When and how are you entitled to compensation for damages?
How to deal with an illegal building closure and interference with property rights
The conflict between the right of a municipality to self-government and the protection of landowners' investments represents one of the most complex areas of construction law. Municipalities often use the institute of a building closure as a tool to temporarily freeze development in order to gain time to re-evaluate their urban concept. On the other hand, there are developers and property owners who have invested considerable funds in project preparation and relied on valid spatial planning documentation. This article analyzes in detail the rights of both parties, focuses on how to challenge an illegal building closure, and especially on what specific compensation can realistically be claimed and under what exact conditions.
What you will learn in this article
- What exact legal conditions a municipality must meet for its building closure to withstand a potential judicial review.
- What legal means developers can use to defend themselves against purpose-built regulatory changes that threaten their investments.
- Why final zoning decisions and building permits constitute so-called limits of land use, which new regulations must respect.
- In what specific situations landowners are entitled to compensation for damages under the Building Act, exactly what can be claimed, and what cannot.
- Why compensation for actual damage (vainly incurred costs, a decrease in land value) is realistically achievable, while lost profit is a procedurally much more difficult position.
When and under what conditions can a municipality legitimately declare a building closure?
A building closure is a measure of a general nature whose purpose is to temporarily restrict or ban construction activity in the affected area so that future land use according to the prepared spatial planning documentation is not complicated or made impossible. The legal framework for issuing it is currently set by Act No. 283/2021 Coll., the Building Act (hereinafter the "new Building Act"). Historically, the procedure was governed by Act No. 183/2006 Coll., on Town and Country Planning and Building Code (Building Act) (hereinafter the "2006 Building Act").
The law sets three cumulative substantive conditions for issuing a territorial measure on a building closure. First, there must be a valid decision of the municipal assembly on the procurement of a new zoning plan or its amendment. Second, it must be proven that the banned or restricted construction activity could complicate or prevent the future use of the territory according to the prepared documentation. Third, the restriction must be implemented to the necessary extent—spatially, factually, and temporally. The new Building Act explicitly states in Section 123 (3) that a building closure is issued for the strictly necessary period, which must not exceed 6 years. Moreover, according to Section 123 (5), a territorial measure on a building closure cannot restrict or ban maintenance works or the realization of a public benefit structure of transport or technical infrastructure. The case law of the Supreme Administrative Court (NSS) clearly shows that although a municipality has a certain degree of political discretion when procuring a zoning plan, the issuance of a building closure is an exercise of state administration and must not be arbitrary. As the NSS stated in its judgment of July 21, 2009, Ref. No. 1 Ao 1/2009-120: "Interferences with the right of ownership must fundamentally have an exceptional nature, must be carried out for constitutionally legitimate reasons and only to the strictly necessary extent and in the most gentle of ways still reasonably leading to the intended goal, in a non-discriminatory manner and excluding arbitrariness."
How can landowners successfully defend against a building closure?
The basic procedural defense tool for the owner of the affected property is to submit comments against the draft measure of a general nature by which the building closure is declared. The new Building Act explicitly states in Section 127 (5) that objections according to Part Six of the Administrative Procedure Code can no longer be filed against the draft territorial measure. Comments must be submitted within a strict legal deadline, which is within 30 days from the publication of the draft. The municipality is obliged to deal with them factually and comprehensibly in the justification of the final measure. The requirements for the justification of dealing with comments are relatively higher than for the actual justification of the building closure, as confirmed (in relation to earlier objections) by the Constitutional Court in its finding of November 8, 2018, file no. I. ÚS 178/15. If the municipality ignores the comments or deals with them only formalistically, it causes the unreviewability of the measure itself.
If a building closure is issued, the owner can initiate a defense through a proposal to annul the measure of a general nature or its part to the regional court within the meaning of the provisions of Section 101a et seq. of Act No. 150/2002 Coll., the Code of Administrative Justice. In such proceedings, the petitioner typically objects to a violation of the principle of proportionality, discriminatory definition of the affected area, or a violation of legitimate expectations established by the previous active conduct of the municipality, for example, by concluding planning agreements for the construction of public infrastructure. Be aware, however, that planning agreements themselves (the regulation of which is newly detailed in Section 130 et seq. of the new Building Act) do not, according to the settled case law of the NSS, establish legitimate expectations in the public law sense, as they are a private law instrument; as the NSS concluded in its judgment of November 13, 2014, Ref. No. 7 As 181/2014-34: "Negotiated contractual obligations cannot modify the statutory (public law) regulation governing the adoption of a territorial measure on a building closure and its consequences." Any private law claims arising from a breach of planning agreements must therefore be asserted in civil proceedings.
Can a new territory regulation be blocked by an issued building permit?
A fundamental argument for investors in the fight against building closures and changes to the zoning plan is the existence of so-called limits of land use (the new Building Act defines them in Section 12 (r) as restrictions on changes in the territory for the purpose of protecting public interests, resulting from legal regulations, or established on the basis of other legal regulations, or resulting from the properties of the territory). If a developer has already obtained valid zoning decisions or building permits for their project in the past, these acts constitute a limit that the procurer of the new spatial planning documentation must respect.
In its landmark judgment of September 12, 2012, file no. 1 As 107/2012-139, the Supreme Administrative Court stated: "Zoning decisions (and building permits) issued in a certain territory represent a so-called limit of land use within the meaning of Section 26 (1) of the Building Act. [...] It is therefore not possible for a municipality to try to 'remove' the effects of previously final zoning decisions by issuing a zoning plan. A different interpretation could lead to completely absurd consequences, where, for example, buildings properly placed, permitted, and approved several years ago would come into conflict with the zoning plan." The NSS explicitly applied the same conclusions to building closures in its judgment of October 22, 2019, Ref. No. 1 As 454/2017-102, where it inferred that "it is inconceivable that a building closure would de facto make it impossible to consume already final public law permits, i.e., to carry out construction activities on the basis of these permits", as this would contradict the legitimate expectations of the addressees of the issued permits and the protection of rights acquired in good faith.
The practical impact of this rule is fundamental: a building closure by its nature cannot act retroactively on construction that has already been legally permitted. Its effects are directed exclusively towards the future regarding not yet permitted projects. A developer who has a final building permit can therefore continue implementation regardless of the issued closure. This logic is fully supported by Section 133 (4) of the new Building Act, which explicitly states that the owner is not entitled to compensation for damages for a change in the territory if the permit for the project for which the building was intended has become final.
In what situations does a claim for compensation for damages for restriction of property rights arise?
The constitutional order and statutory regulations take into account situations where a municipality significantly interferes with investors' property rights through its decisions, requiring financial compensation. The basic institute is Section 133 of the new Building Act, which adopted the rules previously contained in Section 102 of the 2006 Building Act. The law distinguishes two different titles of compensation here, which must be strictly differentiated.
The first title is compensation for a change in spatial planning documentation. It belongs to the owner if the buildability of their land is canceled or significantly restricted on the basis of a change in the zoning plan. However, the law imposes a strict time condition: compensation is due only if the cancellation of buildability occurred within five years from the effective date of the zoning plan that originally designated the land as buildable. After this period, the claim expires. However, the time during which the building on the land was prevented due to a building closure or other temporary restriction on the buildability of the land established by the zoning plan is not counted towards this five-year period (Section 133 (3)).
The second title is compensation for damages caused by a building closure. According to Section 133 (2) of the new Building Act, an authorized person is entitled to compensation if their rights to land or a building were significantly restricted by a territorial measure on a building closure and if damage was caused to them as a result.
Compensation from both titles is provided in money. However, the new Building Act explicitly admits that instead of monetary compensation, another plot of land or building can be provided to the authorized person on the basis of an agreement (Section 135 (1)).
What exactly can be claimed and where are the limits of compensation?
Understanding the scope of compensation is crucial for a developer before initiating any dispute. Compensation for damages that is realistically achievable, according to the Building Act, consists of costs incurred for the preparation of construction in the usual amount. According to the law, this title specifically includes:
- Vainly incurred costs for project preparation of construction and engineering activities in the usual amount, if their use loses meaning as a result of the closure.
- Costs incurred directly for the purchase of the land.
- A decrease in the value of the land, but according to the law specifically if this land serves to secure a debt (e.g., a mortgage loan).
- Other direct expenses (fees for administrative proceedings, costs for territorial studies, etc.) that constitute costs for the preparation of construction in the usual amount.
A developer has a significantly more complicated position when claiming lost profit, i.e., the value of the expected return from the realization of the project that they will lose as a result of the closure. Although lost profit is generally part of the damage within the meaning of Section 2952 of Act No. 89/2012 Coll., the Civil Code, in practice it encounters a fundamental evidentiary problem. The settled case law of the Supreme Court (e.g., generally decision Ref. No. 25 Cdo 3837/2011) shows that lost profit must not be merely hypothetical. The injured party must prove that their property would have multiplied with respect to the so-called "regular course of events."
In practice, this means a huge evidentiary problem. If, at the time of the declaration of the building closure, the investor had, for example, only a zoning decision or a building permit for technical and transport infrastructure, but the houses themselves were not yet permitted, the courts view their request merely as purely "potential profit." As explicitly demonstrated for development practice by decision Ref. No. 25 Cdo 2909/2018, if a project has not obtained the relevant permits from the affected state authorities (for example, due to unresolved infrastructure, such as a missing "wastewater treatment plant or drinking water supply"), the causal link for granting compensation for lost profit is missing. There is no certainty that the building authority would actually permit the main residential buildings to the full intended extent. Although the permitting of infrastructure itself represents a limit on land use that the building closure must not interfere with, it does not automatically guarantee the right to complete and monetize the subsequent residential complex.
How does the assertion of a claim for damages against a municipality actually work?
The process of claiming compensation for damages begins with a written notice addressed to the municipality, in which the injured investor accurately specifies the extent of the harm caused and calls on the municipality for voluntary compliance. This call has fundamental procedural significance, as it proves that the injured party asserted their claim in a timely manner and the municipality had the opportunity to resolve the matter out of court.
If the municipality does not voluntarily pay the compensation, the injured party must turn to a civil court with an action for damages. In such proceedings, the investor bears the burden of proof regarding the existence of an illegal or restrictive procedure by the municipality, the occurrence of damage, and the causal link between them. Municipalities typically defend themselves by arguing that the investor knowingly assumed the normal business risk consisting of a possible change in regulation. However, if a developer can prove that the municipality actively supported the project before issuing the closure—for example, by concluding a planning agreement, accepting a financial donation for infrastructure, or repeatedly issuing favorable opinions—the chances of successful recovery of damage compensation significantly increase.
A special situation arises when the regional court annuls a building closure for its illegality. This opens the way for compensation for damages caused in the exercise of public authority by an illegal decision or incorrect official procedure under Act No. 82/1998 Coll., on Liability for Damage Caused in the Exercise of Public Authority by a Decision or Incorrect Official Procedure. In such a case, proving the causal link is easier, as the illegality of the act has already been authoritatively established by the court.
Do you have questions about spatial planning, are you facing an unexpected building closure, or do you need a legal analysis to claim compensation for damages for a thwarted development project? The lawyers at ECOVIS ježek specialize in construction law and development and will be happy to advise you on setting up the optimal legal strategy.
Frequently Asked Questions on Spatial Planning and Compensation for Damages
Can a building closure invalidate an already issued final building permit?
No. A building closure is a measure directed exclusively towards the future and prohibits or restricts the issuance of new permits. If a developer has a final zoning decision or a building permit, this decision forms a so-called limit of land use. The municipality cannot retroactively interfere with these legally acquired rights in good faith through a building closure, and the realization of the permitted construction can continue. This was confirmed by the NSS in its judgment of October 22, 2019, Ref. No. 1 As 454/2017-102, see above.
What is the time limit for filing a motion to annul an illegal building closure?
A motion to annul a measure of a general nature, which includes a territorial measure on a building closure, can be filed under the Code of Administrative Justice with the relevant regional court within one year from the day the challenged measure became effective. Missing this deadline cannot be waived, so it is necessary to address the situation without undue delay immediately after the closure is declared.
What exactly can I claim as compensation for damages if a building closure thwarted my project?
Compensation for damages consisting of costs incurred for the preparation of construction in the usual amount is realistically achievable, especially for the purchase of land, project preparation for construction, or for a decrease in the value of land that serves to secure a debt (Section 133 (1)). Everything is best supported by an expert opinion. Lost profit, on the other hand, is a procedurally very difficult position. The developer would have to prove that the profit would have been actually realized with a probability bordering on certainty, which is hard to prove without an issued building permit for the buildings themselves. The chances of success significantly increase if the municipality actively supported the project by concluding planning agreements or accepting donations for infrastructure.
What happens if the municipality cancels the buildability of my land more than five years after the validity of the zoning plan?
If the municipality changes the zoning plan and cancels the buildability of your land after the expiration of the five-year period from the moment the land was first designated for building, a claim for compensation for damages under the Building Act does not arise. The legislator uses this rule to protect municipalities from infinite risk; however, the time during which a building closure or other temporary restriction in the zoning plan prevented you from building on the land is not counted towards this five-year period. If the period indeed expires in vain, you are left only with a general civil law title for compensation for damages, which is procedurally significantly more difficult, because a change in the zoning plan is not in itself an illegal act.
Can compensation for damages be claimed even for the period when an illegal building closure was valid, which was subsequently annulled by the court?
Yes. If the regional court annuls a building closure for its illegality, this opens the way to compensation for damages caused in the exercise of public authority by an illegal decision or incorrect official procedure under Act No. 82/1998 Coll. In such a case, the investor can claim compensation for additional costs objectively incurred as a result of the illegal delay of the project—especially additional financial costs, vainly incurred expenses on project preparation, and a demonstrable drop in land values during the affected period. Lost profit can also be claimed here, but the same evidentiary requirements apply as in other cases.
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