PRE-EMPTIVE RIGHT TO THE UNIT (APARTMENT)
In line with very protective attitude of the Czech Civil Code regarding to housing needs of physical persons a pre-emptive right of lessees of apartments in houses that will be divided into units for the purpose of future sale of apartments to new owners has been adopted. The pre-emptive right is currently regulated by Section 1187 of the Civil Code.
As mentioned above the purpose of the pre-emptive right to the unit (apartment) is to protect housing needs of physical persons, (i.e. former lessees). Companies are explicitly excluded from application of the pre-emptive right by Section 1187 (2) of the Civil Code.
The pre-emptive right does not apply generally with regard to every transfer of unit but only to following conditions:
- the lessee of the unit (apartment) is a physical person (or persons, e.g. spouses);
- the unit (apartment) was created by division of the ownership right to the whole building to ownership rights to units; and
- the pre-emptive right applies only in case of the first transfer of the unit after the division of the house into units.
The pre-emptive right of the lessee is activated in the moment of execution of the purchase agreement between the owner of the house and a willing buyer regarding a newly created unit. Subsequently, the owner of the house is obliged to offer the unit to the lessee or lessees under the same conditions and for the same purchase price. The offer must be made in writing.
As of the effectiveness of the offer, which is generally at the moment of its delivery to the lessee, the pre-emptive right lasts for the period of six months during which the lessee has a right to accept the offer in writing and, unless stated otherwise in the offer, pay the purchase price to the owner. Otherwise the pre-emptive right ceases to exist. By acceptance of the offer, the lessee enters into the purchase agreement with the original house owner and the purchase agreement between the original house owner and the willing buyer ceases to exist pursuant to Section 2143 of the Civil Code and the lessee becomes the owner of the newly created unit instead of the first buyer. In such case the first buyer is entitled only to demand a refund of the purchase price from the seller, i.e. the original house owner.
In spite of good intentions of the author of the Civil Code, the concept of the pre-emptive right adopted in the Civil Code is in our opinion very impractical. The worst of all is the fact that the ownership title of the first buyer to the particular unit is uncertain for a six month period (or longer since the commencement of such term, depends on the moment of the offer to the lessee) following the execution of the purchase agreement.
With regard to abovementioned, we recommend to owners of buildings to consider implementation of waivers of pre-emptive rights directly in lease agreements. After execution of a lease agreement it is much more difficult to convince the lessee to waive such right without any quid pro quo since lessees are generally strongly protected by law and owner has actually only weak leverage against them.
As for the potential buyers of newly created units in the Czech Republic, we could only recommend to be very cautious and demand reliable contractual guarantees from the seller.
For more information please contact: