February 21, 2020

Due Diligence in the Czech Republic

Due Diligence in the Czech Republic


Prior to every strategic investment decision related to the purchase or sale of a company, or a real estate in the Czech Republic, there needs to be undertaken a process of identification of risks and verifications connected to the assets. This process, commonly known as Due Diligence, can be either performed upon a request from a buyer or a seller (the so-called vendor Due Diligence). As the scope of potential issues may be extremely broad, we suggest the following types of Due Diligence to be performed on Czech companies or assets, each focusing on a different area:


Legal Due Diligence

Is it worth it and is it feasible? Do I need a Czech lawyer? That is the most fundamental question, which needs to be answered while assessing the structure of a transaction in the Czech Republic. Apart from the factual and economic reasons/factors, legal and tax factors must be always taken into account. Following answering these questions, in particular, whether the transaction shall be in a form of an asset deal, or a share deal and who should be the acquirer (mainly due to the tax reasons), it is necessary to determine the scope of the given Due Diligence. A reliable and experienced Czech lawyer is an absolute necessity in any Czech corporate transaction. The legal Due Diligence in the Czech Republic always should include:


  • corporate legal Due Diligence of the establishment of the target company, ownership title to the shares, internal legal documents of the target company as its memorandum of association/by-laws, resolutions of corporate bodies (typically resolutions of general meeting and supervisory board), Due Diligence of the validity of shares and other securities issued by the target company, validity of previous share transfers, and many other matters depending on the type of the target company and its corporate structure and history


  • legal Due Diligence of real estate, including the seller’s ownership title to the real estate, issues related to land restitution claims, previous acquisition titles (typically purchase agreements) and current entries in the Czech Land Register and Register of Pledges, legal Due Diligence of easements and other encumbrances (e.g. pledges) on the real estate. Also, if the target company is a landlord of certain property, the Due Diligence usually includes a detailed review of the complete set of lease agreements incl. assessment of eventual risks such as the validity of lease agreements, risks or change of terms and conditions by the tenants or their potential termination by the tenant


  • legal Due Diligence of other assets depending on their type, incl. Due Diligence of IT/IP rights


  • legal Due Diligence of employment and labour matters, in particular employment contracts, management agreements and collective agreements


  • legal Due Diligence of financial documents, incl. documentation related to financing granted to the target company or provided by the target company to a third party, incl. revision of loan agreements and security instruments such as e.g. mortgage agreements, pledge agreements of any type or subordination agreements


  • legal Due Diligence of all material contracts concluded by the target company or related to the property to be acquired which may be e.g. property and asset management agreements, lease agreements, agreements on supply of energy, service agreements



Financial & Tax Due Diligence

Any organization considering a deal needs to check all the assumptions it is making about that deal. Financial Due Diligence provides peace of mind to both corporate and financial buyers, by analyzing and validating all the financial, commercial, operational and strategic assumptions being made.


The Due Diligence process is much more than a standard checklist of procedures in order to provide approval for a proposed acquisition. When done properly, a financial Due Diligence review provides valuable information to support the proposed acquisition. There have been several examples where performing expert financial Due Diligence has saved the cost of a bad acquisition. Financial Due Diligence generally concentrates on the following objectives:


  • getting a good understanding of the historic financial situation of the company and the correctness of the reported numbers


  • checking that there are no hidden financial risks


  • fully understanding the target firm’s balance sheet, profit and loss


  • forecasting the target’s future financial situation


  • getting an opinion on the purchase price. The DD can also serve as a basis for further price negotiations (often seen in practice)


  • use the financial DD report of an external firm to achieve bank financing


  • use the financial DD report to fine-tune the business plan and to prepare the post-acquisition integration plan


  • review of tax declarations and reports


Technical Due Diligence

Technical Due Diligence is a process that includes performing an objective inspection and evaluating the technical condition of a property. Whether you are an investor, a developer, a corporate organization, a landlord, a tenant, a property manager or a seller, having comprehensive knowledge of the actual condition of your target property allows you to identify technical risks and defects that are hidden from plain sight, which will help you to assess what impact these deficiencies may have on the operating costs and useful lifetime of the immovable property.


Standard scope of the technical Due Diligence includes:


  • visual, non-intrusive and non-destructive inspection of the property and for each key element of the property describe the nature, precise location of any defects discovered and of any deleterious or hazardous materials discovered


  • recommendations for any special testing, more intrusive inspections, or inspections by specialists that may be required to determine the nature of potential defects that cannot be fully accessed by visible inspection only


  • identification of any neighboring land or buildings that are used in the operation of the Property but not owned by the Property, or any encroachments by neighbors on land owned by the Property, that should be the subject of easement agreements (checking of easement agreements is usually a part of the legal Due Diligence)


  • review of statutory permits and approved design documentation


  • review of the compliance of the property’s actual usage


  • review of contractual warranties


Environmental Due Diligence

For a certain type of projects, an environmental impact assessment (EIA) is a mandatory process that needs to be carried out before the issuance of the planning and construction permits. Environmental Due Diligence helps to find out whether the particular project could be subject to EIA and also serves for identification of potential risks related to soil and groundwater contamination impacts (due to their remediation cost potential that may be passed to the buyer).


  • assessment of compliance with effective environmental laws & regulations


  • analysis of current and potential future environmental risks


  • determination of potential costs of environmental remedies



For more information please contact:



Monika Rutland, partner

rutland & partners, advokátní kancelář s.r.o.

tel: +420 226 226 026

email: monika.rutland@rutlands.cz

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