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About the Author

Martin Kubánek is a partner of Schönherr's Prague office and has been practising as an attorney in the Czech republic since 1991. He specialises in all aspects of real estate with a focus on corporate law connected transactions.

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Czech Republic: Acquisition - Obstacles Have Fallen

With the passing of the transitional period, and based on the Czech Republic’s commitments resulting from the Treaty establishing the European Community, there are no more useless limits on foreigners who want to acquire real estate in the Czech Republic, with the notable exception of agricultural land and forests.

 

End of the transitional period
On 1 May 2009, the largest obstacle to foreigners purchasing real estate in the Czech Republic fell. This followed the expiry of the five-year transitional period set in the act concerning the conditions of accession of the Czech Republic to the EU , which constitutes an enclosure to the Treaty of Accession signed on 16 April 2003 (Act on Accession).

 
Exceptions for the Czech Republic
Appendix V of the Act on Accession granted the Czech Republic an exception, which states that for a certain period after the accession of the Czech Republic to the EU, i.e from 1 May 2004, the Czech Republic could keep in place legal limitations regarding the acquisition of secondary residences and the acquisition of agricultural land and forests.

 
First exception
As regards the limitation of the acquisition of secondary residences, the Czech Republic could keep in place the limitation provided by Act No. 219/1995 Coll., Foreign Exchange Act (Foreign Exchange Act) for a period of five years after the accession of the Czech Re-public to the EU (i) by nationals of member states not residing in the Czech Republic and (ii) by companies formed in accordance with the laws of another member state and being neither established nor having a branch or a representative office in the Czech Republic.

Second exception
As regards the limitation of the acquisition of agricultural land and forests, the Czech Re-public can keep in place the limitation for a period of seven years after the accession of the Czech Republic to the EU (i) by nationals of member states and (ii) by companies formed in accordance with the laws of another member state which are neither estab-lished nor registered in the Czech Republic. Based on this exemption, the Czech Republic is able to keep in place the limitations set forth by the Foreign Exchange Act, Act No. 229/1991 Coll., on the regulation of proprietary relationships in regards to land and other agricultural property and Act No. 95/1999 Coll., on conditions for the transfer of agricul-tural and forestry plots from state ownership to private persons.

 






Practical aspects

As a contract and an entry in the real estate cadastre are necessary under Czech law in order to acquire real estate, and as the Foreign Exchange Act was not novelised, the Czech geodetical and cadastral office issued instructions that the cadastral offices should also register the property rights of foreigners, regardless of the Novation 2004.

The Foreign Exchange Act
Hence, from 1 May 2004, based on the Act on Accession, the novation of the Foreign Ex-change Act became valid (Novation 2004). The Novation 2004 took the Act on Accession into account only partly and inaccurately (e.g. no creation of a group of secondary resi-dences) and set forth two categories of real estate permitted as objects of acquisition by foreign subjects: (i) plots which make up the agricultural fund or belong to it and land in-tended to be forest and (ii) other real estate.

 
Based on the Novation 2004, other real estate could be acquired by: (i) domestic nationals who are physical persons with permanent residency in the Czech Republic, or legal persons with a registered seat in the Czech Republic, (ii) foreigners  with Czech citizen-ship, (iii) foreigners with a Czech permanent residency permit for citizens of EU member states and (iv) foreigners (legal persons) who have established a business or a branch in the Czech Republic and have permission to do business there. Other foreigners not listed in the above categories could acquire real estate only under specific circumstances (e.g. by inheritance or from direct relatives).
 

Victory of the international treaty
With the passing of the transitional period, the Czech Republic should have adopt by 1 May 2009 another novation of the Foreign Exchange Act, which should have repealed the Novation 2004 so that foreigners could acquire real estate in the Czech Republic without the limitation stated in the Act on Accession (with the exception of agricultural land and forests). Such novation did not occur; however, under article 10 of the Czech Constitution, international treaties take precedence. Therefore, article 56 of the Treaty establishing the European Community applies, which states that any limitations on the movement of capital between member states, and between member states and third countries, are prohibited.

 

“On 1 May 2009, the largest obstacle to foreigners purchasing real estate in the Czech Republic fell.”

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