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 safety of the individual legal steps. In today’s article, we will be looking at the process that awaits every seller or buyer.
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.
Before the actual start of the sale, the landowner should check whether the so-called pre-emption right applies. Although this has generally been abolished as of 1 July 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 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.
Tip: Are you considering a land donation? Read one of our previous articles.
We have already mentioned the principle of superficies solo cedit, which has been in force again 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 building right is subject to property law and must be registered in the Land Registry. The right can be acquired, 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.
Land, arable land, plot, building plot, garden… These are all terms we may come across in connection with cadastral designation. What exactly do they mean and how can they affect future use?
At first glance, two identical pieces of land, but the values can be diametrically opposed. 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 you need to consult the zoning plan. 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. There may therefore be several parcels on one piece of land.
Tip: We have discussed the permits and consents required for building on land in a previous article.
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.
Anavailable solicitor advises, “Beware of informal promises from the council about converting agricultural land to building land with a change of zoning. 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 on which you cannot build.”
Tip: To ensure the validity of the purchase agreement, we recommend attending the council meeting to ensure that everything was done properly.
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 application 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.
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. The fences do not always follow the actual boundaries of the plots. What a surprise when you find out that part of the fenced plot does not belong to you at all, but to the municipality or one of the neighbours.
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 neighbours. 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 favour of the neighbours.
Buying or selling a building plot? We will take care of everything you need
Keeping track of all the legalities when buying or selling land is not an easy task. It only takes a small mistake to get into a big trouble. Don’t risk time, money or your future home. Rather, leave the legalities to us and focus on more pleasant things.
I want help with a land transfer
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:
Only if you carry out a thorough check will you be sure that it is really the type of land declared and that there are 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 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.
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 covers 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 definitely do not recommend downloading free templates from the internet, which are always only generic and incomplete, or tailor-made for a completely different plot of land.
Tip: Read the story of our client Jindřich Krčmar and his apartment reservation contract.
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 on 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 favour of the bank, which is regulated by a contract signed between the seller and the bank itself.
Land is real estate like any other. Therefore, we do not 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 the sale of an apartment.
Tip: Selling a property and want to make sure you get paid for it? Then, first of all, you need to contractually arrange the mechanism for payment of the purchase price. This is ensured by a lawyer’s escrow. You can read exactly how it works in our article.
The last point we should mention is the tax obligations that follow the transfer of ownership itself.
Thegood news is the abolition of the property tax. The tax was 4% of the purchase price and was always paid by the buyer. However, from 2020, you no longer have to deal with this tax as it has been abolished completely (the decisive date is 31 March 2020).
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 recognise when selling land?
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:
Further tax should be of interest to all buyers. This is property tax and is paid once a year by each property owner. New owners must register to pay the tax by filing a tax return by 31 January of the same year for which the tax is payable. The taxpayer is the person who owns the property on 31 January. 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.
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.
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.
In person and online. Just choose the appropriate service or opt for an independent consultation when you are unsure.
