Category: Czech Republic

An interview with Tristan O’Connor of CMS, about his path from Australia to Czech Republic.

CEELM: Run us through your background, and how you ended up the in the Czech Republic.

O’Connor: I’m an Australian qualified lawyer. Before coming to Europe, I worked at a boutique law firm in Sydney for three years doing transactional work. I wanted to get some international experience so I contacted a recruiter who came back with a suggestion to work in the Czech Republic. My younger brother had previously done some medical training in Prague and was very positive about his time here. I did some background research on the position and the firm and came across Helen Rodwell, our Managing Partner, who struck me as being very impressive woman with an impressive profile. I was lucky enough to meet Helen in Australia and after completing a few interviews and an exam I decided to accept the position and move to Europe in August 2019.

I had never travelled to Central and Eastern Europe before landing here. My first impressions were great, it was a rush. Part of the reason I came to Europe was to work on some of the bigger transactions and this happened almost immediately.  Within the first week or so we started working on an large acquisition in the pharma space with a high enterprise value, much bigger than anything I had previously worked on.

I also spent some time working in our Kyiv office and travelled between the Czech Republic and Ukraine. It was an exciting time for me, getting exposure to two different cultures in two countries and I found it all very interesting. At the time I didn’t know anyone who had travelled to Ukraine before. I’m really happy to be working in Prague now.  I’m in a good team and it’s a fantastic city. 

CEELM: Was it always your goal to work outside of Australia?       

O’Connor: I was always interested in other cultures and working in different countries. I had lived in Japan and Thailand before and really enjoyed the experience. For a transactional lawyer, Australia is a great market with a lot of interesting work. But the deal sizes are smaller and, as you might expect, cross-jurisdictional work can be a bit harder to come by. Here, I’ve had a chance to work on deals across multiple jurisdictions, from Germany to Russia and everything in between. It would be difficult to replicate that experience in the Australian market.         

CEELM: How would clients describe your working style? What about management style? How do you think it varies from the “common” Czech one, if at all?

O’Connor: I think, and it’s true of CMS in general, that we’re attentive and responsive to our client’s needs. So I hope our clients describe our working style in this way. I find it easy to chat and get along with people, so I guess clients might find me friendly and conversational. 

An important part of my role here is project coordination.  We work with specialised local teams in different countries and try and harness their expertise to achieve a result. Australians are generally pretty outgoing and proactive communicators.  Because a lot of our work takes place across multiple jurisdictions, I think this approach really helps.  Being a good communicator, being able to work with different personalities and get along with people from different countries, that’s an important part of what I do here. I guess Australians can be pretty relaxed too, so maybe this helps dealing with some of the pressure that comes with M&A work. 

CEELM: Are there any significant differences between the Australian and Czech judicial systems and legal markets? Which stand out the most?

O’Connor: I guess because Australia has a common law system and the Czech Republic’s is civil law based, you would expect to find significant differences. And sometimes there are differences. It’s a relatively minor one, but it took some time getting used to the different document formalities and certification processes over here, which changes with each jurisdiction. But actually the transactional law concepts are surprisingly similar between Australia and the Czech Republic. Conceptually I think if you can do a transaction in Australia or the UK, you can do it in the Czech Republic.  Of course it helps if you have a really good team of Czech lawyers, which we do.  Being familiar with common law principles can be handy because a lot of the transaction documents we work with are governed by English law.

As for the legal market differences, there is a cross-border flavour to the work we do here. I find that compelling and, given the Czech Republic is a key regional jurisdiction, we get quite a lot of this kind of work. Enterprise values are larger and the deals are bigger here, which comes with added pressure and complexity. 

CEELM: How about the cultures? What differences strike you as most resonant and significant?    

O’Connor: I think in Australia we’re a little bit more laid back. It might be easier to strike up a conversation with someone in a café or bar in Australia. Here, sometimes you need a degree of familiarity before you engage someone in conversation. On the other hand, Czechs have a quirky sense of humour which I really like and an outstanding work ethic, whether it’s at work or on the sporting field. And at the end of the day, we both enjoy having a beer and a chat.  So we might have more in common than not. 

CEELM: Do you have any plans to move back to Australia?

O’Connor: I do. I will always think of Australia as my home. But I don’t have any current plans of moving back, so I guess you could call it an indefinite arrangement. Covid has made it a bit more difficult to travel back home, with Australia essentially shutting its borders, and I haven’t been back since moving here. I’m sure my nieces and nephews have grown a head taller since I’ve last seen them. But Prague is a beautiful city; visually it’s amazing, it’s just the right size for me, and it’s generally just an easy place to live. So that helps. 

CEELM: Outside of the Czech Republic, which CEE country do you enjoy visiting the most, and why?      

O’Connor: That’s a tough one. I really enjoyed being in Kyiv. I’m interested in World War Two history, and there’s quite a bit of that in CEE. They’re some great museums in Kyiv and I really liked Lviv, which is a little town in the west near the Polish border. I’ve been to Poland to see some historical sites as well, which was great.  And I’ve just returned from Budapest. I really enjoyed the vibe of the Seventh District in Budapest, with all the cafes and pubs.  It reminded me of Berlin. And I liked the House of Terror museum there too. So, if I had to pick, I’d say Ukraine as a country, but probably Budapest as a city. Prague is still my favourite though. That’s an easy one. 

CEELM: What’s your favorite place to take visitors in Prague? 

O’Connor: If you’re doing just the one thing in Prague, then you’d have to go across the Charles Bridge and make your way up to the castle. But if you’re just going out for a few drinks, you can’t go wrong with Naplavka – it’s a trendy bar district, with boats moored on the river so you can move from one boat to the next.  It always makes for a great evening out in Prague.

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On January 1, 2021, an amendment to the Czech Companies Act came into effect, which brought many minor and major changes to the current life of business companies in the Czech Republic.

The amendment gives companies an opportunity to revise their memoranda and articles of association to comply with the new regulations, within one year of the effective date. Nevertheless, some changes are applicable to companies immediately upon the amendment coming into force.

Besides correcting some ambiguities and inaccuracies in the law applicable until the end of 2020, the amendment introduced some new concepts of corporate law, while changing and amending others already firmly fixed in practice today. In this respect, we would like to introduce you to the major changes affecting corporate life, that companies operating in the Czech Republic must be aware of.

Distribution of Profit and Other Equity Funds

On the distribution of profit and other equity funds, the legislature has granted the requirements stemming from legal practice and reflected some conclusions from judicial decisions. As a result, the amendment permits the distribution of profit and other equity funds throughout the entire accounting period. At the same time, the rules governing the limits on the distribution of profit and equity funds payments have been unified and tightened.

One-Tier Joint-Stock Companies

The most visible changes include those affecting joint-stock companies with a one-tier corporate governance structure. Under the new rules, the management board is the only mandatorily established body, combining the powers of the statutory director and the management board. In this context, as of January 1, 2021, the function of statutory director ceased to exist, and all executive powers were passed to the management board. If there is no relevant provision in the company’s articles of association, each member of the management board is, therefore, entitled to represent the company on their own.

Changes in the Concept of a Business

Until the end of 2020, the transfer of a business enterprise or a part thereof, that would constitute a change in the current structure of the business or the company’s scope of business or activities, required the approval of the general meeting. At the same time, a concept has recently prevailed in court practice that such a part of a company’s business must be deemed to mean a branch. The amendment has diverted from these conclusions and expressly requires consent to be granted for the transfer of a material part of a company’s assets and liabilities, irrespective of whether or not these formally constitute a branch.

Restrictions on the Transferability of Shares and Interests

The amendment permits creating a pre-emptive right, a buyback right, and other rights with similar effects to rights in rem – these should be of a similar nature to easements made in the case of immovable assets.

Status of Members of Elected Bodies and Other Persons in a Similar Position

The changes also affect the rules governing the execution of service agreements and resignations. The amendment has expanded the liability for a breach of the duty of due care and diligence to apply to persons acting as members of an elected body, without being appointed as such – shadow directors. Material changes have been made to the rules governing executive body members’ exclusion from office by the court.

Legal Entity as a Member of the Executive Body

The amendment also imposes an obligation on legal entities that are members of a company’s elected body to appoint a specific individual as their representative to perform the function. Otherwise, the legal entity cannot be entered in the Commercial Register as a member of the elected body or, alternatively, the office of the member will cease to exist if a representative fails to be appointed within 3 months of the appointment or expiry of the office of the previous representative.

By Ondrej Florian, Partner, and Radek Wejmelka, Associate, Havel & Partners

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On May 25, 2018, the personal data protection rules in the Czech Republic were substantially changed. Regulation (EU) 2016/679 of the European Parliament and of the Council – the General Data Protection Regulation, or GDPR – became directly applicable law in all EU Member States, after a two-year transition period. Thus, the principles of personal data protection in the Czech Republic, the rights, duties, and processing requirements are regulated primarily by the GDPR. 

In order to adapt the legal system of the Czech Republic to the GDPR, the new Act No. 110/2019 on Personal Data Processing (PDPA) was passed and finally came into effect on April 24, 2019. The PDPA fully replaced the older Personal Data Protection Act (No. 101/2000, as amended). The PDPA contains provisions that functionally complement the GDPR. It also regulates the jurisdiction of the Office for Personal Data Protection and personal data processing for safeguarding the defense and national security of the Czech Republic. 

Since the GDPR became effective, the Register of Data Controllers maintained by the Office for Personal Data Protection had been terminated. Thus, any registrations or notifications to the Office for Personal Data Protection towards processing personal data in the Czech Republic are no longer required.

A significant derogation from the GDPR, related to the limitation of certain rights and obligations, is stipulated in Section 11 of the PDPA. Articles 12 through 22, on rights of the data subject, and, as far as relevant, also Article 5, on principles relating to the processing of personal data, of the GDPR shall apply, mutatis mutandis. However, compliance with the controller’s or processor’s obligations and exercise of the data subject’s rights, laid down in those articles, could be postponed – if this is necessary and reasonable in terms of scope, to safeguard a protected interest. These include (a) the defense or security interests of the Czech Republic, (b) public policy and national security, prevention, investigation, or detection of criminal offenses, (c) prevention, investigation, detection, and prosecution of breaches of ethics for regulated professions, (d) protection of rights and freedoms of persons, (e) enforcement of civil law claims, among others. If the controller or processor limits the rights or obligations in that way, it must notify the Office for Personal Data Protection of any such limitations without undue delay.

Besides the GDPR and the PDPA, there are also some other statutes which are relevant in the data protection context, in particular Act No. 480/2004 on Certain Information Society Services, as amended, Act No. 127/2005 on Electronic Communications, as amended, and Act No. 181/2014 on Cyber Security, as amended.

The Act on Certain Information Society Services includes rules regarding spam and other unsolicited commercial communications. Any commercial communications may only be sent if a clearly identified recipient has given valid consent in advance, prior to the receipt of said communication. Recipients shall have the option to withdraw their consent in each commercial communication addressed to them, usually reflected in the unsubscribe line found at the end of an e-mail. Alternatively, the sender may rely on the soft opt-in exemption, which presumes the customer’s consent. Thus, the controller may send commercial communications to its current customers, about its own similar products or services, provided that the customer may easily prevent the sending of such commercial communications, using either the unsubscribe line at the end of an e-mail or other opt-out versions.

The Office for Personal Data Protection is the central administrative authority in the field of personal data protection which, inter alia, provides consultations and informs the public of the risks, rules, safeguards, and rights in relation to personal data processing. The Office for Personal Data Protection also adopts statements, summary materials, and recommendations. Most recently, the Office for Personal Data Protection published, inter alia, the Summary Material related to the verification of identity and processing of personal data, the Statement on a Digital Green Certificate (CovidPass), and the Recommendations on mandatory employee testing.

By Michal Matejka, Partner, and Bohdan Zubac, Attorney, PRK Partners 

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The pandemic has transformed the Czech real estate market. While the residential and logistics real estate markets strengthened, the retail, tourism, and hotel sectors are among the worst affected. However, interest in investing in real estate has not waned as, in uncertain times, the purchase of real estate represents a safe place to park one’s funds and watch them appreciate. There has been no significant decline in property prices, even in the case of commercial real estate, as some investors had anticipated. The Czech market still lacks enough quality investment opportunities. The clear winner of this situation is the logistics segment. Our Prague office assisted in several transactions in the logistics segment, the largest being the purchase of 130 hectares of land intended for warehouse development, at one of the exits of the western D5 motorway. According to some real estate players, we can also expect increased interest in the industrial segment soon, including sale & leaseback transactions.

New Building Act

The new Building Act, approved by the Czech Parliament in July 2021, will enter into force on July 1, 2023. This is the most fundamental change to Czech construction law and construction management in the last 30 years and can significantly affect the real estate market and the speed of construction in the Czech Republic. Here are five key changes that the new Building Act will bring:

First, the new Building Act introduces a unified system of state building authorities, headed by the supreme building authority. This is a systemic change that resolves the fundamental problem of systemic bias, specifically the risk of local governments interfering in decisions on building permits. The emergence of a unified system of state authorities can prevent these cases. Another potential advantage is the uniform and predictable interpretation of building regulations.

Second, the new Building Act introduces a single joint building permit procedure, instead of the current zoning and building procedure, which can be described as one office, one procedure, one stamp. This is also related to the integration of some previously separate permits and opinions into a single decisive building permit. However, the decisions of the state monument care authority in the protection zone of a cultural monument and monument zone, the opinions of the fire brigade, and some others remain independent. The board of appeal will not be entitled to revoke and return a decision issued at first instance but will always have to make a final decision.

Third, spatial planning documentation at all levels will be acquired in a uniformly regulated process and must be prepared electronically. The largest cities – Prague, Brno, and Ostrava – will have the opportunity to issue their own building regulations.

Fourth, the new Building Act contains a detailed regulation of planning contracts, which provides municipalities and investors with greater legal certainty about their mutual obligations in the area of future land use, especially in the construction of public infrastructure. The municipality may stipulate the conclusion of such a contract in the zoning plan as a condition for the implementation of a certain construction plan. In the contract, the municipality may agree to take steps to change the zoning plan or, conversely, not to change it for a certain period of time. Investors may be required, for example, to participate in the construction of public infrastructure or other structures related to their intention, or to assume the costs of such construction, or to provide monetary or material benefits for land valuation by issuing spatial planning documentation.

Fifth, the new Building Act further tightens the conditions for the additional permit issued to buildings built without a building permit, or contrary to its terms. Besides meeting all other legal conditions, such a construction may be permitted only if the builder acted in good faith, i.e. they did not knowingly violate the law. Milder conditions will also apply if the construction has been legally permitted by law, but the permit has subsequently been revoked. In these circumstances, the building authority will approve the construction by a new decision, if it is proven in repeated proceedings that all legal conditions have been met. 

By Martin Kubanek, Office Managing Partner, Schoenherr Czech Republic

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

With Havel & Partners celebrating 20 years of existence this year, CEE Legal Matters spoke with Robert Nespurek, one of the firm’s founding Partners, to look back at the past two decades and the firm’s plans for the future.

CEELM: Congratulations on the anniversary! How are you planning to celebrate it?

Nespurek: With a big party! We are planning on throwing a get-together for the whole office at the start of September, in Prague. I’m hoping that hundreds of our colleagues will be there!

We have as many as 500 people, 250 of them lawyers and tax advisors, in our group, and everybody is invited!

CEELM: How did the firm first come to be? Who were the initial founders and how large was the team, at the beginning?

Nespurek: There were five founders back in 2001. Four of us worked in the Prague office of Linklaters, which is where I started in 1998. A year later another founder, Marek Vojacek, joined and yet another year later Jaroslav Havel, from another firm. Ondrej Petr, the fourth founder, was already at Linklaters when I joined them. The fifth founding partner was Jan Holasek, who came from Kocian Solc Balastik. Three of those founders are still with the firm, so the majority is still represented after all these years!

We started as a law firm cooperating with Deloitte and joined their then-forming legal network. This gave us a unique dimension to the business, cooperating extensively with the large consultancy firm. That cooperation remained in place until 2005 when we went fully independent. We had already grown to some 30 or 40 lawyers at the time and had started on our way to where we are now.

The fact that we stopped being a member of the Deloitte group meant that we could become even more entrepreneurial and were able to better manage the business – especially in the hard times of the 2008/2009 financial crisis. To be able to stick it out and turn our business into a large, full-service operation during those years – that was a major moment for us. And in the following years we became the largest law firm in the Czech Republic!

CEELM: What do you recall from year one after 2005? What were the highlights that stuck with you over the years?

Nespurek: On the one hand, it was the feeling of freeing ourselves from a larger organization. It was a big motivation moment for us, to take everything into our own hands and do things in the way that we really thought would work. It was a liberating feeling.

On the other hand, it was a lot of hard work. Everything we had done until that point, connected with Deloitte, required a lot of hard work to be replaced with other business.

The path we then embarked on was our international strategy. That led us to become one of the law firms handling the largest number of M&A transactions in the market, by 2007. A lot of that was thanks to us nurturing international cooperation with major law firms, mainly from the US, the UK, and Germany. This lasted until the financial crash when a lot of the M&A work dried up. After that, we really passed the stress test by quickly restructuring and diversifying into what we are today.

CEELM: Looking back at your 20 years of operations, what would you identify as the most important transactions for the firm?

Nespurek: One was, definitely, representing the Italian insurance conglomerate Generali on their combination with Ceska pojistovna from the PPF group, in 2008. From the perspective of strategic investment advisory, this was a shining moment for us.

The other one that comes to mind is the sale of the major food company Hame, which also took place in early 2008.

Both of these happened during the formative years of the firm and, looking back, both were landmark transactions. Such transactions transformed our corporate practice into a major force in the market and led to other major deals in our second decade.

CEELM: Similarly, what are the deals you are most proud of having worked on?

Nespurek: For me, it was the private equity deal when I represented KBC Private Equity on their acquisition of Novaservis, in 2005, and then assisted them on their successful exit, in 2007. This was something that definitely moved my career path closer to private equity and also venture capital work.

We continued with assisting some of the early private equity and VC funds in the Czech Republic on their transactions. A lot of those were technology-driven and that fueled my interest in the tech sector and technology law. I continued, especially after 2010/2011, setting up a dedicated IP/IT/Media group in the law firm, which was another turning point in my career with the firm.

Subsequently, we built one of the largest teams in the region for technology and IP, comprising some 40 lawyers nowadays, in the Czech Republic and Slovakia. We promoted three other Partners within the team and made it one of the largest business units in our firm, which just goes to show how serious the work we do is.

CEELM: Have you ever considered expanding to new markets, geographically?

Nespurek: We have become quite international in our outlook after 2005 and we continued down this path, especially after we turned into a full-service firm following the 2008/2009 crisis. We diversified from M&A into all other practice areas and have some of the largest teams in all of them.

We stick to the strategy of being the preferred independent firm for international transactions, utilizing our six offices in the Czech Republic and Slovakia. Also, as our clientele grew, our outbound international work has significantly increased – we have assisted clients in some 110 countries all over the globe. Nowadays, the amount of outbound and inbound international work we do is roughly balanced. We cover cases in a dozen languages and have no problems with handling multi-jurisdictional client work – about 70% of all our work has an international element to it!

So we chose to focus on quality in our home in the Czech and Slovak jurisdictions, rather than setting up foreign offices. And we are certain that, thanks to our size and business network, we can achieve maximum results for our clients in private as well as public sector work. And the extensive international network we have carefully built over the last 15 years makes sure we can achieve the same for our clients abroad, thanks to our great partners.

CEELM: What about the team? How has it evolved over the years, and how do you imagine it will continue to do so?

Nespurek: When we were a small law firm, by being ambitious, by growing, by having an international strategy, we managed to attract a lot of talented lawyers to our firm – especially from international law offices in Prague. Later on, we also attracted some great colleagues from the state administrative sector and various regulatory bodies. This proved to be a great foundation for future growth, in the first decade of the firm.

Today, we have established partnerships and career paths for our team members. We rely more on hiring young lawyers and shaping their careers, aiding them in their progression, all the way up to senior levels. We take great pride in our in-house growth and development, while, of course, continuously focusing on great lateral hires for senior positions. We believe that we still have opportunities to grow so we actually need more Partners for the future.

CEELM: What is it about the past 20 years that you look back at with the most fondness?

Nespurek: I think that one of the great things is that we still have (at least most of) our original founders and many other lawyers who joined early on still working in the firm, staying close friends and business partners. I think that is unique and also very enjoyable.

The second thing is that our business is still about people. What we rate very highly is that the firm is what it is because of the firm’s culture. How positive the atmosphere in the firm is, and how we manage to maintain an informal approach to doing things within the firm, and combine that with a strong determination to do good, solid, professional work.

CEELM: On the flip side, what is one thing you regret not yet having a chance to do?

Nespurek: I can’t speak of any large thing that we should have done by now. I regret none of the big decisions we made – even if some of them may have seemed risky and with uncertain outcomes in the past.

One thing that comes to mind is that, at times, we could have made some decisions faster, particularly related to things like working with the right people and, perhaps, saying goodbye to some who turned out not to be the right fit for the firm. But this is probably key in any business that relies on people, and one always learns about the best way of doing it as time passes.

CEELM: Where do you imagine the firm 20 years from now?

Nespurek: The firm has a pretty good foundation and stands a great chance to both maintain its position and grow further. I think that we had a great quality of service when we set up the firm that we improved and built upon. I believe that the firm will continue following this trend, going forward. What we wish to achieve is to stand up to the challenge of continuing to be a reliable, strategic partner to our clients, be the best service provider. In those qualities, becoming something like the magic circle firms in London are. That is what our ambition is and that is what we are striving to achieve.

What we would also like to accomplish is that this becomes a lasting business that isn’t contingent on existing Partners. So that even in the future, the firm exists and thrives, even after the founders retire.

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

CEE Legal Matters has been reporting on an increased number of deals in the Czech Republic’s logistics sector. We reached out to several Czech real estate lawyers to discuss both the drivers behind the spike in work in the sector and the challenges it faces in the country.

Geography, Timing, and Investors

“We witnessed a strong reawakening of the industrial and logistics real estate sector at the end of 2020,” comments Allen & Overy Partner Prokop Verner, adding: “we see a sharp rise in industrial and logistics property investments indicating that the upward trend continues throughout 2021.”

BPV Braun Partners Partner Jiri Barta attributes the high level of activity in the country’s logistics sector to its strategic position. “The Czech Republic and the whole region profits from the geographic location in the center of Europe. Slowly but surely the system of highways has been improved not only in the Czech Republic but in Poland and Slovakia, too,” he says. “That makes the whole logistics sector work faster and more effectively.”

While geography might have helped, PRK Partners Partner Roman Pecenka points to the COVID-19 outbreak as the main driver for the sector as it led to an “unprecedented expansion of e-commerce.” Barta echoes him: “obviously with the whole COVID-19 situation, when many shopping malls were closed due to the lockdown and on-line shops and home deliveries increased massively,” it was logical that logistics went on a rise.

“Other long-term drivers, such as the effort to move goods in the supply chain closer to the customer (thereby improving client service) and the effort to reduce dependency on the Chinese market, have also pushed the growth of the industrial and logistics real estate sector,” adds Verner.

And investors see the promise that the sector holds. Kinstellar Partner Klara Stepankova explains that “in the Czech Republic, the sector is not only driven by the increased demand from occupiers prompted by the further penetration of e-commerce but also by the increased interest in this sector from institutional investors.” She adds that their office has “been working for many experienced players in the sector on the development and investment side for years, but recently we have seen a lot of newcomers to logistics. These are typically investors who previously focused their attention on traditional asset classes, such as offices and retail, and moved their investment strategy to logistics not only because of the current lack of available suitable products but more importantly because of uncertainty surrounding the future of offices and retail assets.”

It’s not just the pull factor of the logistics sector but also the push factor of other potential investment targets, with Emil Holub, Partner and Head of Real Estate with Clifford Chance Prague, believing that this interest from investors is also due to a gap in investing in other sectors. “The logistics sector has become very dynamic mainly due to the lack of other investment opportunities in other sectors – retail was complicated even before 2020 and with the COVID-19 impact the retail sector is on a break,” he says. “The office sector is impacted by Covid-related uncertainty and also by the lack of quality products (i.e. the office offering) in Prague, which makes up the vast majority of the office investment market.” He also feels that the hospitality market is not yet in the distress “which was anticipated after COVID-19 and that other alternative assets (such as student or elderly housing, data centers) are not yet really developed in the Czech Republic.” As a result, Jakub Adam, Partner at Taylor Wessing, sees investing in logistics as logical and predictable. “Unlike other sectors, logistics has not been negatively impacted by the Covid-related restrictions. It is generally considered a safe investment, banks consider it safe harbor,” he says. “Besides banks, logistic developments also have multiple other sources of funding, including IPOs and bonds.”

Show Me the Money

When it comes to the sources of investment, Pecenka says that “the most important recent deals were driven by established foreign funds, which confirms their continuing interest in investments in Czech assets.” Holub adds that “around half of the investments come from sovereign funds originating in Singapore, the Gulf, China, and Norway. And the remaining investments are coming from all over the world – the UK, the US, or Australia.”

And strategic investors play a big part as well with Barta saying that the automotive sector is still a dominant driver, followed by light industrial production, and that “we must not forget about the retail sector, the players keep expanding and improving their regional hubs.” Glatzova & Co Partner Erik Kolan points to a “high demand for car parts and machinery, and an associated demand for logistics facilities.” He adds that the transition to electro-mobility also increased the demand for new facilities (with existing contracts for supply with Skoda and Volkswagen) tailored for e-car manufacturing. According to Kolan: “The car industry is big in the Czech Republic. Although it was hit hard by COVID-19, as it usually is in any crisis, it is recovering and is a driving force for the logistics sector.” Echoing Barta’s second point, Kolan talks about “a giant logistics center for Tchibo, which they’ve already enlarged twice, in the town of Cheb, in Bohemia, very close to the German border,” as well as an Amazon distribution center near the Prague Airport – both servicing the whole region, not just the Czech market.

Ultimately, when it comes to investment sources, Holub notes that they vary a lot. “Some of the investments are financed domestically, some by bonds and equity issued on stock exchanges,” he explains, with Adam adding that “some developers opted for an IPO (as CTP did recently), some generate funds from bond solutions (such as Accolade), and some developments are debt-funded (as banks generally consider logistics projects a safe investment).”

Room to Grow if You Have Strong Nerves

“The market is far from being saturated, the very low vacancy levels for logistics parks and the increasing rents are a good testimony to that,” Stepankova says. “One of the logistics sector’s segments that we see as having potential for further growth is last-mile logistics projects. As retail will have to completely reinvent itself into new ways of functioning, there might be opportunities for the conversion of parts of certain retail schemes into other uses, including logistics. There is definitely room for new projects,” she concludes. Holub adds: “Judging from the plans of our clients in this sector, each of them has an appetite to grow and build new logistics centers. There are also new concepts such as ‘last-mile’ or ‘flexi spaces.’ Lastly, looking at Western Europe where new trends usually appear earlier than in the Czech Republic, we may also see the conversion of badly performing shopping centers, especially at the outskirts of large cities, into logistics centers.”

Verner notes that “demand in the sector has long outstripped supply and, as long as this remains the case, there will still be room for new projects,” but that a simple hunger for more space might not be enough. “The developers are eager in expansion but there are so many obstacles that the entire process requires strong nerves and a lot of patience,” Pecenka notes. There are several factors at play here.

First, “over the years the logistics assets have become very consolidated and are held by a relatively small number of real estate players,” Holub says. “Moreover, most of these players in the logistics sector are ultimately held by sovereign funds who are not ready to sell and are prepared to hold these assets for a long time.” He adds that the other dominant developers “generally do not sell to the outside market and keep the assets for themselves. This makes the remaining logistics assets developed by small independent developers very desirable and the resulting pricing is exceptionally high.”

Second, Pecenka says that “even good locations are facing increasing resistance from local municipalities and inhabitants. Due to the Czech tax system, they do not have many positives from this kind of investments but have to face all the negatives.” Kolan explains: “Ten or fifteen years ago if you were a logistics investor going to a municipality, they would welcome you. But now, because the unemployment rate is very low, they have less of an incentive to welcome a logistics center and the perceived disruption associated with it, like heavy traffic and an influx of foreign workers. So from a political standpoint, local authorities and voters are shifting against these facilities, as they no longer need new jobs for the locals and do not want to deal with the potential disruption.” He mentions an instance in Northern Bohemia, the region with the weakest economy: “In an area designated for logistics development an investor bought land and invested a lot of money, fully in line with the zoning plan. Yet the relevant municipality as well as a neighboring one are trying to change the zoning and impose construction bans. For a year now we’ve been fighting them to respect the existing zoning project and permits.”

As a result, Pecenka describes the logistics sector in the Czech Republic as “a total landlord’s market. And it is unlikely this will change anytime soon, due to steadily increasing prices of land, of construction works & materials, and the disastrous length of permitting process.”

Is the Czech Government Helping?

“I don’t think the growth in this sector is really government-driven,” says Kolan, with Adam too stating that “the impact of government activity on logistics’ growth is neglectable if any at all.”

While Verner notes that the Czech Government did provide minimal support to the sector through the Smart Parks for the Future program, he says “it is obvious that private capital is and will remain the primary driver in the logistics sector.” Holub echoes this by saying: “From experience, the less governments interfere with business, the better. On the other hand, we see that councils of the Czech regions and mainly municipalities have been actively building barriers to future logistics developments, with strong support from local communities, as those communities do not favor logistics centers near to their homes.”

Holub adds that “permitting of new projects has thus become even more complicated,” with Adam noting that a “critical issue is the length of permitting procedures, which the Government is attempting to tackle by way of the new Construction Act. But the outcome is uncertain and will only be recognizable mid-term.” Kolan is not too optimistic on the act’s timeline: “There is a wish to shorten the permitting timespan. A central building authority will be set up, taking that responsibility away from local municipalities. The hope is it will help to professionalize and speed up the process, reducing the number of binding opinions that need to be obtained from different authorities. So, there is a chance the new code will help. But it will only start running in 2023 and the process will take time. It will probably take several more years before things settle down and become easier.” Pecenka is not holding his breath either, saying he does “not believe it might have an imminent positive impact on the permitting process. It is more likely it will create additional burdens and uncertainties.” The feeling is echoed, on a slightly more optimistic note, by Verner: “Due to the complex remodeling of the public administration structure anticipated by the new Construction Act, we expect that it may initially cause a certain disruption in the permitting procedures. However, in the long run, we trust that the new act will meet its goals and will serve to accelerate and simplify real estate development in the Czech Republic.”

Ultimately, “if you were building a factory for lithium batteries, the Government would step in and help you,” Kolan says. “But they see pure logistics projects as adding less value, and the classical incentives available since the 90s are more or less gone. They are now focusing on research centers, e-mobility, and other projects with high added value.”

Looking Forward

Despite several challenges faced in the market, most are optimistic about the sector’s future, even if certain drivers will change. Pecenka says he expects the uptick in logistical work to continue. And so does Verner: “I expect that the established trend of growth in the industrial and logistics real estate sector will continue further, even after the pandemic. The pandemic has, among other changes, accelerated the development of some industrial sectors and shifted the focus of customers to e-commerce. I believe these new consumer preferences will last and continue to benefit the industrial and logistics real estate sector in the long run.” Kolan agrees as well: “all the main drivers for the logistics sector will continue – it’s inevitable.”

“Though the pandemic’s end may bring customers back to the shopping centers and employees back to offices, it will never be the same as before – new habits were established and the world will not be the same again,” Holub adds. “I expect that there will be an even higher demand for last-mile logistics and also that some of the production done elsewhere will be moving closer to the customers.”

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

As the Czech government signed off on the EU “Green Deal”, which aims to cut carbon dioxide emissions to zero by 2050, the Czech Republic needs to find ways to achieve this goal, or at least to get close to it. Even though certain legislative and other supporting measures are currently being undertaken towards transitioning to low carbon energy – changes to the Czech Act on supported sources of energy, state subsidies for the (re)construction of power plants – given its geographical specifics and historical background, nuclear power is likely to play a key role in replacing coal-burning power plants. Under current state policy, construction of new nuclear reactors is to begin shortly. The first new reactors, to be located at the current Dukovany power plant, should begin operations by 2037. The Dukovany project took precedence over the construction of new nuclear blocks at the Temelin power plant, a priority at the beginning of the 21st century.

The government has taken the view that the Czech private sector would probably not be able to bear the full costs of the new Dukovany nuclear reactor. Following this conclusion, it drafted a bill (Lex Dukovany) that would enable the state to co-finance the project. Lex Dukovany was passed by the Czech Parliament’s lower chamber in June 2021. Although the bill is not yet legally binding, with a set of pre-agreed changes to be made by the upper chamber, it provides a clearer view of how the government intends to co-finance the EUR 6 billion project.

Power Purchase Agreement Under Lex Dukovany

According to the law’s current draft, the construction and operation of the nuclear reactor are to be comprehensively secured by the eligible investor. The investor, likely an SPV established by CEZ, which owns and operates both existing Czech nuclear power plants, will need to obtain state authorization. Subsequently, the Czech Republic, acting through the Ministry of Industry and Trade, will enter into a specific power purchase agreement with the eligible investor. The power purchase agreement will specify: (1) the state’s obligation to ensure that the generated electricity is purchased at a preset price for a certain period; (2) the investor’s obligation to ensure the production and supply of electricity to the network for a set period.

The goal of these obligations is to set a predictable price for electricity generated by the nuclear reactor and a predictable return on investment. The Lex Dukovany draft stipulates the purchase agreement is to be concluded for a period of at least 30 years, with the possibility of a 10-year extension. As a result, any additional prolongation of the agreement under Lex Dukovany is effectively limited only by the nuclear reactor’s service life.

Provision of State Loans

Judging by the current draft, the government has acknowledged that the eligible investor would not be willing or able to finance the project from external resources under standard commercial terms. Under Lex Dukovany the Ministry of Industry and Trade would be entitled to provide the investor with a loan under favorable conditions. For example, the interest would likely be lower than the standard. Until construction completes, the Czech Republic would not be entitled to any interest. In this respect, it is worth noting that the loan would likely take the form of a state subsidy. Thus, Lex Dukovany would also have to comply with EU regulation on state aid – especially with respect to the new “EU green taxonomy”.

Conclusion

Although Lex Dukovany is not yet legally binding and remains subject to changes by the upper chamber of the Czech Parliament and Presidential approval, the government’s vision of financing the construction of a new Dukovany nuclear reactor is likely to remain the same. It is necessary to emphasize that, even if new nuclear reactors in Dukovany are constructed (following Lex Dukovany’s provisions), those new reactors would only help to maintain production at the site, after the old reactors are retired around 2037. The real transition towards low carbon energy in the Czech Republic will thus need to be driven by means of other measures and projects. 

By Vaclav Rovensky, Partner, and Tomas Sequens, Counsel, Kocian Solc Balastik

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Delta Legal has advised CTP on its acquisition of Business Park Chrastava’s owner and operator Renwon. Pelikan Krofta Kohoutek advised the seller.

Business Park Chrastava is a logistics and production center covering 20,000 square meters. It was opened in 2019 on the former site of a 19th-century yarn spinning mill, in Chrastava, northern Bohemia, near the Czech Republic’s border with Germany and Poland.

According to Delta Legal, the park is another addition to CTP’s extensive property portfolio. “The CTP Group has long focused on the environmental sustainability of the properties it manages,” aiming to become a carbon-neutral company by 2023.

The Delta Legal team was led by Partner Pavel Fara and Senior Associate Veronika Chrobok and included Partners Libor Vacek and Jiri Absolon, Senior Associate Henrieta Hovanova, and Associate Renata Hurychova.

The PKK team was led by Partner Augustin Kohoutek and included Senior Attorneys Radim Horenin and David Smejdir.

Orrick has advised Rossum on raising USD 100 million from General Catalyst in a Series A funding round. Ropes and Gray reportedly advised GC.

Previous investors including LocalGlobe, Seedcamp, Miton, and Elad Gil also participated in the round.

Rossum is an artificial intelligence company, founded by three PhD students from the Czech Technical University in Prague, that is, according to Orrick, “re-inventing the way businesses send documents to each other.” General Catalyst is a US-based investment fund.

According to Rossum, this “is Eastern Europe’s largest-ever Series A.” According to the Czech-based company, its solution “helps you to organize and automatically process all your incoming document traffic. Whether you receive invoices, purchase orders, packing lists, claims, any other transactional documents, or all of these, Rossum automates your business communication.”

“There is a hidden opportunity in the fact that every single product in the world requires hundreds of companies to cooperate, and that produces thousands of transactions,” said Rossum CEO Tomas Gogar. “As market leaders in document AI technology, we are in a unique position to transform the way these transactions are communicated and processed. Rossum already saved billions of keystrokes in data entry for our clients. Now we are saving people’s time across the whole process of transaction handling by building an end-to-end business communication platform. Businesses large and small are waking up to the huge gains that they will make from such a system and they trust us to deliver it.”

“Rossum spotted a problem that is so ubiquitous that we rarely even think about it,” added General Catalyst Managing Director Trevor Oelschig. “The founders realized the massive hidden opportunity and created a disruptive solution based on an entirely new deep technology. Rossum is still early on its journey, but it has already grown into a company with worldwide reach that has had a tremendous impact on global enterprise customers.”

Orrick’s team was led by Partner Shawn Atkinson and included Managing Associate Stephen Tallon, Attorney Jason Wu, Associate Shaun Malone, Trainee Solicitor Hanna Hewitt, and Paralegal Siddharth Balani.

PRK Partners has advised Czech technology company Trask on its acquisition of an ownership interest in Bell & Hurry.

Trask provides IT services to financial institutions and industrial enterprises in Central and Western Europe.

Founded in 2016, Prague-based Bell & Hurry focuses on service and product design and user experience, as well as designing user interfaces for web and mobile applications and internal systems. The company operates primarily for the financial sector, with clients such as South African Nedbank, Czech Moneta, the Swiss Zurich Insurance Group, as well as companies from the PPF Group.

“The Bell & Hurry designers services fit perfectly into our portfolio, their level is top-grade in Czech and international scales,” Trask CEO Pavel Riegger commented. “Thanks to long-term cooperation, we also know that they can reliably deliver their projects to clients.”

The PRK Partners team was led by Partner Martin Kriz and included Senior Attorney-at-Law Milan Sivy.

PRK Partners would not disclose further information on the deal.