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Legal Q&A property purchase

1. What type of apartments can a person buy in the Czech Republic, and can foreigners buy apartments in the Czech Republic?

In the Czech Republic the apartments are basically either in private ownership (so called “byt v osobním vlastnictví”) or in ownership of a co-operative association (“družstevní byt”). In the first case you buy directly an ownership title to the apartment and you are registered as the owner in the Cadastre. In the second case you buy a share in a co-operative which is connected with the right to use a particular apartment (you are then in a position of a tenant of the co-operative). It is possible to transfer the type of the ownership from co-operative to private; this, however, depends on the particular situation.

The foreigners in the Czech Republic are limited neither in buying apartments nor in acquiring shares in a co-operative association. The establishment of a Czech company only for the purpose of real estate ownership is therefore not anymore necessary.


2. What do I need to know about the property before I buy it?

If the apartment is in private ownership, you should first confirm if the person that is selling the property acquired the ownership title lawfully and is, therefore, its legitimate owner. You can find out who is listed as the owner on the internet pages of the Czech Cadastre (www.cuzk.cz). However, we strongly recommend checking the validity of the previous transfers of the ownership since the entry in the Cadastre can be disputed and is only declaratory.

The property should also be free of all encumbrances (i.e. mortgages, easements, preemption rights etc.). These rights of third parties are also registered in the Cadastre. This, however, is not the case of lease agreements. If you want to use the apartment for your own accommodation, you have to make sure that the previous owner did not rent it to another person prior to the sale.

Further, we recommend checking the contracts for provision of energies and services for common spaces in the building which will be usually entered into on behalf of the apartment owner by a special entity called association of unit-owners (“společenství vlastníků jednotek”; ”SVJ ”); SVJ also takes care of the common parts of the building (including repair activities). Contributions for these services are determined at the general meeting of the SVJ and the owners are obliged to pay them. There is a risk that a debt will pass with the unit to the new owner and, therefore, the accounting books of SVJ should be inspected.

In case of an apartment owned by a co-operative association, the corporate documents of this entity as well as the possibility to rent the particular apartment should be checked.  If you want to transfer this type of ownership in the future, possibility to do this should also be reviewed in the statutes of the co-operative association. Also the availability to sublease the apartment can be limited by the co-operative association. For the services (provided usually by the co-operative association itself) the same as for SVJ applies.

The deterioration of the apartment and the whole building and the status of the accessory premises (if the owner of the apartment can use these solely and on which basis) should be inspected in any case.


3. How the apartment purchase is administered legally, which documents do I need, and what fees I need to pay?

Private apartments are transferred on the basis of a purchase agreement between the seller and the buyer. It is strongly recommended to deposit the purchase price in escrow with an attorney or notary since the transfer becomes effective not immediately by signing of the purchase agreement but only by its approval by the Cadastre. For this, an escrow agreement containing in detail specified conditions for releasing of the purchase price needs to be signed. It is also possible to conclude a reservation or a future purchase agreement before the transaction. After the signing of the purchase agreement, the filing to the Cadastre with the fee of CZK 1,000 (paid by duty stamp) needs to be done. The real estate transfer tax must be paid by the seller to the tax authority in the amount of 3% of the purchase price; however, the purchaser is the statutory guarantor of the tax payment (i.e. in case the seller does not pay the tax, the purchaser will have to pay it!!!); therefore, this amount is usually also paid directly from the escrow to the tax office.

In case of a co-operative apartment the rights and obligations connected with the membership of the co-operative association including the rent of the apartment, are being transferred by a special agreement in which the buyer accedes to the statutes of the association. The transfer is effective by its announcement to the co-operative association. No change in any public evidence takes place in connection with the transfer in this case.


4. Can I obtain a mortgage to buy an apartment as a foreigner?

Czech banks do offer mortgages to foreign citizens, but only (subject to the exception specified below) for a purchase of an apartment in private ownership. However, they require more documents from a foreigner than from a Czech citizen. The banks usually require the foreigner to have either a long term residence or a permanent residence permit in the Czech Republic (requirements for EU citizens are less strict). A foreigner also has to prove that he/she is subject to taxation in the Czech Republic, i.e. he/she has to provide a certification from his/her employer regarding his/her income or if he/she is not employed, but runs his/her own business, than he/she has to prove a tax payment report issued by a relevant tax authority (some banks require a tax payment report for previous two years).

A foreigner has to bear in mind, that not all Czech banks provide a 100% mortgage for foreign citizens, they sometimes offer only 80% or less.

It is more complicated to obtain a mortgage for a purchase of an apartment in the ownership of a co-operative association. Only few banks provide loans for a purchase of such apartment, and also only in case when the apartment in the ownership of co-operative association can be transferred to private ownership. The bank usually offers a loan which is not a classical mortgage, but something that is called a pre-mortgage. The pre-mortgage is changed to a classical mortgage after one year, during which a person has to transfer the apartment in the ownership of co-operative association into an apartment in a private ownership, so that the apartment can be used as a security pledge for the loan. 

Legal Q&A section is provided by
 

rutland ježek, advokátní kancelář
http://www.rutlandjezek.com/gb/

 

 
 
 
 
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