Converting an administrative building into residential premises –

Three ways to turn offices into apartments

A developer buying an office building with a view to converting it into apartments chooses from three models. Each has different costs, different permitting times, and a different risk of the project hitting a snag. The first model is a complete conversion of the entire building into a residential building. The second changes only part of the floors into apartments, leaving offices or shops on the ground floor. The third keeps the building formally non-residential and offers accommodation units or service apartments within it.

A complete conversion into a residential building yields the highest return, but also involves the most permitting work. The building authority assesses the entire building according to the requirements for residential buildings, i.e., lighting, ventilation, noise protection, parking, and waste space. For an 1980s building with a deep floor plan, getting daylight into the inner rooms is often a problem. The result is then a smaller number of apartments than the acquisition model anticipated.

The mixed-use model is often chosen where the zoning plan allows residential use only as a complementary function. Apartments are on the upper floors, with shops and offices on the ground and first floors. The zoning plan tends to be more accommodating to such use, but it does not ease the technical requirements. Indeed, the authority assesses each part of the building separately according to its purpose, so the apartments must meet the same requirements as in a complete conversion. Furthermore, the mixed-use model complicates building management, the allocation of operating costs, and the subsequent sale of units to investors.

The third path, where apartments are operated as accommodation or service units in a non-residential building, seems the fastest but carries the highest legal risk. Both the building authority and the courts evaluate the actual purpose of the building, not its designation. We write in more detail about when it is sufficient to change the use without structural modifications and when it is not in the article Change of use without structural modifications. However, when converting offices into apartments, a developer can only rarely avoid structural modifications.

The zoning plan decides before the designer does

Before a developer pays a designer, they must know whether the zoning plan allows residential use in the given area at all. The building authority assesses the compliance of every project with the zoning documentation (Section 193 of the Building Act under Czech legislation). Office buildings often stand in areas designated for civic amenities, production, or mixed-use areas. In these, residential use is often impermissible, or only conditionally permissible under conditions set by the zoning plan.

The Supreme Administrative Court points out that the authority assesses the actual purpose of the building, not its designation. The primary purpose decides, rather than a simple calculation of the floor area ratio (SAC judgment file no. 8 As 226/2022 dated January 31, 2024). The court ruled on a garage under the previous Building Act, but the material view of the building's purpose also applies to apartments. If the project implies permanent residence, the authority will assess the building as residential, regardless of how the developer labels the units.

If the zoning plan does not allow residential use, the only option left is an amendment to the zoning plan, which is beyond the developer's control. The municipality decides on the amendment in a separate process, and the outcome cannot be guaranteed in advance. For the project's economics, this means that the purchase price of the building should reflect whether residential use is already permitted today or only on the basis of a future amendment. The difference between these two situations belongs in the terms of the purchase agreement, not in an optimistic business plan.

In addition to the zoning plan, the developer also monitors local building regulations. Municipalities and regions authorized by law may establish detailed construction requirements deviating from the national decree (Section 152(2) of the Building Act). For a building in a large city, it is therefore necessary to verify which technical regulations apply locally. Their differences most often concern parking, setbacks, and the extent of greenery.

What the Building Act requires after conversion to residential use

According to the law, converting offices into apartments is a modification of a completed building. By modification of a completed building, the law means an extension, addition, structural modification, and also a change in the way the building is used (Section 6 of the Building Act). Thus, the developer does not only address what they will build, but also the fact that the purpose of the entire building or part of it is changing. Depending on how extensive the modifications the building needs, they then choose one of two permitting paths.

If the change of use does not require structural modifications that need a permit, the building authority will permit it separately at the request of the building owner (Section 239 of the Building Act). This is an exception when converting offices into apartments. Indeed, the law does not classify structural modifications that change the way a building is used as minor structures not requiring a permit. Modifications for changing the use of a part of a building without interfering with the load-bearing structures and without changing the appearance are classified as a simple structure that requires a permit.

When the conversion is based on permitted structural modifications, the developer generally uses and rents out the apartments only after final inspection (occupancy permit). A building that requires a permit can only be used on the basis of an occupancy permit (kolaudační rozhodnutí) and only for the purpose defined in it by the building authority (Section 230 of the Building Act). Simple structures do not require final inspection, with the exception of simple structures for residential purposes. The law does not explicitly state whether this exception also applies to the modification of a part of an office building into apartments, so the developer should expect a final inspection. In the case of a separate change of use, the new purpose is defined directly by the change of use permit.

The difference between a change of use and re-approval (rekolaudace) is explained in the article Change of use of an apartment and non-residential space – re-approval. For the conversion of an entire building, it mainly implies that the decision of the building authority determines the purpose of use of each part of the house. This is followed by the owner's declaration, by which the developer divides the building into units. In this declaration, the purpose of use must be stated for each apartment (Section 1166 of the Civil Code), and therefore both documents must not contradict each other.

Which modifications for a specific building require a permit and whether a simpler path is sufficient depends on the extent of interventions in the load-bearing structures, facade, and fire safety. Therefore, the Prague-based legal team at ARROWS law firm chooses the permitting strategy only after inspecting the building and consulting with a structural engineer and a fire safety specialist. A mistake in the chosen path usually only becomes apparent during the final inspection, when rectification is most expensive.

Technical requirements that offices struggle to meet the most

Construction requirements also apply to modifications of completed buildings and changes of use. However, the law adds that this is only to the extent that serious spatial-technical or structural-technical reasons or other public interests do not preclude it (Section 137(4) of the Building Act). This is an important relief for an old building. However, the developer must substantiate it for each specific requirement, and the building authority will not grant it automatically.

Most often, the project hits a snag with daylight. The decree considers daylighting to be sufficient when the sum of the areas of the openings through which the living space is illuminated reaches at least one-tenth of its floor area. A living space is defined as a room or part thereof with an area of at least 8 m² (Decree No. 146/2024 Coll.). Office buildings have deep layouts with a corridor in the middle. The inner zone of the floor therefore often serves only as bathrooms, dressing rooms, and storage rooms, which reduces the saleable area per floor.

The second problem is usually parking. The number of parking spaces is determined by the decree according to the purpose of the building, and the spaces should preferentially be part of the building or on its plot. Only when this is not possible can the developer establish them on another plot within a distance of 300 meters. An exemption can be granted for both the number and location of spaces, as the decree explicitly allows it. However, the building authority will only grant it if the solution does not endanger the safety and health of persons and the purpose of the requirement is achieved (Section 138(1) of the Building Act).

The decree allows exemptions only from selected provisions, and daylighting of living spaces is not among them. An exemption is not possible for ventilation and noise protection between apartments either. However, the decree allows an alternative technical solution here if the developer proves that it meets at least the basic requirements for buildings. For each requirement, it is therefore necessary to verify three things separately: whether it applies in full to the old building, whether an exemption is possible, and whether an alternative solution is feasible. If the building cannot be modified, the developer must change the layout or reduce the number of apartments.

Procedure from building due diligence to final inspection

Converting offices into apartments has five phases, and each ends with a decision that affects the project's cost. The first phase is the legal and technical due diligence of the building before signing the purchase agreement. In this phase, the developer verifies the zoning plan, local building regulations, the state of the load-bearing structures, and the building's permitting history. The result of the due diligence is reflected in the price or in the conditions precedent of the purchase agreement.

The second phase is a feasibility study with an architect, structural engineer, and fire safety specialist. It will show how many apartments the building can realistically support, which requirements of the decree it will meet, and where it will need an exemption. Only the study provides a realistic number of units. The project's financing and negotiations with the bank depend on this. The study will also determine whether the project will follow the path of a simple structure or a standard permitting procedure.

The third phase is the preparation of documentation and obtaining opinions from the relevant authorities, typically regarding fire safety and public health protection. The fourth phase is the actual permitting of the project by the building authority and subsequent construction. The fifth phase is the final inspection (occupancy permit), after which the developer can use, rent out, or divide the building into units and sell them. The individual phases are linked to contracts with the bank, contractor, and future buyers.

The sequence of phases and contractual terms are different for each building, as they depend on the status of the zoning plan, the scope of structural modifications, and whether the building already has tenants. Therefore, the Czech legal team at ARROWS law firm sets them according to the specific building and how the developer wants to finance the project. A universal schedule does not work here, and adopting one from another project is often a source of later disputes with the contractor.

VAT and the sale of apartments: when conversion triggers a new period

Conversion can reopen the obligation to apply VAT when selling apartments. The sale of a completed building or unit is exempt from VAT, except for the first sale before the end of the 23rd calendar month following the month in which the first occupancy permit became final (Section 56 of the VAT Act). The same period runs after the final inspection of a substantial modification of the building. However, this only applies if the occupancy permit is received by the person who carried out the modification.

For a developer who carried out the conversion themselves, this means that the first sale of apartments shortly after the final inspection is generally subject to VAT. By substantial modification, the law means a change aimed at altering the use of the building or its living conditions. The second condition is that the costs excluding VAT incurred by the seller for the modification exceed 30% of the tax base in the immediately following sale. Converting offices into apartments meets the first condition because it changes the use of the building. Therefore, the ratio of conversion costs to the selling price is decisive.

A special rule applies when a developer sells a building or apartments during the conversion. As soon as the ongoing modification becomes substantial, the sale before final inspection is also considered the first supply and is subject to VAT. Under a rental model, the situation is different because renting apartments is exempt from VAT, and the taxpayer cannot opt for taxation. This is stipulated in Section 56a(5) of the VAT Act.

Exemption without the option to tax also affects the entitlement to input VAT deduction on construction costs. Therefore, a developer who keeps the apartments for rent cannot count on a full tax deduction from the construction. A tax advisor must reflect this impact in the financial model before the developer decides whether to sell the apartments or keep them. If the developer sells some apartments and rents out others, they must allocate the costs between the two regimes.

Mistakes that make office conversion more expensive

The most expensive mistake is buying a building without a verified zoning plan. The developer pays a price corresponding to a residential project and only then discovers that residential use is impermissible in the area. Amending the zoning plan is uncertain and takes a long time. Meanwhile, the project carries interest on the acquisition loan. Prevention lies in a condition precedent in the purchase agreement tied to the verification of the zoning plan.

The second mistake is calculating apartments based on the gross floor area rather than daylighting. The acquisition model is often based on the office floor area multiplied by the price per square meter of an apartment. However, the requirement for lighting of living rooms excludes the inner zone of the floor from the living area. The resulting saleable area is then usually lower than the model assumed. Along with it, the project's return drops.

The third mistake is underestimating existing tenants and unit owners. Before the conversion, the developer must review lease agreements, ownership structures, and building management rules. Depending on the scope of the intervention, they may then need the consent of the owners, a decision of the unit owners' association (SVJ), or an agreement with the tenant. The relationship between the unit owners' association and changes in the building is addressed in the article SVJ and change of use – structural modifications. Without resolving these relationships, there is a risk that construction will halt mid-realization.

The fourth mistake is labeling apartments as accommodation to get the project through faster. Both the building authority and the court assess the actual purpose of the building, and declarations in the documentation will not convince them. If the hidden purpose is revealed later, the developer faces a permit dispute and difficulties selling the units. To what extent a specific solution is defensible depends on the wording of the zoning plan and the layout of the apartments, which is why the Prague-based legal team at ARROWS law firm assesses it before the designer starts drawing.

Where office-to-apartment conversions succeed or fail

Summary for owners and management

The article has shown that converting offices into apartments depends on four conditions. The zoning plan must allow residential use, and the building authority must permit the conversion and inspect the apartments; exceptionally, a change of use permit is sufficient. Furthermore, the project must withstand the technical requirements for apartments and the tax implications of sale or lease.

For company management, the sequence of steps is crucial. Due diligence of the zoning plan, building, and taxes belongs before signing the purchase agreement, because after that, the developer no longer has leverage on the price. If the decision is postponed, the company carries the risk of a stalled project while the loan continues to accrue interest. Each month of delay then reduces the return anticipated by the investment plan.

The Czech legal team at ARROWS law firm performs due diligence on buildings prior to acquisition, designs permitting strategies, prepares purchase agreements with conditions precedent, and represents developers in negotiations with building authorities and relevant bodies. In doing so, they cooperate with tax advisors to assess VAT on both the sale and lease of apartments.

If you are considering the purchase or conversion of an office building for residential use, write to us at consultation@arws.cz. You can find an overview of our services in the Development and Construction Law section.