Did you sell too cheap? How to defend against unreasonable shortening?

What is disproportionate reduction (lesion) and why does it exist?

The principle of disproportionate reduction under Czech legislation is the protection of contractual fairness, ensuring that neither party can benefit from the ignorance or disadvantageous position of the other party. This is one of the exceptions to the "pacta sunt servanda" principle (agreements must be kept), as in some situations, upholding the contract would lead to gross injustice.

The difference between disproportionate reduction and usury

Disproportionate reduction is often confused with usury (Section 1796 of the Czech Civil Code), but these are two completely different legal concepts:

Disproportionate reduction (Section 1793)

• Conditions – gross disparity in performance (objective condition), lack of knowledge of the advantaged party about the disparity, and the absence of exclusion of disproportionate reduction (subjective conditions).
• Consequences – the prejudiced party may demand the cancellation of the contract and restoration to the original state, unless the advantaged party compensates for what the affected party was deprived of (taking into account the customary price at the time and place the contract was concluded).

Usury (Section 1796)

• Conditions – gross disparity in performance (objective condition) and exploitation of the other party's weakness in a manner specified by law (subjective conditions).
• Consequence – automatic absolute invalidity of the contract.

In practice, disproportionate reduction is often applied to the purchase of real estate, works of art, business shares in a company, or other assets where it is difficult for an ordinary person to correctly estimate the market value.

Conditions for claiming disproportionate reduction

In order for a contract to be cancelled due to disproportionate reduction, the following conditions must be met:

Existence of mutual performance – the concept of disproportionate reduction applies only to contracts where both parties provide something to each other (e.g., a purchase agreement).

Gross disparity in performance – courts usually assess a disparity of over 50%, but there is no fixed statutory limit. If you sell a property for less than half of its customary price, there may be a chance of success for the prejudiced party.

Lack of knowledge of the disparity – a key question: did the advantaged party know or should they have known about the factors affecting the price? Challenging the contract is excluded if the advantaged party was not and could not have been aware of the facts leading to the gross disparity in mutual performance.

Absence of exclusion of disproportionate reduction – compensation for disproportionate performance cannot be claimed if there is a special relationship between the parties – for example, if one party knowingly provided part of the performance free of charge, or if the extent of the reduction can no longer be determined. The claim also does not arise if the prejudiced party expressly agreed to an extraordinary price, for example, for reasons of personal preference, or if they were aware of the actual value of the performance and yet agreed to the disproportionate price.

The disparity must have existed at the time the contract was concluded – disproportionate reduction cannot be claimed if the price increased only later (e.g., due to market changes).

The current view of the Supreme Court on proving disproportionate reduction

The decision of the Supreme Court, file ref. no. 27 Cdo 3702/2023, brought significant clarification to the rules of evidence, thereby fundamentally influencing legal practice.

According to the Supreme Court, the plaintiff (the prejudiced party) must at least:

• prove the existence of a gross disparity – typically by means of an expert opinion, and
• prove that they were unaware of the disparity – for example, by showing that they relied on outdated price data or were misled.

According to the Supreme Court, the defendant (the advantaged party) must simultaneously:

• prove that they were not (and did not have to be) aware of the disparity – the defendant must prove that they did not know (and did not have to know) about the factors establishing the disparity in mutual performance, because Section 1793(1), second sentence, excludes protection of the prejudiced party from disproportionate reduction; the burden of proof therefore lies on the advantaged party, or
• alternatively, pay the difference to prevent the contract from being cancelled – if they pay the plaintiff the difference between the agreed and the customary price, the contract in question should remain valid.

Where will you not be able to object to disproportionate reduction?

According to Section 1793(2), the concept of disproportionate reduction does not apply in the case of:

• purchases on a commodity exchange
• transactions with an investment instrument
• transactions carried out in an auction or in a manner equivalent to a public auction
• bets or games
• settlement or novation, if made in good faith

Final Summary

If you have sold property at a suspiciously low price, you have the opportunity to defend yourself. Disproportionate reduction is an effective tool for obtaining legal protection.

Do not wait! If you believe you have been disproportionately reduced, contact our Czech legal team as soon as possible.

Remember that the right to object to disproportionate reduction expires within one year from the conclusion of the contract – the court will take this fact into account on its own initiative (ex officio) and does not wait for the counterparty's objection!