A few words about internet auctions and real estate in Czechia

Internet auction in reality is something different from the one that we are used to see in Hollywood movies. Unfortunately (or fortunately), you will not see beautiful women in shiny dresses with expensive jewelry, you will not see men with cigars, playing with the keys of their expensive yachts, you will not see flashing cards with numbers and restless peeking along the rows, you will not hear the disturbing music, the hammer and the broken voice of the auctioneer. All you will hear is your PC mouse clicks and disturbing music only if you turn it on. All you will see is an expert’s opinion on evaluation of a real estate, a notice regarding the auction, as well as several numbers that signify your temporary competitors. And also, of course, the size of the bids, and the time that is extended by 5 minutes each time someone makes a new bid.

In Czechia auctions are quite common, both for antiquarian and rare goods, as well as for consumer goods or things, for example cars or real estate.

By the way, quite often the terms “auction” in a meaning of a private sale or auction (česky – aukce) and “public auctions” (dražby) are interchangeable, but purely legally it is about different concepts. If the definition of the „aukce“ you will not find in the law, even though the main provisions are in the Civil Code (No 89/2012 Coll.), then there is a Law on Public Auctions No. 26/2000 Coll. (LPA), defines public auction quite clearly, determining the public auction, participants, and related requirements for the conduct of public auction. By the way, the Law on Public Auction distinguishes between voluntary and involuntary public auction.

In a case of voluntary public auction, the applicant may be the owner himself or the person who has the right to dispose of the auction object (for example, the bankruptcy trustee). However, for the public auctions there is a need of a special license (§ 6 (1) of LPA), in contrast for a private auctions. Auctions can be held only on the basis of a written contract.

It is logical to assume that if in the case of a private auction or a voluntary public auction, the owner decides to do it himself, in the case of involuntary / forced auction, it is a matter of exercising, for example, the creditor’s right towards to the owner-debtor.

Creditor can exercise its right by, for example, selling the immovable property of the debtor. The forced sale of real estate is carried out by means of public auction, either according to the Law of Public Auction (further referred to as forced sale under LPA), or by forced sale under enforcement proceedings (so-called „exekuce“, further as forced sale under EP), in accordance with the Code of Civil Procedure (§335-338a No.99/1963 Coll.).

The reason for the forced sale under EP is the inability of the debtor-owner to repay his debts. Negotiations on auctions are announced by the bailiff (sheriff officer/ soudní exekutor) and are conducted either physically directly at the enforcement office of the bailiff or electronically on the Internet auction portal.

The subject of the public auction is often the real estate / immovable property of the debtor. The initial price of a real estate is established by law – 2/3 of the assessed price determined by the expert in its appraisal in the framework of the forced sale under EP, and 1/2 of the assessed price determined by the expert in forced sale under LPA.

So, for example, a small debt of 15,000 Czech crowns could be reason of the forced sale under EP, where the debtor will lose his real estate in an amount 200 times higher the original debt in value. But at the same time, such property can be purchased at auction 3 times lower than its market value.

The participant who has offered the highest price (made the highest bid) is awarded the „příklep“(title deed, a resolution, on the basis of which the right of ownership is acquired / transferred). It is worth noting that in the case of forced or public auction, we are always talking about the official decision or resolution, while, in the private sale/ auction, the title deed is an agreement, for example, a purchase agreement.

Participant of the auction could be only a person, who was registered on time and whose identity was confirmed, could be present at an internet auction, also, who paid for the auction security amount in conditions stipulated by the notice of an auction. Moreover, in the case of forced auction under LPA, the security amount is up to 30% of the minimal reservation price (§14 of the LPA); in the forced auction under EP, the amount of collateral varies, it is determined in each particular case, but shall be no more than 3/4 of the amount of the minimal reservation price.

After the auction, the winner must pay the entire cost of 10 to 30 days in the case of forced auction under LPA; and within 30 days from the entry into force of the resolution in the case of forced auction under EP. It is worth to mention, during this time there is an opportunity to appeal for other participants or persons involved to this auction, which can affect the duration of the process, the trial may last for several years.

However, it is worth remembering that in the case of acquiring real estate in such forced auctions under LPA, different “easements” (including the mortgage and rights of third persons) that burdened real estate remain effective, unlike in forced auctions under EP, where easements cease to be effective, except for those that have been explicitly stated to be remaining.

Above mentioned is not the only risk. It often happens that in the forced auctions of real estate, the debtor (ex-owner) still lives there, since it is his only property. There are cases when the debtor by all means delays the process of transfer of the right of ownership, as well as the physical transfer of property to the new owner by various means, including legal and physical upholding of the right – refusal to move.

Therefore, often developers or investors participate in such trades, whose teams study the environment, risks and ways to circumvent them in advance. Last but not least, you need to contact a lawyer to check the possible legal risks.

(c) Elmira Lyapina, LL.M., Ph.D.

Disclaimer about the nature of the information contained in this article.

The information provided in this article is the general information, and does not constitute legal advice, and may be not valid in a particular situation. To obtain qualified legal consultancy, you should contact a lawyer with the provision of the necessary documents regarding the case. For example, by email: juristpraha@gmail.com.

This article was prepared on the basis of an analysis of legislative regulations for 20.02.2019. Therefore, while using such information, should be considered the changes to be made to the legislation after that. This article was published the first time on February, 20, 2019 on the web page www.juristpraha.cz