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Questions and Answers: Legal advice on real estate purchase

Issued 16.12.2020

We asked Mgr. Aneta Lachmannová, lawyers and founder of the project to answer frequently asked questions of our clients related to the purchase of real estate.

1. How do I know whether the purchase agreement is correct?

By signing the purchase contract, the seller is obliged to hand over the real estate to the buyer and to enable him to acquire ownership of it. At the same time, there is an obligation of the buyer to take over the real estate and pay the agreed purchase price to the seller.

Unfortunately, there is no concise and universal answer to the question whether the purchase contract is "okay" for me. The purchase contract must meet the legal requirements, but I assume that the sole purpose of the parties is not just to "hand over the property", but also to allow a "way out" in case of identified (legal) defects and protection of other interests of either party. Each contract I check/prepare for clients is little different and can (but of course does not have to) present different risks.

2. What amount of contractual penalties in the purchase contract is appropriate?

The contractual penalty may be set at a fixed amount, by percentage of the purchase price and / or a daily rate for delay. In the contract signed with the developers, I most often encounter 5-10% sanction of the purchase price. Personally, a contractual penalty higher than 10% seems disproportionate to me. Contractual penalty often corresponds to the paid reservation fee, but even here it applies that it depends on its amount and the ratio to the total amount of the agreed purchase price.

3. Is it possible to sell a property for which I have a mortgage?

Yes, it is possible to sell the dwelling for which you have mortgage on and therefore the property is subject to the bank's lien. However, without the cooperation and consent of your bank, you will not be able to do so. In practice, this is a relatively common phenomenon - the seller decides for various reasons to sell an apartment or house, which is subject to a lien. The bank will usually agree to your early repayment of the mortgage loan in a certain amount and within the agreed term. The mortgage loan will be repaid using the purchase price of the property, which will be paid by the new buyer of your property.

4. What are legal defects of real estate? And how do you verify the property you are buying does not have one?

One example of the legal defects of real estate is the lien discussed in the previous answer. Generally speaking, legal defects are burdens, restrictions and other defects, which are linked to the immovable property and, depending on type of defect, in some way restrict the owner of the property in dealing with it. Legal defects can be most easily identified from a complete extract from the real estate cadastre. That can be done via official website of the Czech cadastral office. 

6. From a legal point of view, what are the differences between a privately owned dwelling and a cooperative dwelling?

The most fundamental difference is the very subject of your ownership. You can either own an apartment/dwelling or you just own a share in a housing cooperative. The owner of a cooperative apartment is a specific housing cooperative, which is type of company according Czech legal framework, but not you. You have right to rent and use that apartment. This right is directly link with a share in a housing cooperative. The share in a housing cooperative is usually more financially affordable; however, the statutes of association of a housing cooperative usually stipulate a number of conditions, rules and obligations and non-compliance with which may in the last case lead to expulsion from the housing cooperative. 

7. Can the bank "take" my property if I stop paying off my mortgage?

This situation is possible, if the obligation to pay the mortgage is secured by a lien (which is common in the Czech Republic). If you do not repay the mortgage loan (debt) properly and on time, the bank may, if the conditions agreed in the loan agreement and the mortgage agreement are met, monetize the collateral, i.e. your property, and repay its outstanding receivable, including accessories, from this proceeds.

8. How does the real estate cadastre proceed when registering property right or lien?

Proceedings at the Czech Cadastre Office are started at the moment of delivery of the application for right registration to the relevant cadastral office.  Subsequently, a period of 20 days runs during which the persons concerned by this proceeding may file their objections. If the right registration is approved, the cadastre office will notify the participants of the deposit.

9. What are the escrow accounts and is the money transfer through them safe?

For me personally, escrow account is an effective protection of the purchase price for the buyer and a guarantee of its payment for the seller. Escrow accounts are kind of the form of an effective protection of the purchase price for the buyer and a guarantee of its payment for the seller. Escrow account is a guarantee for the seller that the buyer has the money to finance the purchase, for the buyer escrow account means a guarantee that if he does not become the owner of the purchased property at the agreed time, the purchase price will be will returned. In the Czech Republic, escrow account can be concluded by contract with notary or lawyer. Cost of this service depends on purchase price of the property when concluding the contract with notary. This service might seem to not worth the money, but it’s the best protection for your money.

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