Declaration of the Owner on the Division of a Property into Units

Owner's Declaration: What Is It and Why Is It Crucial for Your Property?

Without it, the building would exist only as a single entity, making it impossible to sell individual apartments, secure them with a mortgage, or perform other legal acts.

This document is therefore absolutely essential for every unit owner, investor, and homeowners' association.

The Cornerstone of Your Ownership: A Clear Explanation

An Owner's Declaration is a unilateral legal act by which the owner of a building, in accordance with the Czech Civil Code (specifically Section 1166 of Act No. 89/2012 Coll.), divides their ownership right to the property into ownership rights to individual units.

This act transforms a single property into a set of separate, legally distinct items (apartments, offices, garages) that can have different owners and fates. Its main purpose is to precisely define what is the private property of a unit owner and what is common to all. 

This precise definition is key to preventing disputes and ensuring the smooth operation of the entire property. A correctly drafted declaration provides the legal certainty and transparency necessary for any future transactions. 

At ARROWS, we specialize in drafting and reviewing these documents. Need legal assistance? Contact us at consultation@arws.cz.

What Exactly Does an Owner's Declaration Contain?

For the declaration to be valid and serve its purpose, it must be in writing and contain a number of elements required by law. 

It is not just a formal description, but a detailed technical and legal manual for the building, which has a direct impact on the rights and obligations of all owners. Any error or ambiguity in this document can lead to serious complications in the future.

Key requirements include:

• Property Identification: Precise details about the land plot, building, municipality, and cadastral area, including parcel numbers and building numbers.

• Definition of Units: The name and designation of each unit (e.g., "apartment no. 101/1"), its location in the building, determination of its purpose of use (apartment, studio, office), and a description.

• Description of Common Areas: A detailed list and description of the parts that are common to all owners (e.g., foundations, roof, load-bearing walls, corridors, staircases, elevators). It is also crucial to define common areas reserved for the exclusive use of a specific owner, such as balconies, terraces, or cellar storage units.

• Size of Co-ownership Shares: Determination of each unit owner's share in the common areas of the property. This share, usually derived from the unit's floor area, is decisive for calculating contributions to the building's management and for the weight of votes at the Homeowners' Association (SVJ) assembly.

• Rights and Obligations: Specification of which real rights (e.g., right-of-way easements) and other encumbrances on the original property are transferred to the owners of the newly defined units.

• Rules for Management: Basic rules for the management of the building and land, and the method of contributing to the associated costs.

A mandatory annex to the declaration are the floor plans of all levels (or their diagrams), which graphically show the location of units and common areas and include data on floor areas.

At ARROWS, we provide our clients with the complete preparation of the Owner's Declaration, including coordination with surveyors and architects. For an immediate solution to your situation, write to us at consultation@arws.cz.

When Reality Outpaces Paperwork: Two Most Common Reasons for Revising the Declaration

An Owner's Declaration is essentially a legal snapshot of a property at a specific time. A problem arises when the legal or factual state of the property changes, but this key document remains un-updated. 

It then becomes a source of uncertainty and potential risks. Ignoring the discrepancy between documentation and reality is a strategic mistake that can cost property owners and investors dearly. Fortunately, the law allows the declaration to be amended and adapted to new situations, whether it's correcting errors or responding to a change in ownership.

The amendment process is regulated in Section 1169 of the Czech Civil Code. The two most common and riskiest moments when an update is absolutely necessary are inheritance proceedings and changes related to liens, typically when refinancing a mortgage.

Inheritance Proceedings and Their Impact on Unit Ownership: What Happens When There Are Multiple Heirs?

The death of a unit owner is a life event that has immediate and significant legal impacts on the entire property. While inheritance proceedings determine the new owners, they often create a legal discrepancy that needs to be actively addressed.

Death of an Owner: How Inheritance Changes the Property's Legal Map

Upon the owner's death, their unit and the corresponding share in the common areas become part of the estate. The notary, appointed by the court as a judicial commissioner, initiates inheritance proceedings, during which they identify the heirs and inventory the assets. 

The proceedings conclude with a resolution on the acquisition of inheritance, which, upon becoming final, confirms the transfer of ownership to the heirs. This transfer is retroactive to the date of the decedent's death. The notary then arranges for this resolution to be submitted to the Land Registry, which updates the record of owners for the given unit.

At this point, many heirs mistakenly believe that everything is resolved. However, the entry in the Land Registry is only one piece of the puzzle. The other, equally important piece – the Owner's Declaration – remains unchanged. Do you need an Owner's Declaration prepared? We will draft it with a binding deadline and a price known in advance — details and an indicative calculator can be found at https://prohlasenivlastnika.cz.

One Apartment, Multiple Owners: The Problem of Co-ownership

The most common complication arises when a unit is inherited by multiple heirs (for example, two children and a spouse). In such a case, they become co-owners of the unit.

Although the Land Registry correctly records them as new co-owners, the Owner's Declaration, filed in the collection of deeds, still lists the original deceased owner as the sole owner. This discrepancy between the Land Registry and the declaration is a legal time bomb. 

Any future transaction – selling the unit, securing it with a mortgage, or even more significant decisions within the Homeowners' Association (SVJ) – becomes problematic. Banks, potential buyers, and authorities require consistency in key documents. An agreement among the heirs on the management of the inherited property may regulate their internal relations, but it does not resolve this external discrepancy. Amending the declaration is a separate legal process that must be actively initiated by the new owners.

Pitfalls of an Unresolved Owner's Declaration After Inheritance Proceedings

Mortgage and Amending the Declaration: Why is the Bank's Consent Essential?

The second critical moment when increased attention must be paid to the Owner's Declaration is any handling of a mortgage or other loan secured by the property.

The bank, as the lien creditor, has a key say in the entire process, and ignoring its position can have fatal consequences.

Lien: The Invisible Co-owner of Your Property

When an owner uses their property as collateral for a loan, the bank acquires a lien on it, which is recorded in the Land Registry. 

This makes the bank a key player with a direct interest in maintaining the value and legal integrity of its collateral. It is not just a passive observer; it is an entity whose rights must be respected. If the entire building is encumbered by a lien before its division into units, the situation changes after the Owner's Declaration is created. The lien does not cease to exist but is transformed. 

The original lien extends to all newly created units and their shares in the common areas. This creates a so-called joint and several lien, where each individual unit secures the entire original debt.

Amending the Declaration? Not Without the Lien Creditor's Consent!

Any substantial change in the Owner's Declaration – whether it's a change in the unit's area, an adjustment of co-ownership shares, the merger of two apartments, or a change in the purpose of use from an apartment to an office – directly affects the subject of the lien. 

Such a change can affect the value of the property and thus the quality of the security for the bank. Therefore, the Czech Civil Code in Section 1169 explicitly states that if a unit is encumbered and the change affects the rights and obligations of the entitled person (the bank), their written consent is required.

Acting without the bank's consent is not only a violation of the law but also a gross breach of the loan agreement. Before granting consent, banks often request a new property appraisal to ensure that the value of the collateral does not fall below a critical level.

Risks Associated with Amending the Declaration for an Encumbered Property

How to Amend an Owner's Declaration Step by Step?

The process of amending an Owner's Declaration is not just about filling out a form. It is a complex project that requires careful coordination of legal, technical, and administrative steps. Underestimating any phase can lead to the proposal being rejected by the Land Registry or to future legal disputes. Therefore, it is strongly recommended to entrust the entire process to an experienced lawyer.

Here is an overview of the basic steps that we at ARROWS will guide you through:

1. Legal and Technical Preparation: The first step is a thorough analysis of the existing declaration and identification of all necessary changes. If the amendment is related to construction modifications (e.g., merging apartments), it is essential to obtain new project documentation and precise measurements of the units and common areas from a certified surveyor.

2. Securing Consents: This phase is the most demanding administratively and communicatively. Written consent must be obtained from all owners whose rights and obligations are affected by the change. Depending on the nature of the change, the consent of a majority of all owners, or even an agreement of all, may be required. If any of the affected units is encumbered by a mortgage, the written consent of the bank is also necessary.

3. Drafting Documents: Based on the obtained consents and technical documents, our lawyers will draft the necessary legal documents. Most often, this is an "Agreement of Owners on the Amendment of the Declaration," which must meet all the requirements of the Czech Civil Code. We ensure that the documentation is precise and legally unchallengeable.

4. Submission to the Land Registry: We will submit the complete documentation, including the application for registration, to the relevant Land Registry office. The submission also includes payment of an administrative fee of CZK 2,000. The Land Registry will then review the formal and substantive requirements and decide on the approval of the registration within the statutory period.

5. Filing in the Collection of Deeds: After the successful registration of the change in the Land Registry, the process is not over. The person responsible for the management of the building (typically the committee of the Homeowners' Association) is obliged to file the new, complete version of the Owner's Declaration in the collection of deeds at the Land Registry and also at the relevant commercial register where the Homeowners' Association is registered. This ensures its public availability and legal effect towards third parties.

International Dimension: When a Foreign Element Comes into Play

In a globalized world, it is not uncommon for ownership relationships to properties in the Czech Republic to have an international dimension. Whether it's an heir living abroad or a foreign company investing in the Czech real estate market, the presence of a foreign element adds another layer of legal and administrative complexity.

In these situations, local knowledge and experience are invaluable. Thanks to our ARROWS International network, built over more than ten years, we handle cases with an international dimension daily and can ensure a smooth and secure process for our clients across jurisdictions.

• Inheritance Proceedings with a Foreign Element: If one of the heirs is a foreigner or has permanent residence outside the Czech Republic, it is necessary to address issues such as the recognition of foreign public documents, service of documents abroad, or the application of international treaties and EU regulations on succession. Our lawyers will ensure effective communication with foreign authorities and other heirs.

• Foreign Investor as Owner: The Czech Republic is open to foreign investors, but specific rules and obligations exist. Some strategic investments are subject to state screening. We provide comprehensive advice to foreign clients on the legal framework for acquiring and managing real estate in the Czech Republic.

• Due Diligence and AML: For any foreign investor, a thorough legal review (due diligence) is absolutely crucial before acquiring a property. This includes not only checking title deeds and encumbrances but also a detailed review of the Owner's Declaration. A mandatory check under the Anti-Money Laundering (AML) Act is also part of every transaction, which is particularly rigorous for foreign entities.

ARROWS provides investors with complete due diligence and AML checks under one roof. To secure your investment, do not hesitate to contact us at consultation@arws.cz.

Keep Your Documents in Order and Avoid Costly Disputes

An Owner's Declaration is not just a formality filed away in a binder. It is a living document that must accurately reflect the legal and factual state of your property. 

Neglecting it after key life events, such as an inheritance or a change in financing, poses a hidden risk that can lead to unnecessary disputes, financial losses, and blocked business opportunities. A proactive review and timely update of the Owner's Declaration is an investment in legal certainty, the value of your property, and good neighborly relations. 

The ARROWS team has extensive experience with this issue, as evidenced by our portfolio of more than 150 joint-stock companies and 250 limited liability companies to whom we provide long-term legal services. We pride ourselves on speed, precision, and high quality.

Don't wait for a problem to arise. Contact us for a no-obligation consultation and have the status of your Owner's Declaration checked. Write to us at consultation@arws.cz, and we will take care of everything.