Cancellation of the statutory pre-emptive right of co-owners of Czech real estate from July 1st 2020
Statutory pre-emptive right of co-owners of real estate in Czech Republic
Since the year 2018, the statutory pre-emption right of co-owners of real estate had been valid again in Czech Republic. The pre-emption right applied to all transfers of co-ownership share in real estate, with the exception of the transfer of co-ownership share to a close person. Other than immovable property, the statutory pre-emption right did not apply and Section 2140 to 2149 of the Czech Civil Code applied with the necessary modifications to the conditions of its exercise. The co-owners were able to waive their pre-emption right. The waiver also had effects for the legal successor of the co-owner who waived the pre-emption right (i.e. the subsequent shareholder of the original co-owner). The information that the co-owner waived the pre-emptive right was registered in the Land Registry.
Reimplementation of the pre-emptive right of co-owners of Czech real estate valid from January 1, 2018 in Czech Republic
As of January 1, 2018, Czech Act No. 460/2016 Coll., amending Act No. 89/2012 Coll., reimplemented the pre-emptive right, mainly due to pressure from the co-owners, who wanted to be able to influence with whom they would co-own the property. However, the chosen legal regulation brought many difficulties in practice, especially to the owners of housing units during their transfer.
As of January 1, 2018, the statutory pre-emptive right has been amended as follows:
(1) When transferring the co-ownership share to immovable property, the co-owners have a pre-emptive right, unless it is a transfer to a close person. If the co-owners do not agree on the exercise of the pre-emption right, they have the right to redeem the share in proportion to the size of the shares.
(2) Paragraph 1 shall also apply if one of the co-owners transfers the share gratuitously; then the co-owners have the right to buy the share at the usual price.
The co-owner may waive the pre-emptive right pursuant to Section 1124 with effects for his legal successors. If the immovable property is registered in the public register, the waiver of the pre-emptive right shall be entered in it.
We drew attention to this amendment from 2018, among other things, in our article The Most Important Changes in Czech Law for Entrepreneurs in 2018.
The 2020 Amendment to the Czech Civil Code cancel the statutory pre-emptive right of co-owners of real estate from July 1st 2020 in Czech Republic
Amendment to the Civil Code as of 2020 restores the legal status of the pre-emptive right to the form in which it existed between 2014 and 2017, when the pre-emptive right was last revoked. The explanatory memorandum itself states that: “The basic starting point in drafting the amendment to the Civil Code was, on the one hand, to maintain the basic legal framework set with effect from January 1st 2014, and thus not to make changes to the legislation where it does not pose problems of interpretation.“
The 2020 amendment to the Czech Civil Code was published in the Czech Collection of Laws on April 14, 2020 with the effect from July 1, 2020. Simply described, if you are a co-owner of a Czech property from July 1, 2020, you no longer have to offer your share in the property to any of the co-owners when selling or donating. In practice, this means facilitating the transfer of real estate for which their owners have common non-residential premises such as garages, cellars or front gardens. It often happens that there were dozens of such co-owners, and the transfer of real estate, thus, took time and the whole affair became more expensive, the amendment gives investors an even greater opportunity.
Exceptions to the restriction of the statutory pre-emptive right from July 1, 2020 in Czech Republic
The only exception to the repealed statutory pre-emptive right, which will continue to apply even after July 1st 2020, is the situation where the co-owners could not influence their rights from the beginning. The statutory pre-emptive right of co-owners of real estate therefore continues to apply in the amended form of Section 1124 of the Czech Civil Code, which reads:
(1) If co-ownership has been created by a disposition mortis causa or another legal fact in a way that made it impossible for the co-owners to affect their rights and duties from the beginning, and if one of the co-owners transfers his share, the other co-owners have a pre-emptive right to the share for a period of six months from the date on which the co-ownership was created, unless the co-owner transfers his share to another co-owner, his own spouse, sibling or relative in the direct line. Unless stipulated otherwise between the co-owners regarding the manner in which the pre-emptive right is exercised, the coowners have the right to redeem the share on a pro-rata basis according to the percentage of their shares.
(2) Co-owners have the pre-emptive right even where one of the co-owners transfers his share gratuitously; in that case, the co-owners have the right to redeem the share for the usual price. This also applies in other cases of a statutory pre-emptive right.
However, this exception is limited in time to a period of 6 months, after which the pre-emptive right is again extinguished. In accordance with the final provisions of the amendment to the Civil Code, effective from July 1st 2020 applies to the legal entitlement to pre-emptive right, not to the transfer itself, so if the entitlement to exercise pre-emptive right arose before July 1, 2020, even if the transfer is intended only after the law is still effective in this particular situation.
For more information, contact us at:
JUDr. Mojmír Ježek, Ph.D.
ECOVIS ježek, advokátní kancelář s.r.o.
Betlémské nám. 6
110 00 Praha 1
About ECOVIS ježek advokátní kancelář s.r.o.
The Czech law office in Prague ECOVIS ježek practices mainly in the area of Czech commercial law, Czech real estate law, representation at Czech courts, administrative bodies and arbitration courts, as well as Czech finance and banking law, and provides full-fledged advice in all areas, making it a suitable alternative for clients of international law offices. The international dimension of the Czech legal services provided is ensured through past experience and through co-operation with leading legal offices in most European countries, the US, and other jurisdictions. The Czech lawyers of the ECOVIS ježek team have many years of experience from leading international law offices and tax companies, in providing legal advice to multinational corporations, large Czech companies, but also to medium-sized companies and individual clients. For more information, go to www.ecovislegal.cz/en.