It would be a mistake to say that someone is not being serious when purchasing a property. There are several phases as a search of the proper real estate, checking and assessment, contractual phase, and purchase itself, all this together with the negotiation process with the seller, real estate agent, developer, lawyer, banker, financial adviser, technical expert. Nevertheless, I often come across the fact that the same mistakes are made, when buying real estate, although it would seem that the process is quite common, and many interested parties in this process are involved more than once.
Of course, there are different features of buying a property, whether it is commercial real estate, or residential, whether it is a new-build or a resale property, an apartment or a house, part of the house, or a townhouse, whether it is purchase with a mortgage, a bank loan or with the own financial funds, as well as whether there is an easement (věcné břemeno – the burden to be taken, for example, the obligation to bear a nearby siren), or if there is a lien of the seller’s bank on the property.
In this article, I will only consider some introductory points that need to be considered in the preliminary phases of purchase.
Importance of technical checking assessment.
Often I come across the fact that a purchaser does not pay appropriate attention to the importance of technical checking assessment of the real estate before its purchase. The reasons are many, it could be the trust to the seller, especially if it is a large developer or construction company, or the fact that the seller is represented by a real estate agent, or even the absence of visible signs of technical defects. However, when accepting a real estate in a property, fulfilling the handover protocol (in Czech language it is “předávací protokol”), it is important to indicate all defects and deficiencies of the particular real estate, including the technical side (especially if it is a new-building).
It is also necessary to check the technical side with an expert before purchase. For example, after buying a property in a new building, family A encountered a faulty water supply system, and they when informed about it the builder/seller, referring to the part in the agreement regarding the guarantee, the builder/seller denied to repair it, referring to the wrong use of the real estate by the purchaser. And also clarified that if the problem was on the side of the seller, this would be mentioned in the handover protocol, and since it is not a hidden defect, the financial burden of repairing this defect lies with the purchaser (here also comes to the aid of the seller/builder §2629 of the Civil Code of the Czech Republic). Another example is the situation in the family B, who bought a “resale property” – a beautiful two-store house, or rather a townhouse (these are several identical houses connected by one common wall). Without preliminary checking of the technical documentation and the technical side of the real estate, the family was faced the fact that they can not insulate or even rebuild its own (but at the same time common) wall, besides, when the neighboring house/townhouse was demolished, the wall itself not only deformed itself , but also influenced the construction of the whole house. The third example is quite often case in the new building construction and underexposure plan by geodesists. As a result, you can buy real estate in a much smaller metrage than indicated for this real estate both in the land plan and in the cadastral chamber itself. How can this be? There are standards of measurement and there are inaccuracies that accumulate.
What would happen if the expert checked the property?
First, it could significantly affect the price, and secondly, a guarantee for fixing the defects, including possible ones; thirdly, it is your calmness and knowledge of what can happen and what to expect during the ownership or use, and, also how much the documentation of the real estate corresponds to the reality.
Communication with the seller, the developer, the real estate agent. Main contracts related to purchase of a real estate.
Each agreement, which was reached between the purchaser, seller, builder, real estate agent must be reflected in the contractual documentation. Often there are 3-4 contracts. This is a reservation agreement, the so-called non-binding agreement, where real estate is “reserving” the real estate for the purchaser, or, in other words, undertaking not to offer this real estate to the other possible purchaser, for some short period of time (from 5 to 14 days) in return for a small amount (often from 50,000 to 150,000 Czech crowns) as a part of the total purchase amount. In a case the purchaser is serious, and wants to buy this real estates, this period is enough to prepare the entire purchase amount and the necessary documentation for the purchase.
Often it also happens that the reservation contract includes two parts – the reservation contract itself and the intermediation contract, where the third party of the contract, the intermediary, is the real estate agent. There have been cases when some real estate agents included in the total purchase amount their provisions, for example in the contract you could find this phrase “Provision is 200,000,-CZK and it is included in the total amount of the purchase.” Why is this condition, to put it mildly, not good for the purchaser? The fact is that the buyer pays 4% of the tax on the purchase of real estate (the relevant regulation of the Senate No. 340/2013 Coll.) from the entire “purchase price”, and of course, such a phrase would mean, that the amount of paid tax would be increased by the intermediary’s provisions.
The next contract is a Preliminary contract, or an agreement on a future contract of sale (Smlouva o uzavření budoucí smlouvy kupní, according to § 1785 of the Civil Code of the Czech Republic). It has more power than the reservation agreement, and this contract is favored by the developer and construction companies, who by this preliminary contract oblige purchasers to pay the entire amount BEFORE concluding a contract of purchase. Why this contract could be dangerous? Despite the fact that, this is a preliminary agreement, however on the basis of this contract – you will be unlikely (or, to be more precise, will not be) registered in the cadastral register as a new property owner. In addition, it is likely that the object may be unfinished, or the Building authority will not issue an opinion on the possibility of using this property (kolaudační souhlas), and so in the demanding of the paid amount purchase, connected to it costs, and, in the case of financing by the bank, fines, it can be very costly and unpleasant.
The related to it issue is payment of the whole purchase price of real estate, as prescribed in the preliminary contract and the contract of purchase, namely, the provisions in the contracts, that the amount should be transferred immediately to the seller’s account. I don’t recommend you to follow this provision, and if it is contained in the contract (and it is contained in 99.9% of cases), then the better choice is to find a third party where this purchase price could be kept. It can be either a “cell” of a lawyer (and a related storage agreement – smlouva o úschově), or a notary, or a special bank account (,jistotní účet‘- however, not all banks are able to provide this account). For a small (relatively) payment, you save the the whole amount, and also will be able to mention the terms and conditions transfer of this purchase amount to the seller’s account, so you will be calm that this amount, in case of problematic situations, will return to you intact.
The last main contract is a contract of purchase itself (Kupní smlouva §2128, Civil Code No. 89/2012 Coll.). Do not be scared if after a 20-pages preliminary contract you will receive a two-page contract of purchase. What should be mentioned there? The main terms and conditions are: the handover of the real estate from the seller to the purchaser, the seller’s obligation to provide the insertion of the new owner property rights to the cadaster register, the seller’s statement that there are no additional obligations, security rights and third party rights on this real estate, and that the purchaser has been informed of all defects, and also the purchaser’s obligation to pay the whole purchase amount and tax on the acquisition of real estate and take over the real estate on time.
This, of course, is not a complete list, but only some points. It is worth to mention, that one of the copies of the given contract should be with the notary authorized signatures of all parties, all for granting to a cadastral register. If the parties of the contract are only the seller and the purchaser, then three copies are sufficient, one for each party, and one copy is provided to the cadastral register.
In the following articles, I will consider in more detail the contracts that accompany the acquisition of real estate, the acquisition of new-build real estate, the related to it importance of the decisions of the land register and building authority, the cadastral register and its significance, the contracts related to the construction, the lien, the right of building upon the land of another, and the sale of a real estate and its pitfalls.
(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 24.09.2018. 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 September 24, 2018, on the web page www.juristpraha.cz