Legal due diligence on land for development –

Why is thorough legal due diligence the foundation of every successful project?

A seemingly problem-free plot of land can hide legal defects that lead to delays of several years, unexpected costs in the millions of crowns, or, in the worst-case scenario, the complete loss of the investment.

Moreover, modern development projects often do not involve a direct purchase of the land. It is much more common to acquire a special-purpose company (an SPV – Special Purpose Vehicle) that owns the land. 

This approach, known as a share deal, requires a completely different level of scrutiny. It's not just the property itself that is examined, but the entire corporate and contractual history of the company. Legal due diligence is therefore not an expense, but an investment in certainty and a key risk management tool for your project. 

At ARROWS, we approach due diligence as a strategic analysis that protects your investment. Thanks to our experience from long-term cooperation with more than 150 joint-stock companies and 250 limited liability companies, we understand not only the legal but also the business context of development.

A comprehensive checklist for your investment

The legal due diligence process is systematic and focuses on several critical areas. Each of these can reveal crucial information that will influence your decision to buy, the purchase price, or the structure of the entire transaction. Let's look at the most important steps to take.

In-depth analysis of the Land Registry: Ownership, easements, and hidden defects

The primary source of information about any property is the Land Registry. The extract from the title deed (LV) is a document that must be studied carefully. Special attention must be paid not only to Part A (owner details) and Part B (property description), but especially to Part C, which reveals all restrictions on ownership rights.

Among the most common and problematic encumbrances are easements. These can include, for example, a right of way that gives a neighbour the right to walk and drive across your land, or a utility line easement (electricity, water, gas) that restricts construction possibilities.

An extreme risk is a lifetime right of use easement, which makes it virtually impossible to dispose of the property freely. Another warning sign is a so-called 'plomba' (seal) registered on the title deed. A 'plomba' indicates that some proceedings concerning the property are underway, such as the registration of a lien or a change of owner, and the outcome is not yet certain.

At ARROWS, we conduct a detailed analysis of the title deed and easement agreements to uncover any restrictions that could jeopardise your development plan. Need to verify the legal status of a plot of land? Contact us at consultation@arws.cz.

Zoning plan and building regulations: Is your project in line with the future of the locality?

Compliance of the project with the municipal zoning plan is absolutely crucial. This document determines how the area can be used – whether it is designated for housing, commercial construction, manufacturing, or recreation.

Never rely on the seller's claim that the land is 'buildable'; always request specific documents and verification from the authorities.

It is important to distinguish between the general zoning plan and a more detailed regulatory plan, which may set very specific conditions for the locality, such as building height, roof pitch, or the percentage of the buildable area. 

A major threat that can block a project for many years is a so-called building freeze (stavební uzávěra). Municipalities use it to temporarily suspend all construction activity, typically while preparing a new zoning plan.

The lawyers at ARROWS will obtain zoning planning information for you and analyse all planning documentation to confirm your project's compliance with regulations and prevent the risk of a building freeze. For an immediate solution to your situation, write to us at consultation@arws.cz.

The new Building Act in practice: Permits, digitalisation, and the Unified Environmental Statement (JES)

The new Building Act, which aims to speed up and simplify permitting processes, brings fundamental changes. Key innovations include the introduction of a single procedure for project approval ('single stamp'), digitalisation via the Builder's Portal, and, above all, the institution of the Unified Environmental Statement (JES).

The JES aims to integrate up to 29 different administrative acts in the environmental field into a single statement. However, a new pitfall lies here. Although the JES is presented as a simplification, its concept is not flawless. The Unified Environmental Statement does not actually integrate all the necessary consents and exemptions.

For example, permits for projects in specially protected areas, national parks, or sites of European importance still need to be obtained separately. This creates a new risk for the developer: they may believe in good faith that by obtaining the JES they have met all environmental requirements, but in reality, they are still missing key permits without which the construction cannot be carried out. 

Our specialists in construction law know exactly which administrative acts are part of the JES and which must be secured separately. We will prepare complete documentation for you and ensure a smooth permitting process under the new Building Act. Connect with us at consultation@arws.cz and get a tailor-made legal solution.

Acquisition via an SPV: Risks of contractual obligations and financial traps in a share deal

As mentioned, purchasing land through the acquisition of a company (SPV) is standard practice today. 

However, this procedure means that you are not just buying an asset (the land), but taking over the entire company with all its liabilities, whether apparent or hidden. The legal due diligence must therefore be extended to a comprehensive audit of the entire firm.

The biggest threats include:

• Historical defects in corporate documentation: For example, the absence of a general meeting's consent to a share transfer in the past can render such a transfer absolutely void and challenge your entire ownership.

• Change-of-control clauses: A hidden provision in a loan agreement or a contract with a general contractor can be triggered by the sale of the company. The consequence could be the immediate acceleration of the entire loan or the termination of a key contract, which could destroy the financing of the entire project.

• Hidden liabilities: We carefully check for tax arrears, ongoing litigation, labour law issues (e.g., 'švarcsystém' - a form of disguised employment under Czech legislation), or other hidden debts that would pass to you after the acquisition.

The ARROWS team combines expertise in real estate and corporate law to conduct a comprehensive due diligence of the entire project company. We protect you from hidden liabilities and ensure that the share deal acquisition is safe and advantageous for you.

Physical condition of the land: Do not underestimate geological and environmental burdens

Legal due diligence is not limited to documents. It must also include an assessment of the risks associated with the physical condition of the land. 

The costs of foundation work or contamination remediation can significantly increase the project budget and reduce its profitability. It is therefore essential to arrange for an engineering-geological survey to reveal the subsoil composition, the load-bearing capacity of the foundation soil, and the groundwater level. 

This information is key for the designer and can fundamentally affect the technical solution and the price of the construction. It is equally important to check for old environmental burdens on the site, especially if it had industrial use in the past. Decontamination costs can reach astronomical amounts.

ARROWS cooperates with proven technical experts and provides the legal framework for geological and environmental surveys. We will help you correctly interpret their results and incorporate them into the purchase agreement, for example, in the form of seller's warranties or an adjustment to the purchase price. Do not hesitate to contact our office – consultation@arws.cz.

How ARROWS manages the due diligence process and protects your investment from A to Z

Our approach to legal due diligence is comprehensive and systematic. We always tailor it to the specific goals and specifics of your project. 

The process typically includes the following steps:

1. Initial analysis and strategy: At the beginning, we discuss your investment plan with you in detail to precisely define the scope and objectives of the due diligence.

2. Collection and review of documentation: We systematically collect and analyse all relevant documents – from title deeds and zoning plans to the SPV's corporate documentation.

3. Communication with authorities: We actively negotiate on your behalf with building authorities, the Land Registry, and other relevant bodies to obtain all necessary information and statements.

4. Final report: We present the results of the due diligence to you in a clear and understandable report. It clearly identifies all risks found, assesses their severity, and proposes concrete steps to eliminate or mitigate them.

5. Transaction support: We use the findings from the due diligence when negotiating the purchase agreement. We will help you negotiate a better price, secure necessary warranties from the seller, and prepare transaction documentation that maximally protects your interests.

For clients with international projects or foreign financing, our network is a key advantage. Thanks to the ARROWS International network, built over ten years, we handle transactions with an international element on a virtually daily basis and provide legal certainty for our clients abroad as well.

To give you a better idea of how we address specific risks in practice, we have prepared two clear tables. They show the most common threats and the specific legal services with which ARROWS protects your investments.

Risks related to zoning planning and permits

Invest with certainty and a strategic partner by your side

Thorough and professionally conducted legal due diligence is the most important prerequisite for the success of any development project. 

It is not just an administrative formality, but a strategic process that uncovers risks, protects your investment, and creates a solid foundation for future construction and profitability. Properly conducted due diligence gives you a strong negotiating position and the certainty that your project stands on solid ground.

At ARROWS, we provide more than just legal advice. We become your strategic partner who understands your business goals. 

We pride ourselves on speed, high quality, and deep market knowledge, backed by experience working for hundreds of corporate clients, including 51 municipalities and regions. Moreover, we are happy to connect our clients if we see interesting business or investment synergies.

Take the first step towards a safe and successful investment. Contact us at consultation@arws.cz to arrange an initial consultation where we can discuss the specifics of your project.