It’s at least a good place to start, although it isn’t always completely accurate / up-to-date.
For example, proceedings may be pending, and a special inhibition may only take effect after you enter into the purchase agreement. The cadastre will then in turn reject the agreement.
Another risk is buying from a seller who lacks the legal capacity to dispose of the property. This might be due to not being of legal age, advanced age, or a mental disorder. Obviously, the first two are easier to investigate than the latter, but do keep this in mind.
Finally, it’s also a good idea to check for any debts the seller might have with the homeowners' association or a cooperative. The buyer will take these over, so be sure you know what debt you’re signing on for.
3 - Consider the neighbors
Now, for the neighborhood, no matter how attractive the apartment or house, get to know the possible neighbors. The last thing you want is to move into your new home to find out you can’t tolerate those living nearby. Maybe it’s constant noise, dogs barking, loud music, smoking, or complex disputes involving multiple neighbors. Try to discover these factors beforehand.
Given, there’s no way to guarantee a quiet, respectful neighbor won’t become a headache tomorrow, but do the research. Consider attending a homeowners’ association meeting, reaching out to potential neighbors, or even asking around the building or neighborhood.
How to learn the real conditions of a property
There are a number of steps you can take to better learn about a property. Begin by interviewing the sellers, and then, if possible, ask people residing in the house or apartment. You might even arrange a meeting with a building’s management, or the owner of the association or cooperative.
It’s also good practice to personally spend time in the property and observe. You might survey neighbors returning from work, or notice whether tenants seem healthy, happy, or if there’s an uneasy silence.
Sometimes, it might be that you notice previously hidden odors (animals, smoke), or bothersome noise at certain times of the day. Pay attention to how noisy the traffic becomes, as well anything that might disrupt your day-to-day activities. You can also hire a real estate agent to be sure the property meets your expectations.
4 - Signing a real estate reservation contract
OK, so you’ve inspected the property and conducted your investigations. Now it’s time to conclude the reservation contract. However, never commit to a booking agreement without first knowing you are 100% able to secure the total purchase price. Also account for paying property taxes, which is 4% of the total purchase price.
Check that the contract is comprehensive and fair. The reservation agreement states the agreed conditions for the buyer to purchase the property, and that the seller will sell it. Then, after signing, you ensure nobody else can buy the property, while guaranteeing that the seller can rely on you.
Tips for negotiating a buyer’s contract
When negotiating the terms of a reservation contract, there are several safe practices to follow. For one, control your emotions. This is the most common yet valuable piece of advice most often given to buyers. Don’t be intimidated or persuaded into signing by a seller’s threats or insistence they don’t have enough time.
Insist on completely clear, unambiguous conditions for the real estate transaction. All terms must be clearly defined, from the definition of the property to the reservation contract. The reservation must specify the means of financing, terms to conclude purchase, and liability defects. These have to be defined in legally-binding writing, and can include what equipment remains on the property and which is removed.
Remember that editing the agreement in the future may not be possible, and never accept a vocal promise that it will. Even the most seemingly trivial details should be in writing if you agree on anything. In this way, you not only avoid misunderstandings, but also any lengthy legal disputes attempting to prove who said what.
Agree on contractual penalties
Now, if the seller or broker refuses to agree on contractual penalties, it’s another major red flag. Any seller with genuine intention won’t shy away from imposing penalties for breach of obligation. Contractual penalties safeguard both you and the seller, greatly reducing the likelihood of problems.
Demand a tri-party agreement
A tri-party (tripartite) agreement is a contract between the buyer, the seller, and the real estate agency. Always insist on these agreements, even if the agency claims it’s not possible. Some agencies only offer bi-party (buyer between agency) agreements, but do not accept this. In these contracts, you have absolutely no contractual relationship with the seller. What this means is that if they decide against selling, there is nothing you can do about it. On the other hand, with all three parties in agreement, you have some leverage as well as a more balanced relationship.
Document real estate rewards to the sale
Another area to be extremely vigilant about relates to any rewards tied to the real estate agency’s obligations. For example, beware of any contract stating the agency receives their reward only for creating the opportunity to enter into a purchase agreement with the seller.
This sophisticated wording often defines “opportunity” as “acquaintance”, meaning the real estate agency gets your deposit before any purchase agreement concludes. Then, if for some reason the contract never does conclude, you no longer have a deposit or your real estate. The agency is resolved of all responsibility, as it has contractually already met its obligations.
It’s unfortunate, but it can and does occur. If ever unsure about your negotiating abilities, always hire a reliable broker or lawyer to negotiate for you. Skilled negotiators can help ensure more favorable terms, and, ultimately, keep you out of risky purchase agreements.
5 - Making a reservation deposit
When the contract is drafted, every seller and agent will require confirmation of interest via a reservation deposit. Once paid, the seller is assured you will be making the purchase, and your real estate is taken off the market.
Now, there are a few options here to safeguard your deposit. First, make the deposit into a neutral bank account, such as an agency’s or a law firm’s. This is always safer than depositing directly to the seller’s account.
If making a deposit with a real estate agency, check their reputation beforehand. No matter how trustworthy their company might look, it could be on the verge of collapse. A good place to begin your investigation is the Commercial Registry’s financial results. If the company has none, which is in fact a legal obligation, or significant losses, make your reservation through a lawyer. You’ll want the extra protection.
Your other option is depositing directly through a law firm, which in most cases is safe. Attorneys over recent years experience tightened supervision, so you’re often safer here than with an unreliable agency.
6 - Preparing the purchase contract
After conclusion of the reservation contract and deposit, next is drafting a contract of future purchase or straightforward purchase. Preparation of the purchase contract builds on the agreements from the beginning of the booking agreement.
Now, if you’ve drafted a comprehensive and balanced reservation contract, this process is usually straightforward. Even more so after making a deposit and with sufficient time to meet deadlines to secure your real estate financially. At this point, with all conditions already defined and agreed, you shouldn’t encounter many problems when creating the purchase contract.
Typically, buyers make the most mistakes in the early stages of negotiation. Remember this, and when starting the buying process, invest more effort into finding favorable conditions. In the end, the more time you invest in the early stages of negotiation, the less you require when finalizing a purchase contract.
7 - Guarantee of the purchase price
When all parties agree on a purchase price, you have to ensure its safe storage. In general, this is through a lawyer, notary, bank, real estate agency, or any third party.
Each custody has its advantages and its risks, however, so exercise due diligence when choosing one or the other.
8 - Deposit proceedings in the real estate cadastre
After concluding a purchase contract, you must then submit it to the real estate cadastral office. Here, the buyer pays a small administrative fee, and then, by law, the cadastre must wait 20 days until they can make the buyer’s deposit. After this protection period, the deposit is processed, with the whole procedure taking usually around 30 days total.
If the cadastral office approves the contract, the buyer then receives a “Notification of Deposit”. This grants ownership to the buyer from the day the application for the real estate cadastre was submitted.
9 - Transfer of ownership
Typically, within 7 days of the deposit being processed, real estate is transferred to the new owner. This is not always a condition and can be negotiated, even up to a year after making the purchase. However, when you do receive ownership, it’s important to know that you become legally liable for the property. This includes any damages caused on or at the property, so consider property insurance immediately.
Also keep in mind obligations to utility providers (electricity, gas) which you might want to change. After all, you aren’t locked into the same suppliers as the sellers, so confirm this during handover. The seller should draft a handover protocol where you can record these items and any unfavorable conditions you might discover.
10 - Real estate acquisition taxes
Now, you’ve acquired your real estate, but what about tax obligations? When do you have to file a real estate tax return? In the Czech Republic, you’re obligated by the state to file a real estate tax return by January 31 of the year following the deposit of ownership. It’s only possible to file a tax return once, and only if there have been no changes to the property. Then, come no later than May 31, the new owner begins paying property tax.
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