Contracts

Types of contracts

Agency Agreement (Real Estate Service Agreement)

The Agency Agreement with the office (real estate office) obliges that activities shall develop towards establishing an opportunity for the interested party to conclude a specific contract (Purchase Agreement, Lease Agreement, Agreement on the Transfer of Membership Rights and Obligations in a Housing Cooperative) with a third party. The interested party undertakes to pay the agent (real estate office) the agreed payment (commission).

Exclusive Real Estate Service Agreement

The Exclusive Real Estate Service Agreement (hereinafter also referred to as the Exclusive Agreement) guarantees the seller complete services from the part of the real estate office and attaining the highest sales price possible. Entering an Exclusive Agreement enables the real estate office selling the property to exclusively represent the property in sales – thus the property owner is only represented by one real estate office. This agreement is usually concluded for a fixed term. During this period the owner is forbidden to enter any other Agency Agreement with a different real estate office concerning the sale of the given property and must not sell the property by himself.

Non-exclusive Real Estate Service Agreement

The Non-Exclusive Agreement enables the owner to sell the respective property on his/her own, or using several real estate offices as well. The property owner only pays provision to the real estate office that brings the buyer and sells the property. However, the opinion no longer applies today that the more real estate offices selling a property, the faster it is sold and the higher the attained sales price will be. Various real estate offices present the same property on the same realty servers and in the same magazines; however, each one provides different information on the price, size and amenities of the respective property. This evokes a sense of distrust in the buyer and creates the impression of a property that is difficult to sell. Thus the buyer waits in the presumption that the price has yet to come down further, or gets the feeling that it is possible to offer a bid. This situation significantly decreases the chance at selling a property fast and achieving a high sales price.

Advantages of Exclusive/Non-exclusive Real Estate Service Agreements

Exclusive Agreement Non-exclusive Agreement
The agent is able to defend the interests of the client (seller) as best as possible and can negotiate the highest possible sales price. The agent has limited possibilities for negotiating the most advantageous sales price possible. Since the property is being offered by more than one real estate office, the agent often has to accede to the “unfair” game that buyers and other offices play.
The agent is guaranteed the business transaction will take place. Therefore he/she devotes maximum care, time and finances to promoting the property in various media. This helps the property sell faster. The agent does not have a definite result (the property can be sold by another office), therefore, the agent invests the bare minimum into promoting the property (limited advertisements).
The agent presents truthful information on the property, guarantees presales, sales and post-sales service and strives to achieve the highest sales price possible. Agents of various offices with the goal to sell a property often distort information on the property and intentionally decrease the sales price (uncertain sales price means lower credibility for the potential buyer).
The standard rate of commission enables the agent to invest more into promoting the property when seeking a potential buyer, professional quality of the rendered services and ensuring guaranteed legal services, insurance, purchase price deposit etc. The agents of various offices with the goal to acquire a property to sell often offer lower commission (low investments into promoting the property, low quality of rendered services and agents, low guarantees).
High credibility of the offer (high interest of potential buyers). Low credibility of the offer (fear, distrust and low interest of potential buyers). The property appears in advertisements with various sales prices, surface areas and a differing description.
Professional and serious agents no longer offer property sales without an exclusive agreement today. Inexperienced and starting agents offer non-exclusive agreements.

Reservation Agreement (Priority Reservation Deposit Agreement)

In the case of serious interest in a property, the Priority Reservation Deposit Agreement is signed with the office (real estate office). The deposited reservation is included in the first payment instalment of the purchase price. From the day the reservation deposit is made, the selected property is reserved for the client.

Future Purchase Agreement

In the Future Purchase Agreement, the seller and buyer commit themselves to when and under what conditions they will conclude the Purchase Agreement for the respective property. This agreement is binding and legally enforceable.

Purchase Agreement

Based on the Purchase Agreement, the ownership rights to the respective property, or properties, are transferred from the seller to the buyer against payment. The Purchase Agreement provides precise specifications of the properties pursuant to the Title Deed, the purchase price and its payment, conditions for handing over the property and other essentials as agreed to by the contracting parties.

Contract for the Transfer of Unit Ownership

Based on this contract, the ownership rights to a residential or commercial unit, are transferred from the seller to the buyer against payment, in accordance to Act. No. 72/1994 Coll., inclusive of the relevant divided co-ownership of common areas of the building and land. The Contract for the Transfer of Unit Ownership provides precise specifications of the properties pursuant to the Title Deed, the purchase price and its payment, conditions for handing over the property and other essentials as agreed to by the contracting parties.

Agreement on the Transfer of Membership Rights and Obligations in a Housing Cooperative

A bilateral agreement entered into by the transferor and transferee, which sets out specifications concerning the transferor’s transfer of his/her membership and a membership share in the cooperative housing to the transferee, to which the rental right to the respective cooperative flat is connected. The agreement states the price for transferring membership rights and obligations, the payment of the price and conditions of transferring the cooperative flat.

Lease Agreement

Based on the Lease Agreement, the property owner (Lessor) leaves the respective property for the use of the lessee against payment, for a fixed or indefinite term. Flat rental is specially amended by section 685 et seq. of the Civil Code and commercial space rental is conditioned in separate Act No. 116/1990 Coll., on the lease and sublease of commercial space.

Legal terms

Residential and commercial space in private ownership:

Each residential and commercial unit has a direct owner, who is entered into the Title Deed, in accordance with Act No. 72/1994 Coll., on flat ownership. Residential and commercial units also include a share in common areas of the building and land. A flat is deemed a room or group of rooms, which are intended for living in based on the decision of the planning authority. A commercial space is understood as a room or group of rooms, which are intended for other purposes based on the decision of the planning authority.

Cooperative flat:

The basic difference between a flat in private ownership and a cooperative flat is that the owner of flat is a housing cooperative and the client is the owner of a membership share in the housing cooperative. Membership rights and obligations in a housing cooperative include mainly the right to rent a specific cooperative flat. The client transfers or acquires these membership rights and obligations in the housing cooperative by means of a payment against the transfer of membership rights and obligations.

Family house:

A family house is a building for residing in, in which more than half of the floor area corresponds to the requirements for permanent family housing and is intended for this purpose. Moreover, it includes a maximum of three independent flats, two aboveground and one underground floor and an attic.

Block of flats:

Building for residential living, in which more than half of the floor area corresponds to the requirements for permanent housing and is intended for the purpose thereof.

Land:

Land is a part of the Earth’s surface, separated from adjacent parts of territorial administrative unit boundaries or cadastral area boundaries, ownership boundaries, possession boundaries, land type boundaries, or land use type boundaries.

Building lot:

A building lot is understood as a piece of land entered in the Land Registry as a “built-up area and yard.” Moreover, as a lot of varying type, however, intended by municipal planning documentation, or issued zoning permit for building on, regardless of its status registered in the Land Registry.

Land in simplified registration at the Land Registry:

Land with boundaries that are not distinct in the terrain because they are merged into one larger land unit from previous times.

Land lot:

A piece of land with defined boundaries which are documented on a cadastral map and marked with a parcel lot number.

Cadastral map:

A detailed large-scale planimetric map depicting properties, maintained in constant accordance with the actual status in the terrain.

Title Deed:

A Title Deed is an extract from the Land Registry, it documents ownership to the respective property or properties. The Title Deed may include easements, right to liens and other encumbrances that apply to the property.

Land Registry:

A collection of data on properties in the Czech Republic, including a list and description and their geometric and positional specifications. The Land Registry includes records of ownership and other tenures and statutory rights to these properties.

Proposal for entry into the Land Registry:

An application submitted by a party to the contract for performing the proposed changes in records of the relevant Land Registry. At present, a 500 CZK fee stamp needs to be attached to the proposal for entry into the Land Registry.

Mortgage loan (Mortgage):

A debt instrument, the repayment of which is secured by the collateral of the specified property. It mainly serves for buying or reconstructing real estate properties. The objective of a mortgage loan is to invest in property.

Building savings:

Building savings in the Czech Republic were established with the objective of supporting the country’s inhabitants solve their housing situation. It is a complex financial product provided by building societies. Within the scope thereof, clients can save, apply for a loan or bridging loan from the building savings and thereby take advantage of support provided by the state towards building savings.

Auction:

Public meeting (sale / negotiation) during which a certain item is offered to an undefined number of persons at a pre-arranged place, with the objective of auctioning off the item to the highest bidder under the assumption that the bidder meets the conditions stipulated in the Auction Announcement for the sale thereof. An auction may be voluntary or involuntary.

Community property:

Community property is established when entering marriage, it concerns the property and liabilities of spouses acquired during marriage.
Common property of spouses includes
a) property acquired by either spouse or both during marriage, with the exception of that acquired by inheritance or donation, property acquired by one of the spouses as property belonging to the exclusive ownership of the respective spouse, such as items that by nature serve for personal use to only one spouse, and items issued within the scope of legislation on property restitution of one spouse, who had the issued item in his/her ownership prior to entering marriage, or an item that was issued to either spouse as to a legal successor to the original owner;
b) liabilities, which were established to either or both spouses during marriage, with the exception of liabilities concerning property, which belongs exclusively to only one spouse, and liabilities, the scope of which exceed the extent that is appropriate for matrimonial property, which either spouse received without the consent of the other.

Restrictions on ownership rights indicated on the relevant title deed

Right to lien:

Right to lien serves to secure a debt in the event that the debt is not repaid in time. In this instance, it is possible to achieve satisfaction from proceeds of encashment of the lien. Right to lien is transferred to the new transferee along with property ownership.

Pre-emptive rights:

Pre-emptive rights ensure the seller that the subject the property is being sold to will offer it first to him to buy, if he/she ever intends to sell the property further. Pre-emptive rights are stated on the respective Title Deed. By law, a joint owner of a property has pre-emptive rights.

Easement:

Easements limit the owner of a specific immovable (obliged by the easement) in the benefit of somebody else (entitled by the easement), whereby the owner of the subject is obligated to refrain from certain conduct, sustain something or render something. The easement is stated in the respective Title Deed. Easements are transferred along with property ownership to the new transferee.

Distrainment:

The objective of distrainment is to secure fast and effective protection of rights to the creditor, which were granted to the creditor towards the pledgor by an enforceable court decision or any other distrainment title. Distrainment limits the owner in managing the property.

Insolvency (Bankruptcy)

The inability of companies, even citizens these days, to meet their obligations; payment inability; continued company illiquidity, debt due is higher than the feasible value of assets. The debtor is bankrupt if he/she has more creditors and is not able to meet his/her obligations for a longer period of time. If the debtor has stopped payments, the debtor is considered to be unable to fulfil his/her payment liabilities for a longer period of time. A natural entity, if is an entrepreneur and a legal entity is bankrupt even if he/she is insolvent.