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Buying property in Czechia: scams and pitfalls

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risks pitfalls buying real estate The Czech Republic

Everything you need to know is included in our The Czech Republic Property Pack

The Czech Republic is increasingly attracting foreigners interested in its real estate market, thanks to its central European location and strong economy.

However, as you might know already, this property market can be tricky, especially if you're not from around here. You might encounter unexpected issues and difficulties along the way.

Both our customers who purchased properties there and our on-site local experts have reported a significant list of pitfalls. We've listed them all in our Czech Republic Property Pack.

This article provides a brief overview of potential pitfalls that may arise during the property buying process in this country.

Is it safe or risky to invest in real estate in the Czech Republic?

The allure of the Czech Republic's picturesque towns, vibrant cities, and its cultural and historical significance in Central Europe has consistently drawn foreign investors and expatriates.

However, when delving into the property market, understanding the intricacies unique to the nation can make the difference between a successful venture and an unpleasant surprise.

While the Czech Republic generally offers a safe environment for property transactions, there are occasional pitfalls that investors must be wary of.

A specific example can be found in the historical areas of Prague. There have been instances where properties, particularly older apartments and homes, come with undisclosed historical preservation requirements. This means the owner might face strict regulations regarding renovations, which can be costly and time-consuming.

Foreign buyers, especially those from outside the EU, previously faced significant hurdles.

Before 2014, non-EU citizens were required to establish a company to purchase land. This is no longer the case, but the relic of this regulation means that some properties are still held under company names, making the transaction process slightly more convoluted.

While the Cadastre (Land Registry) provides a robust system for property rights, there's a specific Czech quirk.

In some regions, particularly rural ones, there's a tradition of "informal land usage." Neighbors may have understood boundaries different from official records, leading to potential disputes when new owners take possession.

One specific case highlighted the complexities of the Czech legal system. A British investor bought a property in Brno only to discover the previous owner had unresolved debts linked to the property. It took nearly two years of legal battles to clear the property of these liens. This underscores the importance of thorough checks and the potential time-consuming nature of the Czech legal system.

The Czech National Bank, in response to rapid price growth in cities like Prague and Brno, introduced stricter mortgage lending criteria in 2018. This reduced the maximum loan-to-value ratio, making it more challenging for both locals and foreigners to finance property purchases.

While aimed at cooling the market, some critics argue it has made property ownership less accessible to many.

Apart from the obvious language barriers, foreigners sometimes encounter a local bias.

For instance, some property management companies, especially in smaller towns, show a marked preference for Czech tenants, which can affect rental yields for foreign property owners.

It cannot be emphasized enough how crucial thorough due diligence is in the Czech property market.

Hiring a local expert, understanding the peculiarities of the Cadastre, and familiarizing oneself with regional nuances can be the difference between a sound investment and a costly mistake.

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Potential real estate buying mistakes in the Czech Republic

Complexities around "restituce" or restitution claims

When purchasing residential property in the Czech Republic, a specific pitfall you need to be aware of is the issue of "restituce" or restitution claims.

This is quite unique to the Czech context, especially following the post-communist restitution laws.

Restitution in the Czech Republic refers to the process where properties confiscated by the communist regime between 1948 and 1989 are returned to their original owners or their heirs. This means that a property you purchase might be subject to a restitution claim, even if it has been decades since the original confiscation.

The context where this mistake might occur is usually in the purchase of older properties or those in historical areas.

It’s crucial to understand that these claims can arise after you've purchased the property, potentially leading to legal disputes or even loss of ownership.

To safeguard against this, you should conduct thorough due diligence. This involves not only checking the current legal status of the property but also delving into its history.

You are advised to work with a knowledgeable local lawyer who understands the nuances of restitution laws and can access historical property records.

The concept of "Spoluvlastnictví" or co-ownership

Another unique and often overlooked aspect when buying residential property in the Czech Republic is the concept of "spoluvlastnictví" or co-ownership, especially prevalent in apartment buildings or "bytové domy".

This is not just about owning your apartment, but also a proportional share of the common areas of the building, like hallways, gardens, and facades.

In this context, you become part of a community of owners, often organized into a "společenství vlastníků jednotek" (SVJ), which is a legal entity representing the owners' collective interests. The SVJ makes decisions about maintenance, renovations, and other issues concerning the building. Your vote in the SVJ is proportional to the size of your ownership share.

The pitfall here is underestimating the impact of SVJ decisions and the financial obligations they can entail.

For example, if the SVJ decides on a major renovation project, you are obliged to contribute financially according to your ownership share.

These costs can be significant and often come as a surprise to unwary buyers.

To avoid this, you should thoroughly investigate the status and history of the SVJ before purchasing. Understand any upcoming decisions, past conflicts, or financial liabilities.

It’s advisable to review minutes from past SVJ meetings and speak with current members to get a sense of how the SVJ operates and any potential future expenses.

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"Zeměměřičský úřad" procedures and the complexities of "katastr nemovitostí"

A unique challenge you may face when buying residential property in the Czech Republic is understanding and dealing with the "zeměměřičský úřad" (land registry office) procedures and the complexities of "katastr nemovitostí" (cadastre or property registry).

This system, which records information about properties, including ownership, liens, and other rights, is quite specific in its functioning and legal implications in the Czech context.

The pitfall here is the potential for discrepancies or outdated information in the property registry. For instance, the registered owner on the cadastre might not be the actual current owner due to delays in updating records. Or there could be undisclosed liens or easements on the property that are not immediately apparent.

This becomes particularly tricky in the Czech Republic due to the bureaucratic nature of the process and the specific legal terminology used in the documents.

You must ensure that all records in the cadastre are accurate and up-to-date before finalizing a property purchase. This involves not just a cursory check but a detailed examination of the cadastre entries and associated legal documents.

You are strongly advised to engage with a local real estate lawyer or a "geodet" (a licensed cadastral expert) who can navigate the intricacies of the Czech land registry system.

They can help you interpret the records, identify any irregularities, and guide you through the process of resolving them.

"Nájemní práva" or tenant rights

In the Czech Republic, a lesser-known but critical aspect to consider when buying residential property is the concept of "nájemní práva" or tenant rights, particularly relevant in older buildings or apartments.

This concept is deeply rooted in Czech property law and can have significant implications for new property owners.

The challenge arises when the property you intend to purchase is currently rented out. In the Czech Republic, tenants have strong legal protections, often allowing them long-term occupancy under favorable conditions. Even if you buy a property, the existing tenants' rights are preserved, and it can be very difficult and time-consuming to terminate these rental agreements.

For example, if you purchase an apartment with the intention of moving in or renovating it, you may find yourself unable to do so if there are tenants with valid rental agreements.

These agreements can sometimes last for years and tenants also have the right to renew them under similar conditions.

You should carefully investigate the rental status of any property you are considering. If there are existing tenants, understand the terms of their rental agreements and how those might affect your plans for the property. It’s crucial to be aware that in the Czech Republic, the rights of existing tenants can supersede those of new property owners.

Engaging a local real estate attorney who understands the nuances of Czech tenancy laws is advisable.

They can help you navigate these complexities and assess the risks associated with purchasing a property with existing tenants.

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"Věcná břemena" or real burdens

A unique aspect to consider when buying property in the Czech Republic is the potential presence of "věcná břemena" or real burdens (easements) on the property.

This is particularly relevant in areas where properties have a long history and have undergone various ownership changes.

Věcná břemena refers to certain rights or restrictions tied to the property that benefit another property or property owner. For example, there might be a right of way allowing neighbors to pass through your land, or a restriction that prevents you from building above a certain height to preserve a neighbor's view.

The pitfall here is not being aware of these easements when purchasing a property, as they can significantly impact your use and enjoyment of it.

For instance, you might buy a property with plans to renovate or expand, only to find out that there are legal restrictions preventing you from doing so.

To avoid this, you should conduct a thorough review of the property's records in the "katastr nemovitostí" (cadastre or property registry) to check for any registered easements. It's important to understand that these easements are legally binding and typically transfer with the property, regardless of ownership changes.

You are advised to work with a legal professional who can help you identify and understand the implications of any věcná břemena associated with the property.

This is especially crucial in cities with historical properties, like Prague, where such easements are more common.

The issue of "energetický štítek" or energy performance certificates

A unique and often overlooked pitfall when buying residential property in the Czech Republic is the issue of "energetický štítek" or energy performance certificates.

This is particularly relevant due to the Czech Republic's regulations and the state of many buildings, especially older ones.

Energetický štítek provides information about the energy efficiency of a building. This includes details on how much energy the building typically uses, how efficient it is in terms of heat retention, and what kind of heating system it has. In the Czech Republic, having this certificate is mandatory for selling or renting out properties.

The pitfall here is purchasing a property without properly understanding or considering its energy performance rating. Properties with poor energy efficiency can lead to higher utility costs and may require significant investment to improve their efficiency.

This is especially important in the Czech context, where many older buildings might not be energy efficient.

When you're looking at properties, ensure you check the energetický štítek.

A property with a poor rating (typically E, F, or G) might be cheaper to purchase but could incur higher costs in the long run due to energy inefficiency. On the other hand, a property with a good rating (A, B, or C) will generally be more energy-efficient and cost-effective in terms of utility expenses.

You should also be aware that if a property doesn't have an energetický štítek, it can be a red flag.

It's either an oversight that needs to be rectified or could indicate other regulatory issues with the property.

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"Zemědělská půda" or agricultural land

Another specific pitfall to be aware of when buying residential property in the Czech Republic is related to "zemědělská půda" or agricultural land.

This is particularly relevant if you are considering buying property outside urban areas or on the outskirts of cities.

In the Czech Republic, agricultural land is often subject to specific regulations and restrictions. The pitfall arises when residential properties are built on land that is still legally designated as agricultural. Buying such a property can lead to significant legal and bureaucratic challenges.

For example, if the land on which a house is built is still classified as agricultural in the "katastr nemovitostí" (cadastre or property registry), you might face difficulties in obtaining permits for construction or renovation.

Moreover, there might be restrictions on changing the use of the land from agricultural to residential, which can affect the value and utility of the property.

To avoid this, it's crucial to verify the legal status of the land before purchasing a property.

This involves checking the land registry to ensure that the land has been officially reclassified from agricultural to residential if necessary. Failure to do this can result in a situation where you own a property that you cannot legally develop or alter as desired.

It's advisable to work with a knowledgeable real estate agent or lawyer who is familiar with the local regulations regarding land classification.

This is particularly important in rural areas or in regions where urban expansion is happening, like the outskirts of Prague, Brno, or other growing cities.

"Historická budova" or historic building regulations

When buying residential property in the Czech Republic, it's important to be aware of the pitfall related to "historická budova" or historic building regulations.

This is especially relevant if you are considering purchasing property in older city centers or towns with a rich historical heritage.

The challenge here lies in the stringent regulations and restrictions that are often in place for properties designated as historic buildings. These regulations can significantly limit the types of renovations or modifications you can make to the property. For example, you might be required to use specific materials or techniques to preserve the historical character of the building, which can be more costly than standard renovation work.

Moreover, obtaining permits for work on historic buildings can be a complex and time-consuming process in the Czech Republic.

The local "památkový úřad" (heritage office) usually has to approve any significant changes, and this process can involve multiple steps and stringent compliance with historical preservation standards.

Before purchasing a historic property, it's crucial to understand the extent of these regulations and how they might affect your plans for the property. You should thoroughly investigate any potential restrictions and factor in the likely higher costs and longer timelines for any renovation work.

Working with a local architect or contractor experienced in working with historic properties can be invaluable in this situation.

They can provide guidance on what is feasible and help navigate the permit process.

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"Bytové družstvo" or housing cooperatives

A unique and often overlooked challenge in buying residential property in the Czech Republic is related to "bytové družstvo" or housing cooperatives.

This is particularly relevant if you're considering purchasing an apartment in a building managed by a housing cooperative.

In a bytové družstvo, instead of directly owning the apartment, you own a share in the cooperative, which gives you the right to use a specific apartment. This system is quite different from direct property ownership and comes with its own set of rules and complexities.

One major pitfall is the potential limitations on selling your share in the future.

The cooperative may have the right of first refusal on any sale, meaning they have the option to buy your share before you can sell it to someone else. This can complicate the selling process and may affect the sale price.

Additionally, decisions regarding building maintenance, renovations, and other key issues are made collectively by the cooperative.

This means that individual owners may have less control over such decisions compared to owning a property outright.

Before purchasing a share in a housing cooperative, it's important to thoroughly understand the cooperative's rules and financial health. Review the cooperative's regulations, recent meeting minutes, and financial statements.

Pay particular attention to any upcoming large expenditures, like major renovations, as these costs are typically shared among the members.

"Dědictví" or inheritance laws

Another specific pitfall to be mindful of when purchasing residential property in the Czech Republic involves the issue of "dědictví" or inheritance laws.

This is particularly crucial if you are buying a property that was part of an estate or has multiple heirs.

In the Czech Republic, inheritance laws can be quite complex, especially when a property is inherited by multiple family members. In such cases, all heirs have a share in the property, and all must agree to the sale for it to proceed legally. This can become complicated if the heirs have differing opinions or if some are difficult to locate or communicate with.

The pitfall here is buying a property without ensuring that all inheritance issues have been fully resolved.

If you purchase a property and later it's discovered that not all heirs agreed to the sale or were properly compensated, you could face legal challenges or even the annulment of the sale.

Before finalizing the purchase of any property that is part of an inheritance, it is essential to verify that all legal processes have been correctly followed.

This includes ensuring that all heirs have been identified and have agreed to the sale, and that any inheritance taxes have been paid.

Working with a local attorney who specializes in Czech property and inheritance law is strongly advised.

They can help navigate the complexities of these situations and ensure that all legal requirements are met.

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