The pandemic has transformed the Czech real estate market. While the residential and logistics real estate markets strengthened, the retail, tourism, and hotel sectors are among the worst affected. However, interest in investing in real estate has not waned as, in uncertain times, the purchase of real estate represents a safe place to park one’s funds and watch them appreciate. There has been no significant decline in property prices, even in the case of commercial real estate, as some investors had anticipated. The Czech market still lacks enough quality investment opportunities. The clear winner of this situation is the logistics segment. Our Prague office assisted in several transactions in the logistics segment, the largest being the purchase of 130 hectares of land intended for warehouse development, at one of the exits of the western D5 motorway. According to some real estate players, we can also expect increased interest in the industrial segment soon, including sale & leaseback transactions.
New Building Act
The new Building Act, approved by the Czech Parliament in July 2021, will enter into force on July 1, 2023. This is the most fundamental change to Czech construction law and construction management in the last 30 years and can significantly affect the real estate market and the speed of construction in the Czech Republic. Here are five key changes that the new Building Act will bring:
First, the new Building Act introduces a unified system of state building authorities, headed by the supreme building authority. This is a systemic change that resolves the fundamental problem of systemic bias, specifically the risk of local governments interfering in decisions on building permits. The emergence of a unified system of state authorities can prevent these cases. Another potential advantage is the uniform and predictable interpretation of building regulations.
Second, the new Building Act introduces a single joint building permit procedure, instead of the current zoning and building procedure, which can be described as one office, one procedure, one stamp. This is also related to the integration of some previously separate permits and opinions into a single decisive building permit. However, the decisions of the state monument care authority in the protection zone of a cultural monument and monument zone, the opinions of the fire brigade, and some others remain independent. The board of appeal will not be entitled to revoke and return a decision issued at first instance but will always have to make a final decision.
Third, spatial planning documentation at all levels will be acquired in a uniformly regulated process and must be prepared electronically. The largest cities – Prague, Brno, and Ostrava – will have the opportunity to issue their own building regulations.
Fourth, the new Building Act contains a detailed regulation of planning contracts, which provides municipalities and investors with greater legal certainty about their mutual obligations in the area of future land use, especially in the construction of public infrastructure. The municipality may stipulate the conclusion of such a contract in the zoning plan as a condition for the implementation of a certain construction plan. In the contract, the municipality may agree to take steps to change the zoning plan or, conversely, not to change it for a certain period of time. Investors may be required, for example, to participate in the construction of public infrastructure or other structures related to their intention, or to assume the costs of such construction, or to provide monetary or material benefits for land valuation by issuing spatial planning documentation.
Fifth, the new Building Act further tightens the conditions for the additional permit issued to buildings built without a building permit, or contrary to its terms. Besides meeting all other legal conditions, such a construction may be permitted only if the builder acted in good faith, i.e. they did not knowingly violate the law. Milder conditions will also apply if the construction has been legally permitted by law, but the permit has subsequently been revoked. In these circumstances, the building authority will approve the construction by a new decision, if it is proven in repeated proceedings that all legal conditions have been met.
By Martin Kubanek, Office Managing Partner, Schoenherr Czech Republic
This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.