The Legal 500

In almost every due diligence involving real estate in the Czech Republic, several legal is-sues emerge which are crucial for the existence (or non-existence) of ownership or other rights regarding real estate established in favour of certain subjects. The following legal issues are typically encountered in due diligence projects. It is important to understand and assess these issues correctly.

A number of law changes requested over last few years regarding the regime of funds of qualified investors were finally enacted and became effective. These changes may give a positive stimulus to further development of the fund industry in the Czech Republic.

The rule of good faith is one of the basic principles the state adheres to in its“rule of law”. In the real estate business, this rule is often discussed when a person acquires real estate on the grounds of an agreement which is then terminated by the withdrawal of one of the parties. According to the Czech Civil Code, if the title for the transfer of the ownership ceases to exist, ownership returns back to the original owner, irrespective of whether or not the acquirer acted in good faith. The Supreme Court of the Czech Republic supported such approach in its decisions. However, recently, the Constitutional Court identified this approach as not in accordance with the fundamental rights of people and the basic principle of “rule of law”. It ruled that, in the above cases, good faith must therefore be taken into consideration. It must be noted, however, that this does not apply to cases where the transfer of the real estate was invalid from the beginning.

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As of January 1, 2007 the new (amended) Building Code, i.e. Act No. 183/2006 Coll., on Urban Planning (Zoning) and Building Code (The Building Code) has been amended and enacted.

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On March 14, the Chamber of Deputies accepted amendments proposed by the Senate and finally approved the new Building Act, which will become effective Jan. 1, 2007. Lawmakers promised that the whole approval process conducted by the Building Authority will be sped up and simplified, but investors and developers remain skeptical about those claims.