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On the mutual right of first refusal of owners of buildings and of the land underneath such buildings in the Czech Republic

In a number of rulings, the Czech Supreme Court has clarified the rules for, and the limits of application of, the the mutual right of first refusal of owners of buildings and of the land underneath such buildings.

The current Civil Code has reintroduced a legal principle to Czech law which is known as superficies solo cedit and which postulates that (save for certain exceptions set out in the law) buildings are always an integral part of the land plot on which they were erected. However, with a view to the need to protect the rights of owners of those buildings which were built before the Civil Code came into force, it is held that those buildings only become a part of the land plot on which they were erected if the owner of the building and the owner of the land plot are one and the same person; this also extends to co-ownership. In other words, as long as the ownership title to a building which was erected prior to 1 January 2014 is not in the same hands as the title to the land plot underneath, the building remains a separate thing in legal terms and does not become a part of the land plot.

In the interest of a gradual but consistent enforcement of the superficies solo cedit doctrine, through the "merger" of buildings built before 1 January 2014 with the land underneath, a mutual right of prior refusal has been established between the owners of such buildings and the owners of the land plots underneath. When a building is being sold which has so far not become a part of the land plot on which it stands, the owner of that land plot has a preferential right to acquire this land plot; correspondingly, the owner of the building has a preferential right to acquire the land plot underneath if it should be put up for sale.

As is common with any kind of new legal framework, this statutory right of first refusal, too, triggered a number of legal issues which first needed to be clarified by the decision-making practice of the courts. Towards the end of last year, the Supreme Court of the Czech Republic handed down a number of interesting decisions in which it clarified certain rules for, and limits to the application of, the mutual right of first refusal between land owners and building owners.

It would go beyond the scope of this article to look at all the questions answered by the Supreme Court. For now, we shall limit ourselves to the following few observations: According to the Supreme Court, the exception for transfers among persons close to each other (which is relevant e.g. with respect to the statutory right of first refusal among co-owners of a piece of real property) does not apply to the right of first refusal between owners of land plots and owners of buildings. (Note that, as of 1 July 2020, the statutory right of first refusal among co-owners of real property again applies only to exceptional situations as expressly defined by the law, and no longer has general applicability.) At an earlier time, the Supreme Court had already qualified that the statutory right of first refusal between the owners of land plots and the owners of buildings erected on the same does not apply to the transfer of co-ownership shares (with certain exceptions). If a building was erected on several land plots, then the mutual right of first refusal kicks in only with respect to that land plot on which the bulk of the building is situated. The mutual right of first refusal does not apply with respect to the other land plots on which a smaller part of the building is situated. Conversely, the Supreme Court does not rule out the application of the mutual right of first refusal in the case of a building which forms in fact an accessory to another (main) building – according to the Supreme Court, such a situation would have to be assessed taking into account the specific circumstances of the individual case.

Regardless of the above, scenarios are conceivable in which it is not entirely clear whether or not the mutual right of first refusal between land owners and owners of the buildings erected on that land applies. Also, many people are at a loss as to how to properly apply the statutory right of first refusal, i.e., how to make the purchase offer to the beneficiary of that right (or, as the case may be, exercise the right to preferential purchase vis-a-vis the seller), or how to proceed if the right of first refusal was violated. Because of all this, we advise our clients to always consult an experienced attorney for transactions concerning the divestment of separate buildings (which do not form a part of the land plot on which they stand), or the divestment of the land plots under such buildings. Such legal counsel will carefully assess the case at hand, taking into account the latest case law, and only then make recommendations to the client as to what the most expedient course of action would be with respect to the divestment of such separate buildings or the land under them.

Source:
Supreme Court case law (22 Cdo 1952/2019, 22 Cdo 1503/2020, 22 Cdo 1995/2020, and others)

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