Donation of real estate is one form of gratuitous transfer of property that is often used between family members or partners. Donating real estate brings with it a number of issues. How to do everything correctly legally? When to add an easement to the contract and what happens if the donation does not go as planned? Not only these questions can be answered in the following article.
A gratuitous transfer of property is most often made by way of a gift, where the donor transfers ownership to the donee without any financial compensation. Whether it is a gratuitous transfer of land, a family house or an apartment, it is always necessary to draw up the gift agreement correctly. The word correctly is not used casually. It only takes a small mistake to drag the whole process out or even stop it altogether. Ideally, you should consult a professional about drafting a gift agreement. Templates downloaded from the internet can contain a variety of errors and outdated information.
It is also essential that the signatures on the contract are certified by a notary, lawyer or Czech Point employee. The only exceptions are those who have their signature stored as a specimen directly at the Land Registry. In this case, it is not necessary to verify the signature.
The contract must then be delivered together with the completed application for registration to the Land Registry, which will make the change in the registration. As of 1 January 2020, the fee for entry into the Land Registry is CZK 2,000.
You may now be thinking that there is nothing difficult about creating a contract. So why approach a professional? Believe me, even the most careful can overlook some of the many small details. Conveyancing often involves several title deeds that include not only the buildings themselves, but also the land. Each share must then be specifically identified in the contract and transferred to the new owner. If the correct designation is not made, the damage can be really big – as in the case of Mrs Kamila, who lost her property definitively because of the wrong registration.
If more than one person owns the property, there may be a gift of a co-ownership share, where one of the co-owners transfers his/her share to another person. If the donation concerns only a part of the property, for example in the case of a gift of a co-ownership interest, it is necessary to clearly define what share of the property passes to the donee.
Although the new Civil Code contains the principle of superficies solo cedit (translated, the surface gives way to the land, i.e. the building is part of the land), houses and land are often integrated gradually. Thus, sometimes the house may not be part of the land, which, if incorrectly treated in the contract, leads to a mistake in the form of a gift of land without a house or, conversely, a house without land. Thus, the contract must always treat not only the house or flat, which is the primary concern, but also the donation of the land. In the case of a gratuitous transfer of land, the same procedure is followed as for a gift of a house or flat. In the case of a gratuitous transfer of land between relatives, the donee is exempt from income tax.
Please note that the real estate acquisition tax has been abolished and the effective date in this respect is 31 March 2020. For more information, see the article Abolition of real estate acquisition tax.
In practice, we often encounter clients dealing with the consequences of an incorrect gift agreement. In extreme cases, they even lose the property. However, it is not only the donee who should be certain, but also the donor. For example, in situations where the donor wants to continue living in the apartment or house. We think about all this when drawing up gift agreements.
Ensure that the donation of the property goes smoothly
It usually doesn’t end with the transfer of the property. The donee still has to sort out any financial obligations to the state that may arise from the acquisition of the property.
Until 2014, the receipt of a gift was followed by the payment of estate gift tax. However, the gift tax was abolished in that year by the Income Tax Act. Income from gifts is still part of the ordinary income tax, which is 15% for individuals and 19% for corporations. The relationship between the donee and the donor also plays a role in the calculation of the tax. If the property “remains in the family”, the donee is also exempt from this tax.
If the donee is not a close relative (a relative in the direct or collateral line, or a partner living in the same household for at least one year) or does not meet the other conditions, the value of the property must be included in the tax return (it will be necessary to have an estimate of the market value of the property made and tax it together with other income). When acquiring a property worth five million or more, the tax authorities must always be notified (regardless of whether income tax liability arises).
After the abolition of the gift tax, the next major tax change in 2019 was the abolition of the real estate acquisition tax, which took effect from the end of March 2020.
With the abolition of property tax, it might seem that no tax obligations arise when selling and buying a flat or house. However, the opposite is true. Taxes still need to be thought about. Which ones apply to the seller and which ones do the buyer have to take care of? We have dealt with this in our separate article.
If the donor dies within three years of the transfer of the property, this may be reflected in the subsequent succession proceedings. The donated property is included in the mandatory share of the inheritance. If the share of the inheritance is subsequently less than the value of the donated property, there is no further entitlement to the estate. As an example, consider three siblings, one of whom has received a family cottage as a gift. The parent who gave the cottage subsequently dies and leaves an estate worth CZK 600,000. Normally, each of the siblings would inherit a share of CZK 200 000, but because one of them received the cottage at a much higher value, only the remaining two siblings will share the estate.
Cases where a widowed grandmother decides to gift a property to her favourite grandchild without any intention of continuing to live there are an ideal model. In practice, however, we see it rather rarely. Much more often we see transfers involving a mortgage, a share in a cooperative or an easement. How does the donation of real estate or a part of it proceed in such cases?
The transfer of a house encumbered by a mortgage loan is theoretically not a problem. At least in those cases where there is no “easement” registered in the Land Registry, which prevents the sale or any other transfer to the new owner.
In practice, however, not only the mortgage, i.e. the bank’s lien, but also the prohibition of alienation, i.e. the transfer of the property, whether on the basis of a purchase or gift agreement, is usually entered into the land register.
Each transfer must then be approved by the bank, which is the provider of the loan and in whose favour the restrictions are usually registered in the cadastre. Once the bank has approved the transfer, the standard transfer of the donated property can take place. The remaining liabilities to the bank can then be transferred to the new owner. These include the aforementioned lien, i.e. the guarantee that if the mortgage stops being paid, the bank can feast on the property. It can therefore theoretically sell it even “over the head” of the donee, who has nothing to do with the original mortgage loan. But of course it all depends on the agreement with the original owner and the bank.
The free transfer of a cooperative flat and the donation of a privately owned flat differ primarily in the manner of transfer. While in the case of a standard owned flat we transfer the property itself, in the case of a gratuitous transfer of a cooperative flat we transfer the cooperative share in the housing cooperative. The cooperative owns the apartment, not the cooperative directly.
However, the housing association cannot restrict or prohibit the transfer of the share. However, the donee must meet the conditions of the cooperative to be accepted as a member. The share transfer agreement must then be delivered to the housing association. At the same time, there is no need to submit a petition for entry into the Land Registry, as the Land Registry does not deal with transfers of cooperative shares. The apartment formally remains in the ownership of the cooperative, only the cooperative member who has the right of exclusive use changes.
Spouses can of course decide to donate real estate from the community property. This must be done by joint negotiation, so the consent of both spouses is always required. Subsequently, it is possible to donate not only the property as a whole, but also a part of it. Thus, for example, parents can give half of the family home to their child while keeping the remaining part in the SJM.
Situations where elderly parents give property to their children only to find themselves homeless are not uncommon. That’s why we always recommend that you consider adding a lifetime “easement” when gifting the whole property – not just part of it. This condition should certainly not be absent wherever the donor intends to continue living in the donated property. In practice, we most often use a “usufruct easement” for a specific person – this can be not only the donor himself, but also anyone else (for example, the donor’s parents, etc.). This person then has the right to continue to use the property even though he or she no longer owns it, and no one can have him or her evicted even if the property changes hands repeatedly.
In order for the easement to actually fulfil its purpose, it must be registered in the Land Registry. Not only a verbal agreement, but also a written agreement that is not recorded in the Land Registry is just “talking to the wind”. It is always necessary to describe the easement correctly to avoid mistakes in the registration. It is advisable to specify, for example:
The proposal for registration of the easement is part of the proposal for entry into the Land Register.
The agreement can also be extended to include a so-called “real easement“. In such a scheme, the donee undertakes to provide the donor with adequate care in old age or in case of illness, in addition to housing. It is also possible to add a prohibition of alienation, which prevents the new owner from transferring the property to the new owner.
Tip: Are you planning to donate a property with an easement? Don’t rely on a sample real estate gift agreement with an easement. This is because such templates, which are freely available for download on the internet, are often outdated and full of errors. Contact an experienced attorney instead. An affordable attorney will prepare a complete contractual and legal service for you , including the gift agreement, registration in the land registry and taxes. All this within 48 hours, flawlessly and professionally.
Things don’t always go exactly as we wish. Sometimes the donee doesn’t want to keep the property, sometimes the donor gets into such a difficult situation that they need to revoke the gift. How to proceed in such cases?
The law clearly sets out two situations in which a donor can revoke their gift. It is possible to revoke the gift even after the gift has been given, i.e. when the donor is already using the property. And what are these situations?
The law also contemplates cases where the donee tries to quickly transfer the property to another person to avoid having to pay it back. If the donee has sold or transferred the property to someone else, the law provides that the revocation of the gift triggers an obligation to release what remains of the gift or its full value. However, the exceptions are those cases where the property was transferred for the sole purpose of avoiding the obligation to return the gift or the gift was revoked due to the ingratitude of the donee. In these situations, the property must be returned (if the transfer could be revoked) or its full value.
Tip: Thousands of pages and many articles and books have been written about buying, selling, renting or donating real estate. However, there are also many other ways to dispose of real estate that are less written about. You may have come across property leasing, but such land swaps have become rather rare. We discuss both transactions in more detail in our next article – Less common real estate contracts.
What if the donee receives a property that they don’t want to keep? It is, of course, entirely up to the donor whether he or she decides, for example, to sell. If he sells the property immediately after the transfer, however, he must take into account the payment of income tax. The seller is only exempt from this if he has been registered as a permanent resident in the property for at least two years prior to the sale. If the seller has never been registered at the address, it is necessary to wait at least five years after the acquisition of the property to be exempt from income tax.
The gifting of real estate is an event that requires close attention from both parties, i.e. the donor and the donee. That is why we will be happy to help you with everything. We will answer all your questions and help you with setting the rules and drafting the contract itself. With us, you do not risk any future complications that an incorrectly drafted contract could bring.
The donation of a property is a legal transaction that must be carefully drafted in the correct form to avoid problems when registering it with the Land Registry. When transferring property for no consideration, whether it is a house, apartment or a gratuitous transfer of land, it is necessary to verify the signatures on the donation contract and file a petition for entry into the Land Registry with a fee of CZK 2,000. The donation of a co-ownership share requires a precise definition of the part to be transferred, just like the gratuitous transfer of a cooperative apartment, where a membership share in a housing cooperative is transferred. Tax obligations depend on the relationship between the donor and the donee – close relatives are exempt from tax. Gifting property to a companion is possible, but the tax advantage only applies if there is a proven cohabitation. To protect the donor, an easement can be added to the contract to ensure lifetime use of the property. The gift can be revoked under certain conditions, for example, because of the donor’s ingratitude or distress.
We will provide you with a complete legal service related to real estate donation, including a proposal for entry into the Land Registry. We will also advise you on how to deal with taxes in the most advantageous way. We will handle everything quickly and flawlessly, so you don’t have to worry about a thing. You can pay after the service has been provided.
In person and online. Just choose the appropriate service or opt for an independent consultation when you are unsure.
