Latent Defects of Real Estate

What are latent defects in real estate and why are they problematic

Typical examples of latent defects include damp and mould hidden behind freshly applied plaster or tiles, non-compliant electrical wiring concealed by new covers, structural defects, a leaking roof that only becomes apparent after the first winter, infestation of the roof structure by wood-destroying fungi, or faulty insulation. These defects can fundamentally affect the value, use, and safety of the property.

Conversely, patent defects that were visible during the viewing (such as damaged plaster, broken tiles), defects explicitly mentioned in the contract, or normal wear and tear consistent with the age of the property cannot be considered latent defects.

The legal framework for liability for latent defects under the Civil Code

Liability for latent defects in real estate is governed by the Czech Civil Code in the provisions of Section 2099 et seq., with a special regulation for real estate in Section 2129. According to this provision, the buyer has the right to notify the seller of a latent defect in a building connected to the ground by a solid foundation within five years of acquiring ownership. This is an objective time limit and represents the maximum timeframe within which a latent defect can manifest.

However, the subjective time limit is also crucial, according to which the buyer must notify the seller of the defect without undue delay after they could have discovered it with due care. Both of these time limits run concurrently, and their combination determines whether the buyer still has the right to file a claim. Therefore, if a buyer discovers a defect shortly after the purchase, they must report it immediately. 

If a defect appears after four years, for example, they still have the right to claim it, but again, they must do so without delay after discovering it. In practice, this means that the mere fact that you have five years to claim a defect does not mean you can delay notification. The decisive moment occurs when you discovered the defect or could have discovered it with due care. From that moment, the subjective period of "without undue delay" begins, which in practice is a maximum of a few weeks.

For consumers, i.e., natural persons who purchase real estate outside their business activities, enhanced protection has been in place since January 2023. If a defect manifests within two years of taking possession of the property, it is legally presumed that the building was already defective at the time of handover. In such a case, it is the seller who must prove that the defect arose later. This provision significantly eases the buyer's burden of proof in the first two years.

It should be emphasised that even common contractual clauses such as "the property is sold as is, where is" do not release the seller from liability for latent defects in individually specified properties. These phrases are only relevant for the sale of an unspecified set of items in bulk. To exclude liability, the buyer would have to declare in writing that they waive their rights arising from defective performance, which is not possible in consumer contracts.

The lawyers at the Prague-based law firm ARROWS specialise in comprehensive advice on the purchase and sale of real estate. We will help you assess the risks even before the contract is concluded and ensure that your rights are protected to the maximum extent. For a consultation, contact us at konzultace@arws.cz. 

What are your rights upon discovering latent defects

The scope of the buyer's rights upon discovering a latent defect depends on whether it constitutes a material or immaterial breach of the purchase contract. This distinction has a fundamental impact on the buyer's options. 

Material breach of contract

A material breach of contract occurs if the breaching party (the seller) knew or must have known at the time of concluding the contract that the other party (the buyer) would not have entered into the contract had they foreseen such a breach. 

Typically, these are situations where the defect makes the normal use of the property impossible, significantly reduces its value, or endangers the health or safety of the occupants. Examples include a serious structural defect, a massive infestation of the structure by wood-destroying fungi, missing waterproofing causing permanent leakage, or an unauthorised construction modification preventing final building approval.

In the event of a material breach of contract, the buyer has a choice of the following rights under Section 2106 of the Civil Code:

• Removal of the defect by delivering a new item without the defect or delivering the missing item – difficult to apply to real estate in practice

• Removal of the defect by repairing the item – a demand for the seller to repair the defect at their own expense

• A reasonable discount on the purchase price – a reduction of the price paid corresponding to the severity of the defect

• Withdrawal from the contract – cancellation of the purchase contract with effect from the beginning and a refund of the purchase price

Immaterial breach of contract

If the defect does not constitute a material breach of contract, the buyer has a narrower range of rights under Section 2107 of the Civil Code:

• Removal of the defect – a demand for repair

• A reasonable discount on the purchase price

Withdrawal from the contract is not possible in this case, unless the seller fails to remove the defect within a reasonable time or announces that they will not remove the defects.

It is important to realise that the buyer must choose their right and communicate it to the seller. If they fail to do so in time, they only have the rights corresponding to an immaterial breach. Until the buyer exercises the right to a discount on the purchase price or withdraws from the contract, the seller can supply the missing item or remedy the legal defect. The seller may remedy other defects at their discretion by repair or by providing a substitute performance.

Deciding whether a breach of contract is material or immaterial requires a careful legal assessment of the specific circumstances of the case. The ARROWS law firm has extensive experience in handling these situations and can evaluate which strategy to choose for the maximum protection of your interests. Connect with us at konzultace@arws.cz. 

Procedure for discovering a latent defect – step by step

Discovering a latent defect in a property is a stressful situation that requires a quick and thoughtful response. Every day of delay can weaken your legal position. Here is a guide on how to proceed: 

1. Immediate documentation of the defect

As soon as you discover a possible latent defect, document it thoroughly and immediately. Take extensive photographic and video documentation capturing the extent of the problem. Take photos from different angles and, if possible, at different times of the day or under different weather conditions (e.g., leakage during rain). Record the exact date the defect was discovered. If possible, secure witnesses who saw the defect – for example, neighbours, craftsmen, or family members.

2. Expert assessment

Contact a construction expert without delay. The expert will assess the severity of the defect, determine its probable cause, and estimate whether it could have existed at the time of the property transfer. For legal proceedings, an expert report from a court-appointed expert in the field of construction is crucial. This report will professionally describe the defect, determine its cause, and quantify either the cost of repair or the reduction in the market value of the property.

The expert report is the most important piece of evidence in any potential court proceedings. Without it, it is practically impossible to prove that the defect existed at the time of the transfer and that it is indeed a latent defect, not subsequent damage or normal wear and tear. The investment in a quality report is almost always worthwhile.

3. Written notification to the seller

Without undue delay, ideally within a few days of discovering the defect, send a written notification of the defect to the seller. We recommend sending the letter by registered mail with a delivery receipt to have proof of delivery. Alternatively, a data box or an email with a recognised electronic signature can be used.

In the notification, precisely describe the discovered defect, state the date of its discovery, and attach photographic documentation. Clearly formulate which right you are choosing – removal of the defect by repair, a discount on the purchase price, or withdrawal from the contract. Set a reasonable deadline for the seller to respond and to take corrective action, if applicable.

4. Negotiation and potential lawsuit

After receiving the notification, the seller may acknowledge the defect and offer a solution – repair at their own expense, financial compensation, or an agreement on a discount. Ideally, you will reach an out-of-court settlement, which is faster and cheaper.

If the seller refuses to acknowledge the defect, does not respond to your notification, or offers an inadequate solution, it is necessary to file a lawsuit with the competent district court according to the location of the property. In court proceedings, you will have to prove the existence of the defect, that it existed at the time of the transfer, that you could not have discovered it during a normal viewing, and that you reported the defect in time. 

This entire process is legally and procedurally demanding. Each step requires expert knowledge not only of legal regulations but also of procedural rules, case law, and evidence procedures. The ARROWS law firm specialises in representing clients in claims for latent defects in real estate. 

We will provide you with comprehensive services, from assessing the defect and securing an expert report to negotiating with the seller and representing you in court proceedings. Contact us at konzultace@arws.cz, and we will take care of the effective protection of your rights.

How the discount on the purchase price is determined

Determining a reasonable discount on the purchase price is one of the most complex issues when dealing with latent defects in real estate. It cannot be simply calculated by subtracting the repair costs from the purchase price. Court practice requires a comprehensive assessment of many factors.

Basic criteria according to case law

According to the established case law of the Supreme Court, the following aspects must be taken into account when determining the amount of the discount on the purchase price:

1. How the defect complicates and limits the use of the property compared to the condition the parties expected with defect-free performance. This involves assessing the functional impact of the defect on daily life in the property.

2. Whether the defect reduces the lifespan of the property, and if so, by how much. At the same time, it is necessary to assess whether a potential repair might, on the contrary, increase the lifespan compared to the original condition.

3. By how much the value of the property has decreased as a result of the defect, taking into account the extent of the defect and whether the purchase price was agreed at, below, or above the usual price.

4. The cost of removing the defect; however, the discount is not equal to these costs. Repair costs are just one of many criteria.

5. Other relevant facts specific to the case, such as whether it was a sale of a new or old property, whether it had been renovated, whether the price took certain defects into account, etc.

The purpose of the discount on the purchase price is to create a situation that is as close as possible to the state as if the performance had been defect-free. The discount is intended to correct the imbalance between the seller's performance (handing over the property) and the buyer's performance (paying the purchase price). If the buyer received a defective performance for the agreed price, which does not correspond to the contractually anticipated condition, this imbalance must be rectified by a discount.

When it is possible to withdraw from the purchase contract

Withdrawal from the purchase contract is the most serious consequence of discovering a latent defect. It results in the cancellation of the contract with effect from the beginning, which means the parties return to their original state – the seller must refund the purchase price, and the buyer must return the property.

Conditions for withdrawal

It is only possible to withdraw from the contract in the case of a material breach of contract, as explained above. This mainly means situations where:

• The defect makes the normal use of the property impossible (e.g., a serious structural defect making the house dangerous)

• The defect is irreparable and fundamentally reduces the value of the property

• The seller has refused to remove the defect or has not removed it within a reasonable period for a removable defect

• The buyer would not have entered into the contract if they had known about the defect

Withdrawal from the contract cannot be exercised for insignificant defects, and it is presumed that a defect is not insignificant unless the contrary is proven. It is therefore up to the seller to prove that the defect is insignificant.

How to protect yourself from latent defects before buying

Prevention is always better than dealing with problems afterwards. Therefore, before buying a property, it is essential to pay sufficient attention to its technical and legal condition.

Thorough technical inspection

Never buy a property based on a single brief viewing. Plan multiple visits at different times of the day and in different weather conditions. Ideally, bring an expert – a building technician, a structural engineer, or a certified property inspector. An expert can detect problems that a layperson can easily overlook.

The investment in a professional property inspection ranges from CZK 5,000 to 15,000, depending on the size and type of property. However, this amount is negligible compared to the potential costs of rectifying latent defects, which can run into hundreds of thousands or even millions of crowns.

The inspector should focus particularly on:

• The structure and statics of the building – cracks in the walls, structural shifts, condition of load-bearing elements

• Damp and insulation – measuring wall moisture, checking waterproofing, presence of mould

• Electrical installation – age of wiring, presence of residual current devices, compliance with standards

• Water and waste pipes – condition of pipes, tightness of joints, functionality

• Roof and trusses – condition of the roofing material, condition of wooden structures, signs of leakage

• Heating – functionality, condition of boilers and pipes

Also, make use of modern technical tools like a thermal imaging camera, which can reveal heat leaks, hidden moisture, or insulation deficiencies.

Legal check of the property's condition

Before signing the purchase contract, have the legal status of the property checked. The basic step is to obtain an up-to-date extract from the Land Registry, where you can find out the owner of the property and any encumbrances such as liens, easements, pre-emption rights, or enforcement orders.

However, you will not find some legal defects in the Land Registry – for example, lease agreements in favour of third parties, servitudes arranged by the municipality in the past, or certain types of enforcement orders. Therefore, it is advisable to:

• Request a declaration from the seller that the property is unencumbered

• Check the central register of enforcement proceedings

• Verify in the insolvency register whether the seller is insolvent

• Check the building documentation and final building approval decision

• Find out if there are any disputes regarding the property in the apartment building or municipality

Legal review of the purchase contract

Before signing the purchase contract, have it reviewed by a lawyer. A lawyer will assess whether the contract protects your interests, whether it contains all the necessary elements, and whether it does not contain any risky clauses for you. The cost of a purchase contract review is around CZK 4,000 to 6,000 and can save you from multi-million crown losses.

The ARROWS law firm provides comprehensive legal services for property purchases, including legal checks of the property, preparation and review of purchase contracts, arrangement of an attorney's escrow for the purchase price, and representation in dealings with the Land Registry office. 

Our experience from long-term cooperation with more than 150 joint-stock companies, 250 limited liability companies, and 50 municipalities and regions allows us to provide services at the highest professional level. For a safe property purchase, contact us at konzultace@arws.cz.

Lawsuits and the role of a lawyer

If an out-of-court agreement with the seller cannot be reached, it is necessary to file a lawsuit with the competent district court according to the location of the property. Court proceedings concerning latent defects in real estate are legally and procedurally very demanding, and without professional representation by a lawyer, the risk of failure is high.

The course of court proceedings

Court proceedings begin with the filing of a lawsuit, which must specify exactly what defect the buyer is claiming, when they discovered it, how and when they notified the seller, and what right they are demanding (a discount, withdrawal from the contract, damages). All evidence must be attached to the lawsuit – photographic documentation, an expert report, correspondence with the seller, witness statements, etc.

In the evidentiary proceedings, the court then assesses the submitted materials. It is crucial to prove several facts:

1. Existence of the defect – that the property actually suffers from the defect claimed by the buyer

2. Latent nature of the defect – that the defect was not discoverable during a normal viewing, even with due care

3. Existence of the defect at the time of transfer – that the defect already existed at the time of purchase, and did not arise later

4. Timely notification – that the buyer reported the defect without undue delay after its discovery

5. Amount of damage or discount – if you are demanding a discount, you must provide evidence of its reasonable amount

The most important means of proof is an expert report from a court-appointed expert in the field of construction. This expert will professionally describe the defect, determine its cause, assess whether it could have existed at the time of the transfer, and quantify either the cost of removal or the reduction in the property's value.

Court proceedings usually last one to two years, and in complicated cases, even longer. It is important to have a well-prepared procedural strategy and complete evidentiary materials from the outset.

Why a lawyer is necessary

Although representation by a lawyer is not a legal requirement in these disputes, from a practical point of view, it is highly recommended. Professional legal assistance significantly increases the probability of a successful outcome of the entire proceedings.

A key step is the expert assessment of the case right at the beginning. A lawyer can realistically evaluate the chances of success, define the applicable rights, and choose the most appropriate strategy for conducting the dispute.

A properly prepared lawsuit supported by complete evidence not only increases the hope of winning but also shortens the length of the proceedings. Furthermore, a lawyer will handle all procedural acts, the proposal of evidence, and participation in hearings. An experienced representative can negotiate effectively and often achieve an out-of-court settlement, which saves time and money. 

The ARROWS law firm specialises in representing clients in court disputes concerning latent defects in real estate. We have experience with dozens of similar cases and have long-term cooperation with leading court-appointed experts. Our firm is insured for damages up to CZK 500 million, which provides our clients with maximum security. We are also common partners for corporate lawyers in resolving special matters such as claims for latent defects in real estate.

Our experience from providing long-term services plays an important role for our clients. Our portfolio includes more than 150 joint-stock companies, 250 limited liability companies, and 50 municipalities and regions. We pride ourselves on the speed and high quality of our legal services.

If you are dealing with a problem involving a latent defect in a property, do not complicate your life with a lengthy process that you may not be able to handle on your own. Entrust this matter to the professionals at the ARROWS law firm and save yourself time, nerves, and money. Contact us at konzultace@arws.cz, and we will take care of an effective solution to your situation.

Specific situations and exceptions:

If the seller knew or must have known about the latent defect at the time the property was handed over, they do not have the right to object to the lateness of the claim, even after the five-year period has expired. In such a case, the buyer can exercise their rights from defective performance even after five years from acquisition.

If the seller intentionally concealed the defect, their actions may also be assessed as the criminal offence of fraud under Section 209 of the Criminal Code. In such a situation, it is advisable to consider filing a criminal complaint. The lawyers at ARROWS can help you assess whether a criminal complaint is appropriate in your case and ensure it is properly filed. Contact us at konzultace@arws.cz. 

Purchase from a developer

When buying a flat or house from a developer (new construction), you will often encounter the provision of a two or three-year warranty period. This warranty also covers defects that arise during use, not just latent defects existing at the time of handover. In addition, consumers have an advantage in the burden of proof for the first two years – a defect discovered within two years of handover is presumed to have existed at the time of handover.

For developer projects, a proper handover protocol with a detailed description of the condition is key. The ARROWS law firm provides a legal representation service at the handover of the work, where we ensure that the protocol accurately reflects the actual condition and protects your rights. To arrange this service, contact us at konzultace@arws.cz. 

Common parts of apartment buildings

If the latent defect concerns the common parts of an apartment building (e.g., roof, facade, staircase), the situation is more complicated. In the past, case law excluded the active legal standing of the homeowners' association (SVJ) to file a lawsuit for latent defects in common parts. However, an amendment to the Civil Code effective from 6 January 2023 has rectified this situation, and the SVJ can now exercise rights from defective performance concerning common parts.

Legal defects of the property

In addition to factual defects (technical condition), a property can also suffer from legal defects. Legal defects mainly include the existence of liens, easements, enforcement orders, pre-emption rights, or the tenancy rights of third parties, of which the buyer was unaware and had no opportunity to learn.

Legal defects have the same regime as factual defects – the buyer has the right to have the defect removed (arranging the consent of the entitled person to cancel the encumbrance), a discount on the purchase price, or withdrawal from the contract. The lawyers at ARROWS specialise in resolving legal defects in real estate and will help you with their removal or with claiming compensation. Contact us at konzultace@arws.cz. 

Conclusion

Latent defects in real estate represent one of the most common and at the same time most complex problems that property buyers can encounter. Although the legal framework provides buyers with protection in the form of a five-year period to claim a latent defect and the possibility to demand a discount on the purchase price or even withdraw from the contract, the practical application of these rights requires careful adherence to legal deadlines, correct procedural steps, and quality evidentiary materials.

It is crucial to realise that the mere existence of a five-year objective time limit does not mean you can delay making a claim. The subjective time limit of "without undue delay" after discovering the defect runs independently, and failure to comply with it can lead to the loss of all rights. Likewise, it is key to secure a quality expert report that proves the existence of the defect at the time of transfer – without it, success in any potential court case is almost impossible.

In practice, the issue of latent defects in real estate is considerably more complex than it may seem at first glance. The individual procedural steps have hidden exceptions, details, and connections to other regulations that a layperson often does not see. Determining a reasonable amount for a discount on the purchase price requires knowledge of current case law and cannot be based solely on repair costs. Court proceedings then represent a significant burden in terms of time and money, with an uncertain outcome.

The lawyers at the ARROWS law firm deal with the issue of latent defects in real estate on a daily basis and have extensive practical experience with it. We can significantly shorten the time needed to resolve the situation and minimise the risk of errors. Our firm is insured for damages up to CZK 500 million, which provides our clients with maximum security. We are also common partners for corporate lawyers in resolving special matters such as claims for latent defects in real estate.

Our experience from providing long-term services plays an important role for our clients. Our portfolio includes more than 150 joint-stock companies, 250 limited liability companies, and 50 municipalities and regions. We pride ourselves on the speed and high quality of our legal services.

If you are dealing with a problem involving a latent defect in a property, do not complicate your life with a lengthy process that you may not be able to handle on your own. Entrust this matter to the professionals at the ARROWS law firm and save yourself time, nerves, and money. Contact us at konzultace@arws.cz, and we will take care of an effective solution to your situation.