Are you planning to invest in buying a condominium? It is always an extraordinary transaction from a financial point of view, but what about from a legal point of view? Will the purchase contract for a detached and an apartment building differ, or is it basically the same? In our article we will look at the specifics of such a contract.
Despite the fact that one of the domains of the Affordable Lawyer’s office is to focus on real estate services, the purchase of apartment houses is still rather rare. This makes us all the more attentive to the individual steps and point out the specifics to our clients.
What do we call an apartment house? Wikipedia states that it is a building with several apartments in which tenants live and for this they pay a payment called rent or rent to the owner of the apartment or house. According to this definition, it is not necessarily a brick house, which we typically think of as an “apartment building”, but theoretically maybe a prefabricated building.
Buying an apartment building requires teamwork first and foremost. It is necessary to coordinate the individual steps not only with the legal representative of the other party to the purchase contractand with real estate brokers, but often also with a financial advisor who advises on the financing of the transaction and with an expert who can correctly estimate the return on investment. As a rule, there are usually more than one person on either side of the purchase contract, which can also shuffle the cards in coordinating the process.
We will prepare for you a perfect package of all the necessary contracts (especially the reservation, purchase and future contract) without legal flaws. If you’re buying a property, we’ll guide you through the whole process and check the contracts thoroughly so you don’t sign up to something you might regret later.
Let’s take a closer look at the individual differences:
An apartment building can have many individual tenants, which adds to the complexity of the transaction. All leases need to be reviewed to see if there are any long-term liabilities or problematic tenancies. It is a good idea not only to find out what is given on paper, but also to find out what the real relationships in the building are. And that requires a certain amount of almost detective work.
From the point of view of the future management of the house , it is usually preferable to have tenantless flats, as you can easily renovate the flats, find the tenants you want to contract with yourself and, above all, set up the lease agreements as you see fit. You also have a free hand if you plan to sell off individual apartments. However, it should be stressed that if the apartments are already occupied by tenants, this does not prevent the transaction.
According to the Civil Code, it is generally true (not only for real estate) that if the owner of the property changes (e.g. on the basis of a purchase agreement), the rights and obligations under the lease pass to the new owner. This means that even if the new owner or the prospective buyer does not care, the rent will continue to be paid and, very importantly, under exactly the same conditions as the previous owner. The only change in the tenancy relationship will be that the new owner will become the landlord (automatically).
If you are interested in the specifics of buying a property with a tenant, read our separate article on this topic. In it, we will advise you on what to look out for and when you can terminate a tenant’s contract.
An apartment building is usually acquired as an investment opportunity. However, this means obtaining detailed information on the number of units, occupancy, operating and management costs and other economic aspects. Of course, the intention of the future owner is essential – either to sell the property off one apartment at a time or to rent out the units. Of course, a combination of both is also possible.
For the owner, renting represents a source of income, but on the other hand it also entails considerable costs for the management and maintenance of the building.
A prospective homeowner should also be interested in circumstances outside the building before buying, such as zoning changes around the building, future subway construction or other major changes in the area. These may increase the price of rent (or apartments if sold) in the long run, but in the short term they only present tenants and prospective tenants with noise, traffic changes and a number of problems that may discourage them.
The key to ensuring profitability is to ensure that the financing of the transaction is such that the repayment of loans with fat interest does not outweigh the benefits of the investment. With the help of an expert, a detailed calculation of all costs, repayments and, on the other hand, potential profits, is necessary.
The property should also undergo a thorough examination at the land registry. This should ideally be entrusted to an experienced lawyer. In the case of an apartment building, the establishment of certain easements can be expected. Typically those relating to utilities. Easements do not interfere with the sale, but it is necessary to get acquainted with their content in detail so that the owner has an idea of what he will have to endure within his property (for example, the right of a third party to establish or run water, sewage, energy or other lines on or through the servient land). Other legal specifics may relate to the regime of common areas, or issues related to the rights and obligations of tenants.
Before any purchase, it is essential to check the technical condition of the property. While when buying a residential unit we are interested in, for example, the associated basement and the planned repairs in which the owner of the apartment will participate, when buying the whole building the perspective changes radically. The condition of the entire building, including common areas, roof, basements, elevators, etc., must be examined in detail. This is where working with an experienced builder or architect comes in, who will help to estimate what investments will be needed in the near future in connection with the property and what their amount will be. Older buildings in particular are often in need of renovation and modernisation and can suffer from problems such as damp. Issues such as a leaking roof or an uninsulated basement, which may be of only remote concern to the owner of a single dwelling unit, are in this case the full responsibility of the owner.
Learn what to check before buying a property.
Even contracts for a single unit require a reliable person with an eye for detail to draw up. In the case of such extensive contractual documentation, which the purchase of a house entails, it is necessary to keep track of all the numbers, markings, areas and other details. A single mistake could result in the proposal being returned from the Land Registry and a new deadline running. That is why a team of lawyers usually steps in to check each individual item of the contract several times. In addition to the purchase contract, the documentation also includes a contract for a future contract and, as a rule, an escrow and pledge agreement.
Selling a house is a process that involves a number of legal actions. Even a small mistake can cost you a lot – at best it will cost you a lot of time, at worst it will cost you money. We have described all the legal documentation and its requirements in detail in our separate article.
Although the property acquisition tax was abolished in 2020, a number of obligations still remain. For sellers, this mainly concerns the income tax on the sale of the property and for the purchaser subsequently registering for property tax, filing a tax return and paying the tax itself.
It is naturally more challenging for a buyer to obtain financing for the purchase of a condominium by the very nature of the fact that the purchase price tends to be many times higher. Even banks are therefore more vigilant in granting loans and mortgages.
As mentioned above, if the existing tenants remain in the house, the new owner assumes all liabilities to them. It is important to be aware of any existing contracts and any problems in the house.
Are you about to take out a mortgage? Then you must not miss our series of articles on Mortgage – Frequently Asked Questions and Answers.
Even if there are specifics to the sale of a tenement house, there are certain specifics compared to the sale of a regular property. These are directly related to the same specifics that buying an apartment building entails. These include, but are not limited to:
Buying or selling an apartment building is a complex process that requires thorough preparation and cooperation with professionals. When buying, it is necessary to check lease agreements, legal relations and the technical condition of the building. The return on investment depends on the occupancy, management costs and future use of the property. The legal documentation is also important, which includes the purchase contract, the future contract and the mortgage agreement.
The sale of an apartment building requires the preparation of complete documentation, the removal of defects and the correct pricing with regard to the return potential. Marketing must be targeted at investors and specialist estate agents. The whole process must be carefully planned to avoid complications and financial losses.
Our team of experienced attorneys will help you solve any legal issue. Within 24 hours we’ll evaluate your situation and suggest a step-by-step solution, including all costs. The price for this proposal is only CZK 690, and this is refunded to you when you order service from us.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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