Czech Republic: New Real Estate Provision From 1 January 2018: Pre-Emptive Right Regarding A Co-Owned Immovable Re-Established

Last Updated: 28 February 2018
Article by Lukas Syrovy and Ladislav Vajdik

Nearly three years ago, many a co-owner of a thing felt relieved when the statutory pre-emptive right of other co-owners to his/her co-owner's share was cancelled as of 1 January 20151. From that date it was at the co-owner's sole discretion to decide to whom and under what terms he/she will transfer his/her co-owner's share. At the same time, the other co-owners were deprived of the possibility to have an impact on who will they co-own the given thing with.

It could, for instance, be desirable and useful for them to co-own the thing with person A, who was also a co-owner at that time, but undesirable and useless to transfer A's share to person B. The remaining co-owners, clearly, could seek settlement of co-ownership; if, however, it was impossible to divide the thing, the thing was at risk of being duly transferred for consideration only to one co-owner, which may not have been desirable for the other co-owners.

This might have prompted the law-making body to reinstitute the pre-emptive right to a co-owned thing within the Czech system of laws as of 1 January 2018, when a part of the first amendment to the Civil Code comes into effect. Contrary to the previous provisions effective until 31 December 2014, the above pre-emptive right will not apply to movables but only to immovables.

As a result, as of 1 January 2018, other co-owners will have a pre-emptive right to a co-owner's share in an immovable in case of a (gratuitous or onerous) transfer of the co-owner's share, unless the share is transferred to a close person. Therefore, given the above, the pre-emptive right will not apply in case of:

  1. a passage of a co-owner's share (e.g. in probate proceedings or in case of a transformation of the co-owner in a merger or a demerger); and
  2. (ii) a transfer of a co-owner's share to a relative in direct line, a sibling, a spouse, a partner according to the law governing registered partnerships, other persons in family related by blood or marriage if the harm suffered by one of them was reasonably felt as own harm by the other person, persons with in-law relations or persons permanently living together (the Civil Code considers all the above persons as close persons).

A co-owner transferring his/her co-owner's share in an immovable, which does not constitute a transfer to a close person, is obliged to make a written proposal to sell the share to the other co-owners; this duty is established upon making a co-owner's share transfer contract (e.g. in the form of a purchase agreement or a contract of donation in case of a gratuitous transfer) (the "Transfer Agreement") with a buyer of the co-owner's share who is not a co-owner. In accordance with the law, the Transfer Agreement is then concluded with a resolutory condition of assertion of his/her pre-emptive right, i.e. the Transfer Agreement expires if any co-owner exercises his/ her pre-emptive right.

"...the law-maker decided that the institute of pre-emptive right to a co-owned immovable will be re-established with the first part of the Czech Civil Code taking effect as of 1 January 2018."

In his/her proposal, the transferor is obliged to inform the other co-owners about all other conditions and terms of the agreement concluded with the third party (such as the purchase price, payment terms and method, etc.). The law does not stipulate the deadline for making the proposal although it is appropriate and expedient to make it without unnecessary delay upon concluding the Transfer Agreement.

Should the co-owner, or co-owners, accept the proposal, the transfer will take place under terms identical with those agreed with the third party in the Transfer Agreement, whereas:

  1. if the co-owners do not agree on the execution of the pre-emptive right otherwise, they are entitled to buy a share in proportion to their particular share;
  2. (ii) in case of a gratuitous transfer, co-owners are obliged to pay the arm's length price for a transferred share in an immovable.

Should the transferor fail to take heed of his/her duties mentioned above concerning the statutory pre-emptive right of the remaining co-owners (whose statutory pre-emptive right would thus be breached), the latter are entitled to apply to the acquirer to transfer the co-owner's share to them for adequate consideration.

Nonetheless, in connection with the establishment of the statutory pre-emptive right of co-owners to a co-owner's share in an immovable, the Civil Code stipulates that:

  1. a co-owner may waive his/her pre-emptive right with effects for his/her legal successors; and
  2. (ii) where the immovable is recorded in a public register (i.e. a real estate cadastre), the pre-emptive right waiver shall be recorded in that register.

In other words, as of 1 January 2018, if co-owners do not want the above statutory pre-emptive right to be exercised in relation to an immovable they co-own, they can prevent the pre-emptive right from being exercised if all of them waive, in writing, their pre-emptive right with effects for their legal successors provided all of them are able to reach an agreement.

Footnote

1 After 1 January 2015, pre-emptive right was preserved only in case the co-ownership was established without the co-owners' possibility to influence their rights and duties ab initio (e.g. by disposition mortis causa), in that case, only for a limited period of 6 months from the establishment of the co-ownership.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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