Category: Czech Republic

Internet traders, who have not yet managed to recover fully from the effects of the GPDR on their activities, are already facing another regulation likely to have a significant impact on technical solutions used in the operation of Internet businesses. In March 2018, Regulation (EU) 2018/302 (the “Regulation”) was adopted, the purpose of which is to solve so-called “unjustified geo-blocking” by removing certain obstacles to the operation of the internal market and by preventing discrimination based on nationality, place of residence, or place of establishment in cross-border online transactions.

Paradoxically, the Regulation does not apply to the provision of multimedia content, allowing traders to apply different conditions – including different prices – for identical or similar services in different EU Member States. In its Preamble, the Regulation acknowledges that differences in EU Member States’ legislation continue to represent significant barriers to cross-border trade. In the case of the Czech Republic, a language barrier poses a further obstacle to cross-border trade.

The Regulation, which will enter into effect on December 3, 2018, deals with three primary issues: (a) access to (online) interface of an e-shop; (b) a prohibition against offering different terms of business for customers from various countries of the EU; and (c) a prohibition against discriminating for reasons relating to payment for goods or services.

Access to Online Interfaces

The Regulation prohibits Internet traders from blocking or limiting (whether by technical or other means) a customer’s access to the trader’s e-shop’s online interface for reasons related to the customer’s nationality, place of residence, or place of establishment. Redirection of a customer to a different language version of the e-shop is also prohibited for the same reasons, unless the customer has explicitly consented to that redirection in advance. Therefore, automatic redirection of a customer to a different language version of an e-shop without the customer’s consent will be prohibited. The Regulation also provides that even when the customer provides explicit consent for the redirection, the version of the trader’s online interface to which the customer initially sought access will remain easily accessible to that customer. It is, in particular, compliance with this obligation that may mean that multi-language e-shops will have to change the technical arrangements of their user interface.

Access to Goods or Services

The Regulation also prohibits using different terms of business for customers from different countries of the EU. In particular, it states that a trader shall not apply different general conditions of access to goods or services for reasons related to a customer’s nationality, place of residence, or place of establishment. This means, for instance, that if a customer from Austria orders a delivery of goods to an address in the Czech Republic, a Czech trader may not apply conditions for that delivery that are different than those it offers Czech customers. The Regulation expressly states that mere compliance with this prohibition of discrimination by a trader should not lead traders to specifically aim their activities at Austrian customers. It is known that the question of which country a trader aims its activity at may be very important for determining in which country the trader can be sued, as well as for the choice of applicable law in the relationship between the customer and the trader. Ensuring equal access to goods and services will not require in this case that the trader  comply with obligations prescribed by Austrian law, or that the trader has a duty to inform customers of these requirements.

Non-Discrimination for Reasons Related to Payment

The Regulation also prohibits discriminatory conditions relating to payments for goods or services. In particular, if the requirements specified in the Regulation are met, traders may not, within the range of means of payment they accept, apply different economic conditions for individual customers for reasons “related to a customer’s nationality, place of residence, or place of establishment, the location of the payment account, the place of establishment of the payment service provider, or the place of issue of the payment instrument within the Union.”

By Josef Aujezdsky, Partner, eAdvokacie 

This Article was originally published in Issue 5.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

When acquiring a company owning real estate or an independent property, a check of the seller’s title to the real estate is an integral part of the due diligence process. The scope of the due diligence that is necessary is about to be narrowed.

The new Czech Civil Code (NCC) and the new Czech Cadastral Act will have an impact. The NCC enshrines the principle of material publicity, which protects the good faith of the buyer registered in the Land Register. Under Section 984 (1) of the NCC, where the status registered in the public register does not correspond with the actual legal status, the registered status will be in favor of the person who acquired the right in rem in good faith from the person authorized to do so according to the registered status.

Several conditions have to be met in order to become the rightful owner of real estate, even if this right is acquired from an unauthorized person. 

First, there must be a discrepancy between the actual status and the status registered in the Land Register – e.g., due to a non-book entry or lapse of the right, an initial absence or additional failure of the legal basis for the claim of ownership, or an incorrect entry.

Second, the acquisition of the real estate must be based on a legal act: namely, an act for a consideration. The provision does not protect other acquisition options, such as inheritance, donation, or auction.

Finally, the most important condition is the buyer’s good faith in the accuracy of the data in the Land Register. The buyer shall be considered to be in good faith unless he or she did not know and could not have known upon exercising a usual degree of caution that the person registered in the Land Register did not have title to the real estate. 

Therefore, if there are no legal defects arising from the entry in the Land Register or any other entry indicating such defects, the buyer is not obliged to check the acquisition titles and other documents in the Collection of Deeds of the Land Register or to find the restitution claims, etc.

Although Section 984 of the NCC does not make this explicit, a negative condition must also be fulfilled in order to acquire real estate from an unauthorized person; namely, that the actual owner has not filed a so-called “discrepancy note” or a note on the disputability of a registration pursuant to Sections 985 and 986 of the NCC.

Put simply, if more than three years have lapsed since the seller registered title to the real estate in the Land Register, and if it is not apparent from the extract or other records that the title has been challenged, the title of a buyer who is in good faith at the time of purchase cannot be questioned.

However, buyers may lose their right if the three-year period has not yet expired, even if they were in good faith at the time the real estate was acquired. This only happens when the original owner who disputes the registered status in the Land Register has not been properly informed about the registration in favor of the seller.

In practice, the following alternatives may occur during the due diligence of title to real estate:

If a buyer purchases real estate from a seller whose right was entered in the Land Register before the NCC came into force – i.e., before January 1, 2014 – the three-year period for seeking the disputability note expired on December 31, 2017. After that date, all real estate buyers who acquired the right in rem for a consideration from the seller in good faith in the entry in the Land Register shall be protected.

If a buyer purchases real estate from a seller whose right was entered in the Land Register after the NCC came into force, and the three-year period has expired and the potential buyer is in good faith that the seller’s entry is correct, then the potential buyer will become the rightful owner of the real estate, and the previous acquisition titles do not need to be checked.

Thus, after January 1, 2018, the scope of the due diligence of the seller’s title to the real estate prior to its acquisition can be narrowed to a check of the data in the extract from the Land Register and, for example, a check of donated or inherited real estate or restitution claims.

By Martin Kubanek, Managing Partner, Schoenherr Prague 

This Article was originally published in Issue 5.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

I started my legal career back in 1993 as a student clerk, and over the past 25 years I have literally grown up with the firm. I’ve had the pleasure of advising clients during some of the most exciting periods in Czech history – from the “Wild Wild East” of the nineties, to EU accession, through the global financial crisis and recovery.

Looking back at the last 25 years, here are a few observations about what the transformation of the Czech market means to us as lawyers.

A Crowded Playing Field

In 1991, there were three international law firms in the Czech Republic, so as one of my first mentors said, each of us had a 33% chance of winning. Life was easy. No one was looking at costs, hourly billing was the only thing clients knew, and no one counted the hours.   

Since then, many firms have come and gone, and today there are over 40 Chambers-ranked law firms in the Czech Republic, all fighting for a piece of the pie. 

What separates the successful firms from those that fade away? First, you’ve got to be good. If you deliver value, clients will keep coming back. Second, you have to be dedicated. The firms which have survived are those which remained committed to the Czech market and kept going through the ups and downs of the economy. Finally, you need to be flexible and find ways to deliver services better, faster, and cheaper. 

24/7 Lawyering

It’s hard to imagine how we survived before smartphones, but in some ways our lives as lawyers were simpler then. In the early nineties, no one in his right mind thought of giving legal advice by email. A fax came in on Monday, confirmation was sent on Tuesday, work was done the day after and sent to the client on Friday. In between, lawyers had plenty of time to think, discuss, bill time, and enjoy life.  

Today, all this happens within hours, if not minutes. I have a client who forwards me an internal message with a question mark and expects to hear back within five minutes. If he doesn’t get a response, he sends two question marks, sometimes followed by an exclamation mark.   

Clients expect us to be available 24/7, and they want an answer right away. As one of our clients said recently, “the worst thing a lawyer can do is say it cannot be done.” As lawyers at reputable firms, clients already assume we are good. Often what makes the difference between winning and losing is how fast we respond.

Knowing Where to Look

After the revolution, the laws in the Czech Republic were relatively easy to navigate, understand, and interpret. But as a result of legal reforms, Czech law has swelled up like a sponge and is often so complex that even some judges get lost. If you add the cross-border element into the mix, it is clear that practicing law today is significantly harder than it was before.

So do you need a photographic memory to be a good lawyer? No, but you do need a solid foundation of basic legal knowledge. You also need to know where to go to find information. That often means reaching out to a colleague in a different office or practice who has the knowledge your client needs.  

Finding the Right Motivation

For law school graduates in Prague in the nineties, working for a large international law firm was the holy grail. Influenced by movies like “The Firm” and “The Devil’s Advocate,” we were keen to jump into private practice. Working long hours made us feel closer to Wall Street. We wanted to save the world and get paid for it.  

Now, young lawyers want a more balanced life; they want to start families, and they don’t necessarily need to get rich. This is not laziness, as many of my generation claim – lawyers today have to work faster and deal with more complexity than ever before. Rather, they have different priorities and more choices, so they can afford to be picky. In addition to having more law firms to choose from, being a judge or a general counsel with a major corporation are now dream jobs for many young lawyers.  

Good people are harder to find, so our job as leaders is to inspire and motivate them. In my experience, the best motivation for talented lawyers is still the chance to do interesting work for great clients, and the opportunity to learn from the best.

Love What You Do

As JFK said, “change is the law of life, and those who look only to the past or the present are certain to miss the future.”  As lawyers, we need to be open to change, but at the same time, keep doing what we do best and have fun doing it.  

Perhaps in the end, all we need to do is keep trying to save the world and get paid for it.

By Ladislav Storek, Managing Partner, Dentons

This Article was originally published in Issue 5.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

It has been more than four years since new legislation revolutionizing Czech private law came into effect, mainly through the adoption of a new Civil Code. Among the most affected industries was real estate, traditionally a very strong investment sector on the Czech market. How has life been since this revolution?

Good Faith as a Condition

The flagship of the new regulation was the strengthening of good faith in the registration status in the Real Estate Register, and the resulting increase in certainty within legal dealings. Thus, whoever is registered in the Real Estate Register as the owner or beneficiary of a certain right is regarded as the rightful owner or beneficiary of that right, provided the right was acquired in good faith and for consideration. With that, acquisition from a non-owner became possible.

This principle has been welcomed,by buyers and investors. Of course, registration status may not always reflect actual ownership status. Owners therefore must pay more attention to the status of registration in the Real Estate Register and dispute any wrongful registration by filing a law suit and ensuring entry of a dispute note within the time periods set by the Civil Code, which can be up to three years. As a result, due diligence has changed in scope significantly, and it is not rare for buyers, banks, or investors to rely only on the information registered in the Real Estate Register, or to instruct their lawyers to examine acquisition titles going back only three years, instead of the previously-standard examination period of ten years.

New Real Estate Instruments

The new Civil Code has also brought back the principle that the building forms part of the land (superficies solo cedit), thus uniting the previously impractically divided ownership of the building and the land. Shortly after the new law came into force, the Real Estate Register carried out a convenient automatic unification of land plots and buildings in the ownership of one and the same owners where such unification was possible (e.g., when no right in rem registered to the land or building prevented the unification). Where the ownership can not be unified because there are different owners of the land and building, a preemption right between the owners exists. 

Together with the unification of ownership, a new right in rem – the right of construction – has been introduced, allowing non-owners of land to build and place a building on foreign land on the basis of another legal title, along with lease or easement. Despite the right of construction being restricted in its duration to 99 years and being established on the basis of an agreement with subsequent registration in the Real Estate Register, it has been taken into account by banks and investors and included in the finance structures of transactions. Other newly introduced instruments – including the negative pledge and the prohibition on transference and encumbrance having effects towards third parties – have also been welcomed and used widely, especially by banks or private investors, allowing for better structuring and securing of the financing despite the nature of the instruments not being a security in the strictly legal sense of the word (i.e. having an accessory relation to the secured debt).

Good Acceptance on the Market

The market has responded positively to the new legislation. Owners, asset managers, investors, and banks have welcomed the new instruments, which enable them to better react to the specifics of each transaction. We now have more tools to manage, secure, and in general make better use of real estate. As a result, we have greater freedom – but also more responsibility – when structuring a project or a transaction, regardless of its size. 

Naturally, the lack of case law relating to the new instruments prevents us from predicting with certainty how these instruments will be interpreted by the courts. When we hear talk of the future, we mostly hear that technology will dominate every possible area of life. Therefore, it may be that due diligence or valuations of real estate will be carried out by robots, and that transfer and construction agreements will be drafted by automated software. Regardless of how judges’ opinions and artificial intelligence shape the future, real estate will remain what it has always been – a solid, palpable asset worthy of being legally right and well secured.

By Erwin Hanslik, Managing Partner, Ivana Menhartova, Senior Associate, Taylor Wessing Prague

This Article was originally published in Issue 5.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.