Czech Real Estate Law after Re-codification in 2014

As part of the re-codification of Czech private law, Act No. ⁸⁹⁄₂₀₁₂ Coll., Civil Code (the New Civil Code) became effective as of 1 January 2014. In this article we would like to point out some important changes introduced by this new regulation.

The Principle of Superficies solo cedit

The New Civil Code returns to the principle of Superficies solo cedit, under which structures firmly connected to a plot shall be considered as part of that plot. As of 1 January 2014, all structures placed on a plot owned by the same person are a part of this plot. Anyone who intends to dispose of a plot should therefore keep in mind that the structures placed on it will now follow the fate of that plot. In cases where the owner of the structure and the plot are not the same, the New Civil Code establishes a statutory pre-emption right of the owner of the plot to the structure and vice versa, so that the ownership of the plot and structures can be unified in the future.

The right of construction

Anyone who intends to build a new structure whose service life does not exceed several decades and who does not want to purchase the plot, or anyone who cannot agree with the owner of the plot to purchase it, might find the new institute of right of construction useful. The right of construction can be established based on an agreement and by means of registration in the Land Registry. The main feature of the right of construction is its temporary nature. It can be established for up to 99 years, but can be extended later. As a result of termination of the right of construction, the structure becomes a part of the plot on which it has been built. In order to compensate the builder, the owner of the plot shall pay half of the price of the structure, if not agreed otherwise between the parties. The right of construction is transferable and may also be encumbered in favour of third parties.

New regulations in mortgages over real estate

The New Civil Code newly allows for the establishment of a priority right for establishing a mortgage and registering this right in the Land Registry. This means that parties may register the mortgage rank in the Land Registry before they actually file the application for the registration of the mortgage itself. This enables creditors (e.g., banks) to secure a better mortgage rank before the negotiations on the contractual documentation wrap up.

If a receivable secured by a mortgage is fully paid up, but the mortgage is still registered in the Land Registry, as the mortgagor the owner is entitled under the New Civil Code to use the vacant mortgage to secure another receivable not exceeding the amount of the original receivable. This new institute can be used for refinancing, for example, whereas it enables the new creditor to virtually outrun other secured creditors. However, it can be agreed with other secured creditors that the owner is not entitled to secure new receivables with the vacant mortgage, whereas this limitation is to be registered in the Land Registry.

Land Registry and acquisition of ownership to real estate from a non-owner

Under the previous legal regulations, any person relying on information in the Land Registry was in good faith unless the person knew that the records were not in accordance with reality. In case of a discrepancy between the entry in the Land Register and reality, reality prevailed according to the previous legal regulations. A person acquiring real estate who was acting in good faith in the entry in the Land Registry could not acquire the real property from the non-owner. The acquiring person could only become the holder of the real property in good faith and could acquire the ownership of the real property by usucaption, provided that the other legal conditions for usucaption are fulfilled. This has changed as of 1 January 2014.

The New Civil Code enables the acquisition of ownership to real estate from a non-owner if certain statutory conditions have been met, especially the good faith of the transferee in the records in the Land Registry (the transferor must be registered as the owner) and a consideration for the ownership transfer is to be regulated in the transfer agreement (purchase agreement). However, the real owner of the real estate may under certain circumstances dispute the ownership of the new registered owner by filing a notice of dispute at the competent Land Registry Office within the statutory period.

The New Civil Code should motivate the owners of the real estate to regularly check the status of entries in the Land Registry.

authors: Martin Kubánek, Miroslav Dudek