Apartment presales

Buying an Apartment "Off-Plan": What is a Pre-Sale and How Does It Work?

However, you are making your decision based on visualisations, plans, and technical descriptions. This process carries specific legal pitfalls that must be properly addressed. The entire transaction is divided into several contractual phases that gradually increase your commitment while, if you are not careful, reducing your negotiating power.

A typical contractual process consists of three main steps that logically follow one another. Each has a different legal weight and purpose.

1. Reservation Agreement (RA): The first document you sign. Its purpose is to temporarily block the selected property and give you time to secure financing. However, it is often underestimated, even though it is here that the basic rules for the entire transaction are set.

2. Future Purchase Agreement (FPA): This is the legal core of the entire deal. It is a highly binding document that defines all the essential conditions of the future sale – from the price and deadlines to penalties for non-compliance.

3. Purchase Agreement (PA): The final contract, which is usually signed only after the building's final inspection approval. Its main purpose is the formal transfer of ownership rights and serves as the basis for entry into the Land Registry.

It is crucial to understand the difference between the first two documents. While the reservation agreement is often just a so-called innominate (unnamed) contract whose content is not strictly defined by law, the future purchase agreement is a contractual type regulated under Czech legislation, which provides significantly higher legal certainty and enforceability. The lawyers at ARROWS specialise in reviewing and preparing all contractual documentation and will ensure that every step is safe for you. For an immediate solution to your situation, write to us at consultation@arws.cz.

The Reservation Agreement: The First Step That Decides Hundreds of Thousands

The reservation agreement may seem like a mere formality, but it is actually one of the most important documents in the entire process. By signing it, you ensure that the developer will not offer the property to anyone else for the agreed period, and you gain time to negotiate a mortgage with the bank.

Because the content of this agreement is not precisely defined by law, developers often include provisions that are disadvantageous to the buyer. Using a generic template downloaded from the internet is extremely risky here. Every project and every situation is specific and requires an individual legal assessment.

What Must a Secure Reservation Agreement Contain?

The key element of a reservation agreement is the reservation fee. Its amount usually ranges from 1% to 10% of the purchase price and serves as confirmation of your serious interest. The fate of this fee must be absolutely clearly defined in the agreement.

Ensure that the agreement precisely states the conditions under which the fee is refundable. Typically, it should be returned to you if the developer thwarts the deal, if serious legal defects appear in the project, or if the bank does not approve your mortgage – however, this point must be explicitly negotiated.

Where to Send the Reservation Fee and With Whom to Conclude the Agreement?

The biggest risk is paying the reservation fee directly to the real estate agency's or developer's account. In the event of a dispute or the seller's financial problems, getting the money back can be very difficult. Always insist on depositing the fee into a secure attorney's escrow. This ensures that the money will be released only after clearly defined conditions are met.

It is just as crucial with whom you sign the agreement. A bilateral agreement concluded only between you and the real estate agency does not bind the developer in any way. It may happen that the developer sells the property to someone else in the meantime. Always demand a tripartite agreement (buyer – developer – intermediary) or verify that the intermediary has a valid power of attorney from the developer for this act.

Future Purchase Agreement (FPA): A Commitment with Far-Reaching Consequences

A future purchase agreement is a document that legally binds both you and the developer to conclude a final purchase agreement in the future, after specified conditions are met (typically after the final inspection approval). Unlike a reservation agreement, this is a type of contract regulated by law, which establishes a much stronger commitment.

In practice, the FPA is the most important document of the entire transaction. The final purchase agreement usually just formally confirms what was agreed upon here. Any ambiguities, disadvantageous provisions, or missing protective elements in the FPA can come back to haunt you later, as the room for changes is already minimal.

What to Watch Out for in a Future Purchase Agreement?

Carefully check that the agreement contains all the key elements that protect your rights and investment. Do not rely on marketing materials and visualisations; only what is written in the agreement is decisive.

• Precise specification of the property: The agreement must contain a detailed technical description of the apartment, its exact area, a list of all accessories (cellar, parking space), and above all, a detailed description of the equipment standards (specific types of flooring, doors, sanitary ware, windows, etc.).

• Final price and payment schedule: The price must be stated in the agreement as final, including VAT. Beware of so-called inflation clauses. The payment schedule must be linked to real construction milestones (e.g., completion of the rough structure, installation of windows, final inspection approval), not to fixed dates.

• Binding deadlines and penalties for the developer: The agreement must contain the latest deadline for the completion of the construction and its final inspection approval. In case of delay, it is absolutely crucial to negotiate contractual penalties for the developer, ideally for each day of delay. Without them, you have no effective leverage to force the developer to meet the deadlines.

• Options for withdrawal from the agreement: The agreement must clearly define the conditions under which you can withdraw from the agreement without penalties. Typically, this should be in the event of a significant delay in construction by the developer or a substantial change in the apartment's parameters compared to the agreement.

A key document that is created during construction is the owner's declaration (prohlášení vlastníka). With this legal act, the developer formally divides the building into individual apartment units and defines the common areas. The lawyers at ARROWS will check the compliance of the FPA with the future owner's declaration for you, to ensure that you are buying exactly what was agreed upon. Do not hesitate to contact our office – consultation@arws.cz.

The Biggest Risks of Development Projects: How to Protect Your Investment?

Buying an apartment "off-plan" is associated with risks that do not exist when buying a completed property. Underestimating them can lead to financial loss, years of disputes, or disappointment with the final appearance of your new home.

What to Do When Construction is Delayed?

Construction delays are one of the most common problems. They can complicate your move, as well as the drawing of your mortgage. Your defence options depend entirely on how well your FPA is drafted. If it includes contractual penalties for delay and the right to withdraw after a certain period, you have a strong negotiating position.

Can the Developer Change the Project or the Apartment's Area?

Developers often include clauses in their agreements that allow them to make changes to the project. However, it is necessary to distinguish between minor adjustments and fundamental changes. An acceptable deviation in the final floor area of the apartment should not exceed 3–5%. For a larger deviation, the agreement should guarantee you the right to an adequate discount on the purchase price, or even the option to withdraw from the agreement.

How to Protect Yourself from the Developer's Insolvency?

The biggest risk is the developer's bankruptcy. In such a case, you could lose all paid deposits. The basic prevention is a thorough legal check (due diligence) of the developer before signing any agreement. It is necessary to check their history, references, economic stability, and look into the Commercial and Insolvency Registers.

The method of project financing is also crucial. If the project is financed by a bank, it is a safer option for you, as the bank has thoroughly vetted the developer itself. Conversely, projects financed solely from clients' money are much riskier.

Never send money to a so-called project account. It primarily protects the financing bank, not you. The only reliable protection is the use of an attorney's, notary's, or bank's escrow. In this case, the money is released to the developer gradually after clearly defined milestones are met.The ARROWS law firm is insured for CZK 500 million and provides the highest standard of secure attorney's escrow.

International Scope: Property Purchase by Foreigners and Foreign Investments

The Czech real estate market is also attractive to foreign investors. Citizens of EU member states, Norway, Iceland, Liechtenstein, and Switzerland can acquire real estate in the Czech Republic under the same conditions as Czech citizens. For citizens of other countries, certain restrictions may apply, but these can often be resolved, for example, by establishing a Czech legal entity.

For clients whose transactions have an international element – whether it's a foreign buyer, financing from abroad, or Czech investors buying property in other countries – the support of a partner with an international reach is key. Thanks to the ARROWS International network, built over ten years, we handle complex cross-border transactions on a daily basis and provide our clients with legal certainty not only in the Czech Republic but also abroad.

Our experience also allows us to connect clients with each other when we identify interesting investment or business synergies. We are also happy to listen to your business ideas and help you find the right partners for their implementation.

How Can the Lawyers at ARROWS Help You? Comprehensive Legal Services for Your Peace of Mind

Buying an apartment from a developer is a complex process that requires expert legal knowledge and experience. Our Prague-based lawyers have a long-term specialisation in real estate law and development projects and are ready to guide you safely through the entire transaction from start to finish.

Our services include:

• Preparation or thorough review of all contractual documentation (reservation agreement, FPA, purchase agreement) to ensure balanced and secure conditions.

• Comprehensive legal due diligence of the developer, their project, and the affected land plots to uncover any hidden risks.

• Active representation in negotiations with the developer to secure the most favourable contractual terms for you.

• Establishment and management of a secure attorney's escrow that 100% protects your funds.

• Representation during the property handover, assistance with defect detection, and subsequent legal enforcement of their removal.

• Expert training for your investment teams or company management to help you better navigate the legal aspects of real estate investments.

Our experience is built on long-term cooperation with more than 150 joint-stock companies, 250 limited liability companies, and 51 municipalities and regions. We pride ourselves on speed, high quality, and a deep understanding of our clients' business objectives.

Buying an apartment from a developer is one of the biggest investments in your life or business. Don't leave anything to chance. Our lawyers specialise in this area and are ready to protect your interests at every step of the transaction. For a no-obligation consultation and to secure a tailor-made legal solution, write to us at consultation@arws.cz.