Real Estate Donation Agreement: Frequently Asked Questions and Answers

Quick Overview

• A real estategift agreement must be in writing.
• The real estate must be described in the agreement in such a way that it can be unambiguously identified according to the land registry.
• Ownership of the real estate is transferred to the donee only upon registration of the ownership right in the real estate cadastre.
• The donor may simultaneously arrange, for example, a lifeestate, a prohibition on alienation, or other protective rights.
• Under the law,the return of a gifted property is primarily considered in cases of ingratitude on the part of the donee or financial hardship on the part of the donor.

A life estate is often agreed upon when real estate is gifted among relatives, typically when parents or grandparents transfer a house or apartment to their children or grandchildren but wish to continue living there.

In everyday language,theterm“real burden”is still commonly used. However, the Civil Code uses the more specific term “easement,” which falls under the category of rights in rem over another’s property.

Do you want to ensure that the gift deed is registered with the land registry and also protects the donor? We’ll prepare a customized real estate gift deed for you and can incorporate a life estate or other terms of the transfer directly into it.

How to Draft a Real Estate Gift Agreement

A real estate gift agreement must be in writing. The essential elements of a gift agreement primarily include:

• clear identification of the donor and the donee,
• a precise description of the real estate being transferred,
• a clear expression of the donor’s intent to transfer the real estate free of charge and the donee’s intent to accept the gift.

For real estate, it is advisable to rely on current data from the land registry and to verify, in particular, the parcel numbers, unit number, title deed, and cadastral district. If the donor intends to continue living in the property, it is generally advisable to simultaneously establish a right of use or other conditions.

The most common mistake in practice: the contract itself may appear correct at first glance, but an inaccurate description of the real estate or an improperly worded easement will subsequently cause problems during registration in the land registry.

A gift deed alone is not sufficient to transfer ownership. It is also necessary to file an application for registration in the real estate cadastre and attach the gift deed as the registration document. It is advisable to have the signatures on the contract notarized to avoid unnecessary doubts about their authenticity during the registration process.

How to Establish a “Lifetime Usufruct”

Most often, we draft a so-called right of use easement for a specific person, valid for the lifetime of that beneficiary. This means that this person (typically the donor, though we have also prepared such an easement for the recipient’s mother and her partner) has the right to use the property for the duration of their life, even though someone else now owns it as a result of the gift.

The easement is both agreed upon in a contract and registered in the real estate cadastre (this protects the donor in the event that the donee were to lose the property due to foreclosure, for example—the right to use the property remains unaffected). For the purposes of the land registry, however, the easement must be described with sufficient precision to avoid any issues with its registration; we submit the application for registration of such an easement in the same application for entry in the land registry as the donation itself—that is, we handle everything at once.

We also regularly include specific terms in the contract to clarify such an easement. For example, that the easement includes the right to receive visitors at the donated property, that such an easement is granted free of charge—that is, the donor does not have to pay anything for it—or, particularly in the case of donating an apartment, detailed specifications regarding who, when, and how will cover the costs associated with the apartment (utility bills, building maintenance fees, etc.). This helps prevent potential misunderstandings regarding the most common issues that may arise in the day-to-day operation of the easement.

When Is It Possible to Return a Donated Property?

The donor may request the return of a donated property primarily in two situations specified by law— in case of hardship or in the event of ingratitude on the part of the donee. The grounds for revoking a gift may also be specified directly in the gift agreement. At the same time, the donor cannot validly waive in advance the right to revoke the gift due to financial hardship or ingratitude. If the agreement contains such a provision, it is disregarded under the Civil Code.

In cases where the donee attempts to “dispose of” the donated real property—for example, by transferring it to another person to avoid having to return it—the law provides as follows. Upon revocation of the gift, the donee is obligated to surrender at least what they still possess of the gift or its full value—that is, what remains in their possession. However, there is an exception to this rule under which the donee is obligated to return the entire property: if the donee transferred the property precisely to avoid this consequence upon revocation of the gift, or if the revocation was initiated by the donor due to the donee’s so-called ingratitude.

The two situations for revocation are as follows:

• So-called ingratitude, or revocation on grounds of ingratitude: the donee “intentionally or through gross negligence harmedthe donor in a manner that clearly violates public morality.” This could, for example, involve a situation where the donee fails to assist a seriously ill donor, or where the donee commits a criminal offense against the donor. Revocation on grounds of ingratitude is also possible if harm was inflicted in this manner on a person close to the donor; in such a case, however, the donor may revoke the gift. If the gift has already been transferred, the donor has the right to demand the return of the entire gift, and if that is not possible, payment of its fair market value.
• So-called revocation due to financial hardship: the donor falls into financial distress and cannot even afford his or her own basic subsistence or the basic subsistence of a person whom he or she is legally obligated to support; then the donor may revoke the gift and demand that the donee return it or pay its fair market value. However, the revocation shall apply only to that portion of the gift or its value by which the donor lacks the means for necessary subsistence.

Note: In cases of ingratitude, a mere family conflict or a deterioration in relations is not sufficient. The specific conduct of the donee, its severity, and whether the donee intentionally or through gross negligence harmed the donor in a manner that clearly violates public morality are taken into account.

How to Ensure Care from the Donee “in Exchange” for the Donated Real Property

We are drafting a so-called “real burden,” which is something like a “reverse” easement—when an easement is agreed upon, the donee is obligated to tolerate the use of “their” real property by someone else; with a real burden , the donee is obligated to actively act as agreed upon in the gift deed.

From our legal practice: It is not always sufficient to merely secure the donor’s right to reside in the property. For older clients, we also handle situations where they wish to link the gift to a specific obligation on the part of the donee to provide them with assistance or care. For example, in our practice, we handled a case involving a real burden that we drafted for one of our clients and which served as a so-called life estate. Essentially, the donor, an elderly woman, had a real burden included in the contract in addition to the right of use, under which the donee (her daughter) was to provide or arrange for care in her old age, and, in the event of a deterioration in her health, even provide care personally.

Is there a gift tax on real estate?

No separate gift tax is payable when real estate is gifted. However, the gratuitous acquisition of real estate is assessed under the Income Tax Act, and in some cases, the donee may incur taxable income.

As for income tax (which we assess when drafting a gift deed), gifts are exempt from tax, for example, from a relative in the direct line or even the collateral line—such as a sibling, uncle, aunt, nephew, or niece, a spouse, a child’s spouse, a spouse’s child, a spouse’s parent, or a parent’s spouse—or, in some cases, from a person with whom the recipient lives in a common household. The gifting of real estate between relatives is therefore exempt from income tax in many common family situations.

Be aware of the reporting requirement: Even though a gift is tax-exempt, if the exempt income exceeds 5 million CZK, there may be an obligation to report its receipt to the tax office. For a specific property, it is therefore advisable to verify not only the tax exemption itself but also any potential reporting requirement.

Not sure whether the gift is tax-exempt in your case or whether you need to report anything to the tax office? Contact us; when drafting the gift deed, we’ll also review the tax implications of the specific transfer.

Is it possible to register multiple properties in the land registry at once?

We regularly draft agreements involving several different properties (e.g., an apartment and a separate parking space next to it, or several different parcels of land); we have also drafted agreements concerning only a portion of a property (e.g., parents wanted to donate a half-share of their house to their children but retain the other half for themselves). However, it is not always possible to establish, for example, an easement on all properties collectively—typically, this can only be done if the donor is the sole owner.

Before signing a gift deed, please verify

• whether the property details match the current land registry,
• whether you are donating the entire property or only a co-ownership share,
• whether an easement or other right is to be established at the same time,
• who will bear the costs associated with the property after the donation,
• whether the property is encumbered by a lien, foreclosure, or any other restriction.

Summary

A real estate gift agreement must be in writing and must clearly identify the donor, the donee, and the real estate being transferred. Transfer of ownership occurs only upon registration in the real estate cadastre. The donor may, for example, secure a life estate in the agreement or, through a real servitude, stipulate an obligation on the donee to provide the donor with certain care. The donor may demand the return of the donated real estate, particularly in the event of the donee’s ingratitude or the donor’s own financial hardship; however, the donor cannot validly waive these rights in advance. No separate gift tax is payable; however, the gratuitous acquisition is assessed under the Income Tax Act. The gifting of real estate between relatives is exempt from income tax in many cases; however, if the exempt income exceeds 5 million CZK, a reporting obligation to the tax authority may arise. When drafting the contract, it is therefore important to properly address not only the transfer itself but also any rights of the donor, tax implications, and the information required for registration in the land registry.