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Print articleSafe and Smooth Real Estate Purchases in the Czech Republic
September, 2015 - Alica Stegmannová
Although the Czech real estate market has recently witnessed
several significant deals (see Attractive Real Estate Business in the Czech
Republic), there is definitely still great potential in the Czech Republic for
future investors. Correspondingly, according to the latest figures, it seems
that even a forecast of a 6% price increase will be surpassed in 2015.
The Czech commercial environment and legal system help to encourage real estate transactions and even make them more attractive. At the end of the day, investors who had no prior experience in making deals in the Czech Republic are often pleasantly surprised that the overall process is smoother than they had expected. Besides protecting the investors themselves, there are also other advantages: the public nature of the information allows investors to conduct quality due diligence; there is a high standard of providing warranties and representations by the sellers; and title insurance is available as well. Finally, real estate financing in the Czech Republic is both flexible and secure.
Investor’s inquiries
One of the most common ways investors are protected is through due diligence. As far as gathering the relevant data is concerned, the law guarantees investors free access to information. The governmental and municipal authorities and public institutions are required to provide information related to their activities upon request. Thus, the majority of relevant registers are publicly accessible. An investor may inspect a significant part of the relevant documents itself, even if it is not a party to the respective agreements or has not proved legitimate interest otherwise.
Moreover, the sellers are aware of an investor’s due diligence and are usually able to provide the necessary documentation electronically. Therefore, investors do not usually have to find and copy all the documents from the registers themselves, and thanks to having virtual access to the information the transaction process can be significantly quicker. There are several providers of data-room systems that ensure safe, secure and comfortable access to these documents. Czech law firms provide their findings in a comprehensive memorandum, a highlight report or any other form requested by the client, with the findings able to be rendered in various languages.
Further, the Czech Statistical Office publishes statistics on average real estate prices on its website, which can also help foreign investors to become better acquainted with the Czech market.
Seller’s warranties
Czech private law strongly favors the will of the parties, mainly in B2B transactions. Therefore, an investor and seller may set forth their relationship in a way that will be convenient for both of them, and they are not limited by excessive statutory restrictions. In this regard, investors enjoy the benefit of an investor protective market standard which features extensive warranties and representations regarding the real estate (and corporate matters in the case of a share deal) usually given by the seller. In other words, even if there are no significant findings in the due diligence report, a seller generally provides a large scope of warranties, including the absence of legal and factual defects with regard to the real estate.
Further protection
Finally, title insurance is becoming more and more popular in the Czech Republic, with several international providers of commercial title insurance active on the local market. The aim of title insurance is not to protect the investor against risk but to mitigate any eventual negative consequences. It covers any potential loss and damage which the investor incurs due to legal claims raised regarding the title to the real estate, including attorneys’ fees and expenses.
The Czech commercial environment and legal system help to encourage real estate transactions and even make them more attractive. At the end of the day, investors who had no prior experience in making deals in the Czech Republic are often pleasantly surprised that the overall process is smoother than they had expected. Besides protecting the investors themselves, there are also other advantages: the public nature of the information allows investors to conduct quality due diligence; there is a high standard of providing warranties and representations by the sellers; and title insurance is available as well. Finally, real estate financing in the Czech Republic is both flexible and secure.
Investor’s inquiries
One of the most common ways investors are protected is through due diligence. As far as gathering the relevant data is concerned, the law guarantees investors free access to information. The governmental and municipal authorities and public institutions are required to provide information related to their activities upon request. Thus, the majority of relevant registers are publicly accessible. An investor may inspect a significant part of the relevant documents itself, even if it is not a party to the respective agreements or has not proved legitimate interest otherwise.
Moreover, the sellers are aware of an investor’s due diligence and are usually able to provide the necessary documentation electronically. Therefore, investors do not usually have to find and copy all the documents from the registers themselves, and thanks to having virtual access to the information the transaction process can be significantly quicker. There are several providers of data-room systems that ensure safe, secure and comfortable access to these documents. Czech law firms provide their findings in a comprehensive memorandum, a highlight report or any other form requested by the client, with the findings able to be rendered in various languages.
Further, the Czech Statistical Office publishes statistics on average real estate prices on its website, which can also help foreign investors to become better acquainted with the Czech market.
Seller’s warranties
Czech private law strongly favors the will of the parties, mainly in B2B transactions. Therefore, an investor and seller may set forth their relationship in a way that will be convenient for both of them, and they are not limited by excessive statutory restrictions. In this regard, investors enjoy the benefit of an investor protective market standard which features extensive warranties and representations regarding the real estate (and corporate matters in the case of a share deal) usually given by the seller. In other words, even if there are no significant findings in the due diligence report, a seller generally provides a large scope of warranties, including the absence of legal and factual defects with regard to the real estate.
Further protection
Finally, title insurance is becoming more and more popular in the Czech Republic, with several international providers of commercial title insurance active on the local market. The aim of title insurance is not to protect the investor against risk but to mitigate any eventual negative consequences. It covers any potential loss and damage which the investor incurs due to legal claims raised regarding the title to the real estate, including attorneys’ fees and expenses.
