Selling a house is a process that involves a number of legal transactions. Even a small mistake can cost you a lot – in the best case it will cost you a lot of time, in the worst case it will cost you money. How to sell a property to avoid unpleasant consequences?
Although most sellers and prospective buyers may not realise it, the reservation contract is a very important document when selling a house. It protects both the seller and the buyer. Among other things, it protects the property owner when the buyer is arranging a mortgage loan and the exact terms of the loan approval are not yet known. If the financing does not work out in the end, the property owner is usually entitled to a reservation fee, unless otherwise stipulated in the contract. Similarly, the seller is protected from situations where the prospective buyer changes his mind and cancels. In return, the buyer is assured that the seller will not offer the property to another bidder while the necessary formalities are being processed.
However, always think carefully when signing a contract. Both the seller and the buyer should know all the terms and conditions and think carefully about the next steps. Hasty signing of the reservation contract (especially by buyers) often leads to many complications. At the same time, the contract needs to be written in a way that is really beneficial for everyone involved.
Tip: Read the story of our client Jindřich Krčmar and his apartment reservation contract.
In terms of particulars, the contract should always include:
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The next step that requires particularly close attention is the house purchase contract itself and the terms and conditions it contains. If the document contains errors, the consequences can be fatal. Be sure never to download dubious templates for house sale contracts from the internet, nor use “tried and tested” templates from friends. Every property is different, and so is the contract for its sale. There can be many pitfalls lurking in the drafting of a purchase agreement that are easily overlooked by even the most careful seller. This could be a handover clause, conveyancing specifications or potential penalties.
The handover clause is an integral part of the contract as it clearly states when the new owner can start using the house. This should clearly state when the keys to the property will be handed over. Similarly, the obligations related to the use of the property should also be handed over. Do not forget to mention when the new owner will pay the service charges (e.g. utilities) and the current status of the meters. If this information is not mentioned, situations may ensue where the original and new owner argue over utility bills or other charges. A ‘handover protocol’ should be drawn up for the purpose of the handover, which you will then follow.
Make sure that there is a clear specification of what the new owner will get. Will the kitchen appliances remain available? What about garden furniture? This should all be spelled out in the purchase contract, preferably in the form of a list. Recently, a well or other specifics of the houses are also important. Remember that a verbal agreement is not enough. Including these details will avoid many future inconveniences. Contractual penalties are a separate chapter that must be well thought out. Fines should be set clearly and fairly for both parties. Fines must not be excessive or too low. If the penalties do not even cover the seller’s time costs, or on the contrary are set against the buyer, there has been a misalignment that you can do nothing about in case of complications.
And what other mistakes are often encountered in practice? Even seemingly trivial things, such as basic information about the parties involved in the sale, can often be troublesome. For both the seller and the buyer it is necessary to state:
Furthermore, mistakes are often made in the definition of the object of sale, where, for example, missing data from the Land Registry can lead to the complete cancellation of the contract.
There are also often ambiguities if the house is bought by partners. What if you split up and have to pay the mortgage? What happens to the house? All of this should be dealt with at the outset, not when it happens.
And how do you sell the property if you only own part of it and decide to sell? Before 1 July 2020, it was necessary to deal with the right of pre-emption in the case of co-ownership, but from July the situation is different. However, you still need to deal with the right of pre-emption if the land on which the house stands is owned by another owner. For more on pre-emption rights, see another article.
If the new owner is going to finance the property through a mortgage loan, it is necessary to sort out the establishment of a lien, which banks require for the successful granting of the loan. The contract is concluded between the bank and the seller as soon as possible after the purchase contract is signed, or even earlier.
Once the lien agreement is signed, the bank will grant the loan, which then often goes straight into escrow with the attorney. The lien must also be registered in the land registry, so you need to include one original copy of the contract with the application to the land registry.
This is, of course, disadvantageous for the seller in principle, as he encumbers his property for the benefit of the buyer. Therefore, financing without the need for a loan is ideal.
Between the signing of the contract of sale and the handing over of the keys to the property, there are still a few necessary steps. These are, first and foremost, the attorney’s escrow and the application for entry into the Land Registry.
Legal escrow protects the seller and the buyer equally, which is why we recommend it for every property sale. The seller then does not have to live in uncertainty about whether and when the money for the transaction will arrive, while the buyer does not have to worry about becoming a victim of fraud and losing the money and the property.
It all comes down to depositing the purchase price into the attorney’s account. The buyer should set up a special bank account for this purpose, so that there is no confusion and everyone is assured of a safe deposit of the money. It is advisable to agree on the escrow in the booking contract. Once the agreed amount has arrived in the account, it is safe to file a petition to register the title in the Land Registry.
Tip: Don’t forget that a lawyer should have professional liability insurance for a minimum of CZK 5,000,000 by law. An affordable lawyer is insured for CZK 50,000,000.
Mistakes are not forgiven when selling a property. And this is doubly true for a proposal for the registration of ownership. So make sure your documents are legally in order and contain all the required information. You can submit a form to the relevant cadastral office (indicated in the application) in person, by post or electronically. The application form then identifies the parties to the proceedings and the property. Along with the proposal, you must deliver the purchase contract for the house and pay the administrative fee, which is CZK 2,000 in 2023.
Although at first glance it might seem that there is no room for error in the submission of the proposal, the opposite is true. This is despite the fact that there is an option to fill in an interactive form that will fill in some information about the property itself. All it takes is one incorrect property designation for your application to be returned. Increased attention should also be paid to other property deeds that may indicate ownership of land or other details. If the deed of sale contains different details to the proposal to the Land Registry, again there will be quite a significant complication. For example, even the interactive form cannot handle co-ownership interests and these details always have to be filled in manually, which many people forget.
If you make one of these mistakes, it will be a so-called irremediable defect that leads to the Land Registry not allowing the application. You must then withdraw the application for registration (if all parties agree) or wait for the rejection by the Land Registry. In the latter case, however, it is necessary to take into account that after the rejection, there is still a two-month period for filing an administrative action, during which it is not possible to file a new application. This is therefore a significant extension of the whole process. You must then pay the administrative fee again each time you resubmit your application.
For the sake of completeness, let us also mention the so-called curable defects, which can be remedied during the proceedings without interrupting or terminating them. Such defects include, for example, failure to verify a signature or failure to pay the administrative fee on the day the application is lodged.
The Cadastral Office has approximately one month (but at least 20 days) to process each application. However, any of the above-mentioned errors can prolong the process or even stop it altogether. As long as the procedure is ongoing, the buyer is not yet the owner of the property. He or she only becomes so after the registration in the Land Registry has been changed.
Once the registration is changed, the money can be released from the lawyer’s custody and transferred to the seller’s account. This completes the sale and the handover of the property.
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.
It is possible to sell a house with an easement, you just have to take into account that after the transfer of ownership it will still burden the new owner to the same extent as the original owner. Thus, the new owner must allow the person in whose favour the easement was established to use the property for life.
Tip: Although selling a house with an easement is possible, you must prepare for a lower price upfront.
An easement in rem normally terminates on the death of the person in whose favour it was created. It is of course possible to cancel it by written agreement. After that, a petition for the deletion of the easement must be filed with the Land Registry.
Tip: We have written more about the purpose of an easement in a separate article.
In practice, we often also encounter a land easement that is connected to a specific immovable thing. This is, for example, an easement for energy networks or a road easement.
For example, if you own two properties and you want to sell one of them, but you share a common road and you want to avoid the potential complications of obstructing access to your land, you can experience a road easement.
Anavailable solicitor advises, ” If you are dealing with the sale of an older property, it is a process that has its own specifics. Check out our article discussing 9 things to look out for when selling an old family home.”
Selling a house that is mortgaged is not impossible either. Most often, the banks that have granted the owner a mortgage have a lien on the house. When selling a house with a mortgage, you must first inform the bank of the early repayment (at least 4 weeks before the sale) and ask them to calculate the loan. This should then be reflected in the house purchase contract.
Tip: The bank you have a home mortgage with must repay the loan. We are not aware of any examples where this has not happened.
If thebuyer has cash, the solution is the simplest – he sends the money to a bank or lawyer’s escrow, files a petition for the registration of the change of ownership, and at that moment the loan is paid to the bank. The rest of the purchase price remains in escrow. It only changes when the seller’s bank issues an expungement of the lien.
Tip: Make sure that the purchase contract clearly defines the procedure for deleting the lien.
In most cases, however, we find that the buyer has to deal with payment through their own mortgage. The procedure is similar to cash, but it takes a little longer in the case of a mortgage with another bank. If you’re figuring out how to sell a mortgaged house, read more in our article on liens.
If you are thinking of selling a share of the property, the ideal situation is to agree with the other co-owners to pay you the value of your share, or to sell the whole property to a third party and then split the purchase price of the house according to the value of the shares.
If the agreement does not work out, it is possible to resolve the co-ownership through the courts. The options for selling your share of the property are as follows:
Until 1 July 2020, the sale of a co-ownership interest in a house was complicated by the right of pre-emption, where you had to offer your co-ownership interest to the other co-owners first. We have discussed what the removal of the pre-emption right means for you when selling your property in a separate article.
The sale and purchase of a house in this case is governed by the Insolvency Act. Care must be taken to ensure that no liens or foreclosures are attached to the property after the transfer or auction.
When buying a house in insolvency, buyers should beware of:
Tip: We have discussed what your obligations are when you buy a property with a tenant in a previous article.
During the sale, it is practically not possible to use the usual forms of escrow (attorney, notary), so the payment is transferred to a special account of the insolvency trustee. Once the total price has been paid, the purchase contract is concluded and a proposal for the removal of mortgages and other legal defects on the property is submitted at the same time.
After this step, the title is registered in favour of the buyer and the insolvency administrator issues a certificate that the encumbrances can be removed.
Anavailable solicitor advises, ” Buying a house in insolvency is legally challenging. The expertise in the purchase contract is crucial. Avoid worrying and unnecessarily prolonging theprocess. We will tailor the housepurchase contract to suit your case.”
Put your legal actions in the hands of an experienced attorney. Selling a house with a share of ownership and an easement often brings complicated situations. We will solve your case within 3 days and prepare a complete contractual and legal service.
We provide a complete package of legal services related to real estate sales and purchases, including reservation contracts and escrow services. We will also help you with all tax and land registry issues. Our work is fast and accurate, ensuring a worry-free transaction. You’re also welcome to pay after services are provided.
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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