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Selling building land – how to do it right

Selling or buying land is no longer a matter of a few thousand crowns. Today, land values are in the millions. Therefore, it is necessary to pay enough attention to the sale and purchase and not to underestimate the security of the individual legal steps. In today’s article, we will be looking at the process that awaits every seller or buyer.

14 minutes of reading

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.

Chapters of the article

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

Before the actual start of the sale, the landowner should check whether the so-called pre-emption right applies in his or her case. Although this has generally been abolished as of July 1, 2020, land is one of the exceptions. However, this is only the case where the land is occupied by another’s building, i.e. where each of the properties (land and house) has a different owner.

There are still such cases, as the Roman principle of governing land ownership, or superficies solo cedit (the surface gives way to the land, i.e. the building is part of the land), was only restored by the Civil Code in 2014. Until then, it could commonly happen that the land and the building on it were two separate objects, each of which had, and in some cases still has, a different owner.

The right of pre-emption provides that if, under such a regime, one of the owners decides to sell, he or she is obliged to first offer the property for sale to the owner of the other building. In this way, the pre-emption right should help to gradually consolidate all the land and the buildings built on it. We have discussed the pre-emption right and its abolition in more detail in one of our previous articles.

Don’t forget to check the right of construction

We have already mentioned the principle of superficies solo cedit, which has been in force since 2014. According to this principle, a building is always part of the land. However, there is an exception where the principle of unification of land and buildings doesn’t quite apply. This is the so-called right to build, which allows a building to be erected on someone else’s land.

The right of construction is subject to property law and must be registered in the Land Registry. The right can be obtained, for example, on the basis of a contract or a decision of a public authority. It can then be transferred, inherited or used for the purposes of a mortgage.

The seller should know what type of land it is

Land, arable land, plot, building plot, garden… These are all terms we may encounter in connection with cadastral designation, or the Land Registry. What exactly do they mean and how can they affect future use?

At first glance, two identical parcels of land, but the values can be diametrically different. There can be many reasons for this. However, the type of land is one of the most significant. The type is indicated in the Land Registry, for information on the functional use, the zoning plan should be consulted. There you will find out whether the land is intended for the construction of a family house. It is this variable that then significantly influences the future price. It is perfectly logical – you will not find many buyers without the ambition to build a house or at least a holiday home. In some cases, it is necessary to resolve, for example, the removal of land from the agricultural fund.

When reading the land register and the zoning plan, it is also necessary to distinguish land from a plot. They are not synonymous, although many people think they are. Land is a clearly defined and bounded surface. The boundary in this case does not mean a fence, but rather the extent of property rights, the scope of the zoning decision, etc. A parcel is then a specific part of land that is clearly delineated on the cadastral map and has a parcel number. Thus, there may be several parcels on one piece of land.

What about the sale of municipal land?

Buying municipal land has several advantages. By selling building land, the municipality indicates that it wishes to see it developed and should not prevent the issuance of a building permit. There is also the advantage of a low price, which is often justified by the intention to support young families in acquiring their own home. Of course, this sale can also be complicated, but the disadvantage is that the municipality is more bound by internal rules than a private seller.

An available solicitor advises, “Beware of informal promises by the municipality to convert agricultural land to building land with a zoning change. This is not a binding promise and can easily change, for example, with the election of new municipal leadership. You could find that a garden with the value of building land remains a space you cannot build on.”

Procedure for the sale of municipal land

  • According to the law, the intention to sell municipal land must be published on the official board for 15 days.
  • After the expiry of the deadline, the sale may be approved by the council. In order not to challenge the approval, the council must be duly convened and open to the public.
  • The mayor or deputy mayor may then sign the land purchase contract, which should include a clause stating that the intention to sell has been duly notified and approved by the council.
  • For example, the future contract of sale and any other documents related to the intention to sell the land are also subject to the obligation to be notified on the official board and approved by the council.

Tip: To ensure the validity of the purchase contract, we recommend attending the council meeting to ensure that everything has been done properly.

Dům nově postavený po prodeji stavebního pozemku
House newly built after the sale of the building plot

Logically, the above described method of selling municipal land often has the disadvantage of a large number of interested parties. You can submit a written request to the municipal council yourself, expressing interest in buying a plot of land that is not yet on the official board. If the council approves your application, the same procedure as in the previous case (only with the buyer’s name) is followed. Please note that the council meets approximately once every three months, so the process of selling the land may take longer.

Land easements can be a real pain

The data at the land registry must be examined very carefully before the sale takes place. For many of our clients, just by checking the purchase contract and comparing the data with the land registry, we have discovered several shortcomings that could ruin the entire sale or subsequent use of the land.

It is always advisable to check the exact size and location of the land. Fences do not always follow the actual boundaries of the plots. It can come as a surprise when you find out that part of the fenced plot does not belong to you at all, but rather to the municipality or one of the neighbors.

You will also find all land easements in the Land Registry. In addition to the standard ones, which include utility easements (for gas and waterworks, etc.), you can also find easements from the municipality or your neighbors. This can be the right to use part of the land as a driveway. However, we have also come across a case where a right of way for a flock of sheep has been registered in favor of the neighbors.

Buying or selling a building plot? We will take care of everything necessary

Taking care of all the legalities when buying or selling land is no easy task. It only takes a small mistake and you’re in big trouble. Don’t risk time, money or your future home. Leave the legalities to us and focus on more pleasant things.

You’re buying land? Verify, verify and verify again

Although it is more the responsibility of the seller to check the type of land, its correct description, or check the size and easements, every potential buyer should verify all the information. You can obtain the title deed from the Land Registry (online or in person at the office), which will give you information about owners, easements or mortgages. Above all, check:

  • the owner of the land (check that you are dealing with the real owner and that the land is not owned by more than one person who would all have to agree to the sale – community of property can be a problem),
  • easements,
  • foreclosures,
  • liens and pre-emption rights.

Only if you carry out a thorough check will you be sure that it is really the type of land declared and that there will be no other unpleasant surprises waiting for you later.

Not only if you are buying a plot of land without built utilities, but also in all other cases a visit to the building office will be useful, where you will be presented with regulatory plans on request.  This will help you to find out if the land is in a flood plain or protected area, how big of a house you can start building and also what is planned for development in the area. This will ensure that no obstacles come between you and the construction of your house.

In addition to all of the above, you should also be interested in how you will get to your future property. The ideal solution is to have your own access from a public road. It is worse if you have to walk and drive through someone else’s land. This has to be covered by other easements. Find out if a walking easement is already in place, or insist on one before you buy. 

The reservation and purchase contract for the land are the basis

 If you know the type of land and all the details listed in the Land Registry, you can start the actual transfer of the land. The procedure here is almost the same as for a house or apartment.

The sale must be accompanied by a standard contract of sale and preferably also a reservation contract. This protects both the seller and the buyer from any fraud, which could be very expensive.

The reservation contract addresses the rights and obligations of both the seller and the buyer before the sale takes place. And it ensures both parties are financially compensated for costs and time in the event of a breach of terms.

The purchase contract then handles the sale itself. There are some minor differences from the sale of an apartment or house. A land purchase agreement is slightly different due to the nature of the property. And its exact wording also affects the purpose for which the land is acquired. Therefore, we certainly do not recommend downloading free templates from the internet, which are always too general and incomplete, or tailor-made for a completely different plot of land. 

Buying property and its financing

While the seller is waiting to find out all the necessary information about the property that needs to be taken into account during the sale or to prepare contracts, the buyer should sort out the financing of the property in time.

Will you be financing the purchase of the property from your own resources or will you need to apply for a mortgage loan. In this case, the loan should be sorted out in time. Just bear in mind that a mortgage loan can usually only really be taken out for the building plot and before the settlement you should consider whether you will also take out a loan for the construction of the house or just separately for the plot for the time being.

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

Attorney’s escrow protects against fraud when selling a building lot

Land is a property like any other. That’s why we don’t recommend skipping the attorney’s or other escrow for the sale of land. This involves transferring all funds (the reservation fee and the remaining value of the purchase price) to a secure and separate account held by a solicitor, notary or bank (depending on the type of escrow). This protects both the seller and the buyer, as no one has ownership rights or all the funds at any one time.

Once all the funds are in escrow, it is possible to apply for registration in the Land Registry. Only after the transfer of ownership is completed, the escrow money is released and sent to the seller’s account.

This is not the only issue we have discussed in detail in our article on selling an apartment.

Land transfer and tax obligations

The last point we should mention is the tax obligations that follow the transfer of ownership itself.

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.

The seller pays income tax on the sale of the land

The next tax, but this time already in force, that applies to the seller is the tax on the sale of land or immovable property. This is actually an income tax. The rate is 15%, but it is calculated on the profit, not on 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. Which exemptions do we recognize when selling land?

  • The seller has been the owner for at least 5 years (if the seller inherited the land in a direct line, there is no need to wait for the five-year period to expire), or
  • the seller uses the proceeds to meet his or her own housing needs, within one year at the latest. Satisfying the need means not only the purchase of the apartment, house or land, but also the renovation.

Sale of land and VAT

If the seller is a VAT payer and the subject of the sale is a building plot, VAT of 21% of the property price must be paid. Since 2016, the definition of land has been reinstated in the VAT Act.

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

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

Property tax awaits the buyer

 The next tax should be of interest to all buyers. This is property tax and is paid once a year by every property owner. New owners must register for the tax by filing a tax return by January 31st of the same year for which the tax is payable.

The taxpayer is the person who owns the property on January 31st. In subsequent years, it is no longer necessary to file a tax return again, only to pay the tax itself. The tax office will ask you to pay the tax itself.

We have many years of experience with land sales and real estate in general

Are you planning to sell or buy land? We will make sure that everything is legally in order. Our attorneys with many years of experience will make sure that all documents are prepared, money is safely deposited and other necessary details are taken care of.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

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.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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