Selling a Building Lot—How to Do It Right?

Quick Overview

When selling a building lot, you will typically need, above all, up-to-date data from the land registry, information from the zoning plan, the correct designation of the lot in the purchase agreement, and a proposal to register ownership in the land registry. Before signing the contract, you should also check for easements, liens, foreclosures, rights of first refusal, and actual access to the land.

Before you begin selling the land, check the following in particular:

• who is listed as the owner in the land registry and whether there are two or more owners,
• whether the property is encumbered by easements, liens, or other restrictions,
• whether the land can actually be used for the intended construction according to the zoning plan,
• whether the property’s boundaries and area correspond to reality,
• how the purchase price will be paid and when the funds will be released to the seller.

If you don’t want to risk an error in the purchase agreement or during the transfer of funds, we can provide legal support for the sale of the building lot —from checking the land registry to registering the new owner.

Is a plot of land considered real estate, and why does that matter when selling it?

Yes, land is real estate, and its sale is subject to the same rules as other types of real estate. When selling land, it is necessary to take into account all registered encumbrances, such as easements, which can affect its value and use. Whether you’re selling a building lot or another type of land, check the land registry to ensure all information matches reality.

Why do we ask whether land is real estate? Because this definition has a fundamental impact on legal procedures. If you’re selling a plot of land, we recommend checking all the registered information in the land registry. You can also find details about plots of land and their legal status in the section on land easements.

Garden sheds present a very special situation; find out what to watch out for when selling a garden.

When does the right of first refusal apply when selling a building lot?

Before proceeding with the sale of land, verify whether a right of first refusal applies. Although this right was generally abolished as of July 1, 2020, land is one of the exceptions. However, this applies only to caseswhere a third-party structure stands on the land—that is, when each property (the land and the house) has a different owner. These situations often complicate the sale of building land because they increase the number of parties involved.

Such cases still exist because the Civil Code did not reinstate the Roman principle of superficies solo cedit (the surface yields to the land, i.e., the structure is part of the land) until 2014. Until then, it was common for the land and the structure located on it to be two separate entities, each of which had—and in some cases still has—a different owner.

The right of first refusal stipulates that if, under such an arrangement, one of the owners decides to sell, they are obligated to first offer the property for sale to the owner of the other object. In this way, the right of first refusal is intended to facilitate the gradual consolidation of all plots of land and the buildings erected on them. We discussed the right of first refusal and its revocation in more detail in one of our previous articles.

Don’t forget to check the building permit

We have already mentioned the principle of “superficies solo cedit,” which has been in effect again since 2014. According to this principle, a structure is always part of the land. However, there is an exception where the principle of the unity of land and structures does not fully apply. This is the so-called right to build, which allows a structure to be built on someone else’s land.

A building right is a subject of ownership and must be registered in the real estate cadastre. The right can be acquired, for example, through a contract or a decision by a public authority. It can then be transferred, inherited, or used as collateral.

The seller should know what type of land is involved

Land, arable land, parcel, building lot, garden… These are all terms we may encounter in connection with cadastral designations. What exactly do they mean, and how might they affect future use?

At first glance, two plots of land may appear identical, yet their values can be diametrically opposed. There can be many reasons for this, but the type of land is one of the most significant. The type is listed in the real estate cadastre; for information on permitted use, you’ll need to consult the zoning plan. There, you’ll find out whether the land is zoned for the construction of a single-family home. It is precisely this factor that then significantly influences the future price. This makes perfect sense—you won’t find many buyers who don’t plan to build a house or at least a vacation home. In some cases, it’s necessary to resolve issues such as removing the land from the agricultural land fund.

When reviewing the real estate cadastre and the zoning plan, it is also important to distinguish between “land” and “parcel.” These are not synonyms, even though many people think they are. “Land” refers to a clearly defined and bounded area. In this context, “boundaries” do not refer to fencing, but rather to the scope of property rights, the applicability of a zoning decision, and so on. A parcel, on the other hand, is a specific portion of a plot of land that is clearly delineated on the cadastral map and has a parcel number. Thus, a single plot of land may contain several parcels.

What is the situation regarding the sale of municipal land?

Purchasing municipal land offers several advantages. By selling a building lot, the municipality signals that it wants the land to be developed and should not stand in the way of issuing a building permit. Another advantage is often the low price, which is frequently justified by the municipality’s intention to support young families in purchasing their own homes. Of course, however, even this type of sale can become complicated ; one disadvantage is that the municipality is more constrained by internal regulations than a private seller.

An accessible attorney advises: “Be wary of informal promises made by the municipality regarding the rezoning of agricultural land to building lots through a zoning plan amendment. This is not a binding promise and can easily change— for example, with the election of new municipal leadership. You could end up with a garden valued as building land that remains a space on which you cannot build.”

Procedure for the Sale of Municipal Land

• Under the Municipalities Act, the intention to sell municipal land must be posted on the official bulletin board for a period of 15 days.
• After this period expires, the municipal council may approve the sale. To ensure that the approval cannot be challenged, the council must be properly convened and the meeting must be open to the public.
• The mayor or deputy mayor may then sign the land purchase agreement, which should include a clause stating that the intention to sell was duly announced and approved by the municipal council.
• The requirements for posting on the official bulletin board and approval by the municipal council also apply, for example, to a preliminary purchase agreement and all other documents related to the intention to sell the land.

The method of selling municipal land described above often has the drawback of attracting a large number of interested parties. You can therefore submit a written request to the municipal council expressing your interest in purchasing a parcel of land that has not yet been posted on the official bulletin board. If the council approves your request, the same procedure follows as in the previous case (with the buyer’s name specified). Keep in mind that council meetings are held approximately once every three months, so the land sale process may take some time.

A house newly built after the sale of a building lot

Easements—What Do They Mean, and Why Should You Be Aware of Them?

Easements, such as the right of way or the right to install utility lines, can significantly affect the use of a property. If you’re considering selling a property, be sure to check what easements are attached to it. When selling a building lot, it’s important to communicate this information transparently to avoid problems during the property transfer.

An easement can cause serious headaches

You must review the information in the land registry very carefully before completing a sale. For many of our clients, it was only by reviewing the purchase agreement and comparing the details with the land registry that we uncovered several shortcomings that could have derailed the entire sale or the subsequent use of the land.

It is always advisable to verify the exact area and location of the property. This is because fences do not always follow the actual parcel boundaries. Imagine the surprise when you discover that part of a fenced-in parcel does not belong to you at all, but to the municipality or one of your neighbors.

From the experience of Dostupný advokát: One of the typical complications in the sale of land is the discrepancy between what the seller has actually been using for many years and what, according to the land registry, actually belongs to them. That’s why we recommend not waiting to address property boundaries until the buyer or their bank points out a discrepancy. Checking the cadastral map before listing the property can save you complications when signing the contract and negotiating the purchase price.

You’ll also find all land easements listed in the land registry. In addition to standard easements —such as those for utility networks (for gas companies, water utilities, etc.)—you may also find encumbrances imposed by the municipality or your neighbors. This could include the right to use part of the land as an access road. However, we have even encountered a case where the right for a flock of sheep to pass through was registered in favor of the neighbors.

Are you buying land? Verify, verify, and verify again

Although the seller is generally responsible for the type of land, its accurate description, and verifying its size and easements, every potential buyer should verify all the information. You can obtain a title deed from the land registry (either online or in person at the office), which contains information about the owners, easements, and liens. Above all, verify the following:

• the property owner ( verify that you are dealing with the actual owner and that the property is not jointly owned by multiple people, all of whom would need to consent to the sale—joint marital property can also be an issue),
• easements,
• foreclosures,
• liens and rights of first refusal.

Not sure exactly what to look for in the title deed or cadastral map? We’ll review the legal status of the property before you sign the contract and alert you to any risks that could complicate the sale.

Only by conducting a thorough review can you be certain that the property is indeed the type declared and that no other unpleasant surprises will await you later.

Not only when purchasing land without utility connections, but in all other cases as well, it’s a good idea to visit the building authority, where they will provide you with zoning plans upon request.  This will allow you to determine whether the land is located in a flood zone or a protected area, how large a house you can build, and what construction is planned in the surrounding area. This will give you the assurance that no obstacles will stand in the way of building your house.

In addition to all the information mentioned above, you should also consider how you’ll access your future lot. The ideal solution is private access from a public road. It’s more complicated if you have to walk or drive across someone else’s property. In that case, you’ll need to address additional easements. Find out if a right-of-way easement has already been established, or insist that one be established before you make the purchase.

The Reservation and Purchase Agreements for the Land Are the Foundation

If you know the type of property and are familiar with all the details listed in the land registry, you can begin the actual transfer of the property. The procedure here is almost the same as for a house or apartment.

When selling, you must have a standard purchase agreement and, ideally, a reservation agreement as well. These protect both the seller and the buyer from any fraud that could end up costing a great deal.

The reservation agreement sets forth the rights and obligations of both the seller and the buyer even before the sale takes place. It also ensures financial compensation for both parties for any costs and time lost in the event of a breach of the terms.

The purchase agreement then governs the sale itself. Here, you need to expect minor differences compared to the sale of an apartment or house. Given the nature of the property, a purchase agreement for land is slightly different. Its exact wording is also influenced by the purpose for which the land is being acquired. Therefore, we strongly advise against downloading free templates from the internet, as these are always only general and incomplete, or may have been tailored for a completely different piece of land.

In the case of building land, an error in the contract can affect not only the transfer itself but also, for example, the terms of a mortgage or the payment of the purchase price. We can therefore prepare a purchase agreement for you tailored specifically to the land in question and the agreed-upon terms of sale.

Buying Real Estate and Financing It

While the seller is responsible for gathering all the necessary information about the property that must be taken into account during the sale, as well as preparing the contracts, the buyer should arrange for financing the property in a timely manner. Will you finance the purchase of the land with your own funds, or will you need to apply for a mortgage? In that case, you’ll need to secure the loan well in advance. Just keep in mind that a mortgage loan is generally only available for building lots, and before finalizing the loan, you need to consider whether you’ll take out a loan for the construction of the house as well, or just for the lot itself for now.

If you choose the first option, you must submit, along with the purchase agreement for the land, project documentation containing information about the planned construction of the house when applying for the mortgage. In any case, a lien is established in favor of the bank, which is governed by a contract signed between the seller and the bank itself.

Escrow Services for the Sale of Building Land Protect Against Fraud

Land is real estate just like any other property. Therefore, even when selling land, we do not recommend foregoing attorney escrow or another form of escrow. This involves transferring all funds (the reservation fee and the remaining portion of the purchase price) to a secure, separate account managed by an attorney, notary, or bank (depending on the type of escrow). This protects both the seller and the buyer, because at any given moment, neither party has full control over the property rights nor all the funds.

Once all funds are in escrow, an application for registration in the real estate cadastre can be filed. Only after the transfer of ownership rights are the funds released from escrow and transferred to the seller’s account.

We explored this and other related issues in more detail in our article on selling an apartment.

Land Transfer and Tax Obligations

The final point we should mention is the tax obligations that arise following the transfer of ownership rights.

The good news is that the real estate acquisition tax has been abolished. The tax amounted to 4% of the purchase price and was always paid by the buyer. However, as of 2020, you no longer need to worry about this tax, as it has been completely abolished ( effective March 31, 2020).

The seller pays income tax on the sale of land

Another tax—this one actually applicable to the seller—is the tax on the sale of land or real estate. This is essentially an income tax. The rate is 15%, but it is calculated based on the profit, not the sale price. The profit is the difference between the purchase price and the sale price of the property. The tax is included in the standard income tax return. However, many sellers are exempt from paying this tax. What exceptions apply when selling land?

• Income from the sale of land may be exempt from income tax, for example, if you meet the holding period requirement. For real estate acquired no later than December 31, 2020, the holding period is generally 5 years, while for real estate acquired on or after January 1, 2021, it is 10 years. For land inherited from a direct relative or a spouse, the period during which the decedent owned the property may also be counted toward this period.
• Under certain conditions, an exemption may also apply when the proceeds are used to acquire a home for personal use. However, the conditions must be assessed based on the specific situation and the date of acquisition of the land.

Sale of Land and VAT

If the seller is a VAT payer and the subject of the sale is a building lot, value-added tax equal to 21% of the property’s price must also be paid. Since 2016, the definition of “land” has once again been included in the VAT Act.

VAT on the sale of land is not payable in the following cases:

• The seller is not a VAT payer.
• The subject of the sale is not land intended for construction (building lot).

The buyer is subject to real estate tax

Upon acquiring the land, the buyer becomes liable for real estate tax. The tax is assessed based on the status as of January 1 of the relevant year. Therefore, if you purchase land during the year, you generally file the tax return by the end of January of the following year. In subsequent years, you generally do not need to file a new return unless circumstances relevant to the tax assessment change.

We have many years of experience in the sale of land and real estate in general

Are you planning to sell or buy land? We’ll make sure that everything proceeds smoothly from a legal standpoint. Our attorneys, with their many years of experience , will handle the preparation of all documents, the secure escrow of funds, and all other necessary formalities.

Whether you’re selling or buying land, keep in mind that selling a building lot requires careful preparation. Checking for encumbrances, such as easements, and verifying that the land matches the information in the land registry are essential steps. Pay attention to the details and make sure you understand exactly what it means for the land to be classified as real property.

Summary

The sale of a building lot begins with verifying the legal status of the lot, its boundaries, access, easements, and permitted uses under the zoning plan. This is followed by the preparation of the purchase agreement, the secure arrangement of the purchase price payment—typically through an escrow account—and the filing of an application to register ownership in the land registry. The seller should also review the potential tax implications of the sale in advance. So, if you’re figuring out what you need to sell a parcel of land, the most important thing is to ensure that the legal status and documentation are in order and that the transfer of both the land and the funds is precisely defined in the contract.