How to negotiate reliable agreements with Czech companies as a Romanian firm: Frequent errors to avoid

The expansion of Romanian businesses into the Czech market presents significant opportunities for regional growth, yet requires careful navigation of different legal frameworks. Romanian companies frequently assume that their domestic contract law principles will translate seamlessly, a misconception that often results in costly disputes, unenforceable agreements, and substantial financial penalties across business transactions.

Foundational differences between Romanian and Czech legal systems

Both Romania and the Czech Republic operate within civil law traditions as members of the European Union, yet this shared broad classification masks profound differences in legal philosophy and practical application that have emerged from their distinct historical developments. Romania's modern contract law evolved from its Civil Code framework, which maintained continuity with pre-communist legal principles and was subsequently reformed to align with EU directives. Conversely, the Czech Republic adopted a comprehensive recodification of private law relatively recently.

The Czech Civil Code (Act No. 89/2012 Coll.), which came into effect on January 1, 2014, represents a modern codification that operates as the foundational framework for all contractual relationships.

Romanian contract law traditionally places substantial emphasis on judicial discretion in ensuring fairness, where verbal understandings and relationship-based business practices carry considerable weight. The Czech legal environment, heavily influenced by Austrian and German legal traditions, operates on premises where written agreements constitute the legally recognized relationship, and courts interpret contracts with strict adherence to their explicit terms.

What might be considered a minor detail to be resolved later in the spirit of good faith in Romania could constitute a legally binding and financially punishing obligation in the Czech Republic.

The principle of good faith and its application

The principle of good faith, known as "poctivost" and "dobrá víra" in Czech law (Sections 6 and 7 of the Civil Code), represents a foundational and enforceable legal standard. Unlike the broader interpretive flexibility that sometimes characterizes the application of good faith in other jurisdictions, Czech law imposes specific obligations. Czech courts possess authority to refuse enforcement of contractual rights if their exercise is deemed to be an abuse of right or contrary to "good morals" (dobré mravy).

This distinction carries practical significance because Czech courts can strike down contractual clauses or even entire agreements found to be contrary to good morals, even when the parties explicitly agreed to such terms. 

Furthermore, Czech law recognizes pre-contractual liability ("culpa in contrahendo") under Sections 1728 and 1729 of the Czech Civil Code. This establishes that parties are expected to negotiate in good faith, and a party can be held liable for losses if they initiate negotiations without a genuine intent to conclude a contract.

The critical problem of contractual penalties: Understanding "smluvní pokuta"

The contractual penalty, termed "smluvní pokuta" in Czech law (Section 2048 et seq. of the Civil Code), represents perhaps the single most financially dangerous trap awaiting Romanian companies entering the Czech market. Assuming that contractual penalties function similarly to Romanian law provisions is a mistake that has resulted in Romanian enterprises becoming liable for financial penalties far exceeding reasonable compensation for actual damages or losses.

The Czech "smluvní pokuta" is a powerful and fully enforceable tool that can be applied to secure virtually any contractual obligation, including monetary ones such as late payment.

A Czech company can legally include a clause imposing a substantial daily or monthly penalty for a simple delay in payment, and this penalty is due regardless of whether the creditor suffered any actual financial damage from the breach. The primary purpose of the Czech "smluvní pokuta" is preventive and punitive. A Romanian company might overlook a "smluvní pokuta" clause related to payment terms, assuming it represents either a minor technical provision or would be unenforceable.

A ten-day administrative delay could trigger a penalty equivalent to 5% of the entire deal—a sum that could completely erase the project's profit margin.

Structuring compliant contractual penalties

To be valid under Czech law, a contractual penalty must satisfy essential requirements. The penalty must be agreed upon strictly, and while written form is not absolutely mandatory for the validity of the penalty clause itself if the main contract does not require it, it is highly recommended and standard for enforceability. The amount should be reasonable when compared to the value of the contract and the nature of the breach. The clause must be specific; vague terms such as "adequate amount" are deemed unenforceable.

A critical distinction involves the relationship between contractual penalties and damages claims. Under Section 2050 of the Czech Civil Code, unless agreed otherwise, payment of the contractual penalty precludes the creditor from claiming damages for the breach. 

However, most Czech-drafted contracts explicitly state that the penalty is "without prejudice to the claim for damages" (v plné výši vedle náhrady škody). Romanian companies must carefully check whether they are agreeing to pay a penalty plus damages, or just the penalty.

Formal requirements for contract validity: Why verbal agreements fail

One of the most devastating validity traps for Romanian companies involves the failure to execute certain contract types in proper written form. While a verbal agreement is legally binding in many commercial contexts under Czech law, specific contract types generally require written form, and failure to comply renders the agreement void (or relatively null), creating a situation where the Romanian party may possess limited legal recourse.

Under Section 2483 of the Czech Civil Code, an agency agreement requires written form (v písemné formě) to be legally valid.

A verbal agreement with a commercial agent in the Czech Republic is void, meaning a Romanian principal relying on a verbal understanding would have significant difficulty enforcing exclusivity arrangements, protecting confidential information, or claiming damages if the agent fails to perform. A Romanian company operating under domestic assumptions might establish a relationship with a Czech agent based on extensive verbal negotiations, yet in the eyes of Czech law, a valid agency contract does not exist.

Additional written form requirements

Beyond agency agreements, other contract categories require or strongly necessitate written form. Any contract involving the transfer of real estate must be in writing. Agreements regarding the assignment of registered intellectual property (trademarks, patents) generally require written form for registration purposes. Exclusive license agreements should also be in writing to be effective against third parties.

The practical consequence for Romanian companies is that any significant commercial relationship with a Czech partner must be formalized in a comprehensive written agreement. The written form requirement is not merely procedural—it goes to the certainty and enforceability of the contract.

Proper identification and documentation requirements

Czech law imposes requirements regarding the content and clarity of written agreements. Contracts must contain clear and complete identification of all parties, including legal entity registration numbers (IČO) and the correct registered seat, not merely company trading names. This requirement ensures clarity regarding which specific legal entity is bound by contractual terms.

Another significant requirement involves clearly defined contractual scope. Vague descriptions of performance obligations can render agreements unenforceable if the court cannot determine the object of the contract. A Czech court will not "fill in the gaps" regarding essential terms (essentialia negotii). If essential contractual terms are missing, the court may conclude that the parties never actually concluded a valid contract.

The contractual penalty landscape: Risk assessment and practical examples

The financial exposure created by poorly drafted contractual penalties deserves detailed examination. Consider a typical supply agreement: the contract might contain a 0.5% daily penalty for late delivery, a fixed penalty for delivery of goods not meeting quality specifications, and additional penalties for documentation delays. When a supplier experiences a minor quality issue and simultaneously misses a documentation deadline, the contractual penalties can accumulate rapidly.

In a EUR 100,000 contract, minor operational issues could trigger thousands of Euros in penalties—purely due to penalty accumulation.

The contractual penalty provisions that most frequently create problems involve payment deadlines. A Czech buyer might require payment within 14 days but include a "smluvní pokuta" stipulating 0.1% to 0.5% of the invoice amount per day for late payment. If a Romanian supplier's payment process requires 21 days, the penalty obligation accrues immediately.

When contractual penalties become unenforceable

Czech law does establish limits. A contractual penalty may be deemed "unreasonably high" (nepřiměřeně vysoká) by a court upon the debtor's proposal (Section 2051 of the Civil Code). The court may then reduce the penalty to a reasonable amount, taking into account the value and importance of the secured obligation. However, the court will not eliminate the penalty entirely, and the burden of initiating this defense lies with the debtor.

Additionally, penalties for breaches that prove impossible to perform due to objective impossibility may be void, but this is a high bar. Force majeure does not automatically waive contractual penalties unless explicitly agreed in the contract; strictly speaking, force majeure excuses liability for damages , but not necessarily for penalties or the performance itself, unless the contract says otherwise.

Common mistakes in drafting and negotiating Czech contracts

Relying on translated foreign templates

The most pervasive error made by Romanian companies involves using contracts drafted according to Romanian law or English common law and simply translating them into Czech. A translated contract typically produces a legally weak document that fails to account for Czech mandatory provisions. A translated contract will frequently use concepts that have different meanings in Czech law.

More fundamentally, translated contracts typically reflect assumptions about contract formality and gap-filling that do not apply in Czech commercial practice. The Czech partner may agree to a translated contract knowing that key protective provisions will fail to function as intended.

Overlooking differences in termination rights and limitation periods

Czech and Romanian law establish different rules regarding the timeframes within which parties can assert legal claims. The statute of limitations (promlčení) for contractual disputes in Czech law is generally three years (subjective period) from the moment the right could be first exercised, with a maximum objective period of ten years.

Critically, the time when a limitation period begins to run can be tricky.

In Czech law, for pecuniary debts where no time for performance was agreed, the period runs from the day after the right could have been exercised (i.e., when the creditor could have first asked for payment/issued an invoice), not necessarily from when the invoice was actually issued. This rule (actio nata) creates possibilities for limitation periods to expire earlier than expected if a creditor delays invoicing significantly.

Misunderstanding the scope of good faith obligations

Romanian companies typically understand good faith as a general interpretive principle. Czech law incorporates good faith as a standard of conduct. Czech courts can assess whether a party's conduct was honest and fair ("poctivé").

This distinction creates exposure. A Czech contract partner could assert a breach of the duty to act honestly. Conversely, pre-contractual liability is a real risk. If a Romanian company terminates advanced negotiations without a valid reason after creating a legitimate expectation that a contract would be concluded, the Czech partner could sue for reliance damages.

Inadequate attention to contract interpretation rules

Czech contract interpretation applies a subjective-objective method. First, courts seek the actual common intention of the parties. If that cannot be determined, they interpret the expression as a reasonable person in the position of the addressee would have understood it.

Critically, Czech law applies the "contra proferentem" rule (in commercial contexts, often protecting the weaker party or applied when adhesive contracts are used): ambiguous terms are interpreted to the disadvantage of the party that drafted the expression. Romanian companies that allow Czech partners to draft contracts should be wary of this, but also realize that if they draft an ambiguous term, it may be used against them.

Risks and Sanctions	How ARROWS office@arws.cz help
Contractual Penalty Trap: Signing a Czech contract containing "smluvní pokuta" provisions resulting in penalties accumulating to 10-20% or more of contract value.	Contract Review and Negotiation: ARROWS Law Firm reviews all contractual penalty provisions before signature, identifies excessive or cumulative penalties, and negotiates modifications to reasonable levels.
Validity Failure: Concluding verbal agency agreements or other contracts that Czech law requires to be in writing, resulting in unenforceable agreements.	Contract Drafting and Compliance: ARROWS Lawyers ensure all required contract types are properly documented in written form, verify compliance with mandatory Czech formal requirements.
Interpretation Disputes: Ambiguous contract language being interpreted strictly or against the drafting party, resulting in disputes over what was actually agreed.	Professional Drafting and Clarity: ARROWS Law Firm drafts precise, unambiguous contractual language that eliminates interpretation disputes and ensures Romanian interests are protected.
Limitation Period Expiration: Failing to file claims within Czech limitation periods due to misunderstanding when the period commences.	Timely Claims Management: ARROWS Lawyers track limitation periods applicable to specific disputes and ensure claims are filed within applicable deadlines.

Agency agreements: Specific requirements and termination complexities

Commercial agency agreements occupy a special position in Czech contract law due to EU Directive harmonization. The Czech Civil Code addresses agency relationships in Section 2483 et seq. An agency agreement must be in written form. The written agreement should specify the territory, the products, and whether the agency is exclusive or non-exclusive.

An exclusive commercial agency means the principal cannot appoint another commercial agent in the relevant geographical area.

The commercial agent must exercise activities with due care and in good faith. The principal must provide the agent with necessary information.

Commission rights and entitlements

A critical area of dispute involves commission calculations. The commercial agent is entitled to a commission for business transactions concluded as a result of the agent's activities. Upon termination of an agency agreement, the commercial agent may be entitled to "special remuneration" (zvláštní odměna, essentially an indemnity) under Section 2514 of the Civil Code.

This is calculated based on new customers brought by the agent or significant business volume increases, provided the principal continues to derive substantial benefits from such business.

The maximum amount is generally equivalent to the average annual commission calculated from the last five years. Romanian companies frequently underestimate this financial obligation. Termination of a Czech agent can be costly if the agent has been successful in building a client base.

Restrictive covenants and non-compete limitations

Non-compete clauses in agency agreements operate under strict limitations. A non-compete clause (konkurenční doložka) may restrict the commercial agent's activities for a maximum of two years after agency termination (Section 2518).

If a non-compete clause restricts the agent more than necessary, the court may restrict or invalidate it. Importantly, unlike employment contracts where non-compete clauses must be compensated to be valid, in commercial agency agreements, the law allows parties to agree on a non-compete clause without mandatory statutory compensation, though courts may sometimes view unpaid non-competes as unenforceable or contrary to good morals depending on the specific burden.

Dispute resolution: Courts, arbitration, and practical considerations

Disputes arising from Czech commercial contracts will generally proceed through the Czech civil court system unless parties have agreed to arbitration. The system is relatively efficient compared to some peers, but complex commercial disputes can still take years.

The Czech court system is progressively digitizing, but physical presence or local legal representation is often necessary for effective file management and hearings.

Romanian companies should understand that litigation in Czech courts involves exposure of business information and the unpredictability inherent in cross-border disputes.

Arbitration as an alternative dispute resolution mechanism

Arbitration is a viable alternative. The Arbitration Court attached to the Czech Chamber of Commerce and the Agricultural Chamber of the Czech Republic is the permanent arbitral institution. The primary advantage of arbitration is enforceability through the New York Convention.

For Romanian companies, arbitration can provide a faster resolution than state courts. However, an explicit written arbitration agreement (arbitration clause) is required.

Procedural requirements for filing claims

Whether through courts or arbitration, claims must be filed within applicable limitation periods. Damages must be proven with certainty. A Romanian company claiming lost profits must prove that the profit was realistic and probable, not merely hypothetical.

Alternative dispute resolution and mediation

Mediation is available under the Act on Mediation. It is increasingly used to preserve business relationships but remains voluntary (unless ordered by a court as a first meeting).

Executive summary for management

Contractual Penalty Risk: Czech law allows contracts to impose penalties regardless of actual damages. Penalties can accumulate. Management must ensure that every penalty provision is reviewed. Ensure the contract clarifies whether penalties exclude or apply alongside damages.

Formal Validity Requirements:Czech law imposes mandatory written form for commercial agency agreements and real estate transfers, and failure to comply renders contracts void.

Interpretation and Gap-Filling: Czech courts apply strict interpretation rules. Ambiguous language is often interpreted against the drafting party. Management must ensure precise definitions.

Statute of Limitations:Limitation periods can begin running from when a right could have been exercised, not just when an invoice is sent.

Dispute Resolution: Commercial disputes can be lengthy. International arbitration offers enforceability advantages but requires explicit clauses.

Conclusion of the article

Romanian companies establishing operations in the Czech Republic navigate a legal environment that differs from their domestic framework. The Czech Civil Code establishes formal requirements and obligations that diverge from Romanian law on critical points including contractual penalties, written form requirements, and good faith obligations.

The most dangerous pitfall involves contractual penalties ("smluvní pokuta"), where a single poorly drafted penalty clause can create financial exposure exceeding the profit margin.

Successful negotiation requires detailed understanding of Czech law. Romanian companies that invest in professional legal review of Czech contracts substantially reduce legal risks.

FAQ – Frequently asked legal questions about negotiating reliable agreements with Czech companies as a Romanian firm

1. Must a commercial agency agreement with a Czech agent be in writing?

Yes. Under Section 2483 of the Czech Civil Code, an agency agreement must be in writing to be valid. A verbal agreement is void. Contact office@arws.cz for agency agreement preparation.

2. What is the maximum contractual penalty that can be enforced?

There is no statutory maximum cap, but courts can moderate "unreasonably high" penalties. A common range is 0.05% to 0.1% per day for late payments, though higher rates appear. Penalties accumulating across multiple breaches can be severe. Each clause should be negotiated. For contract penalty analysis, write to office@arws.cz.

3. Can I rely on a verbal agreement with a Czech partner?

While many contracts can be verbal, it is risky. Agency agreements must be written. Real estate contracts must be written. For complex B2B relationships, a written contract is the only way to ensure certainty regarding penalties, warranties, and scope.

4. How long do I have to file a claim?

Generally, three years from when the right could first be exercised. Do not wait. Missing the deadline bars the claim.

5. Is arbitration better than Czech courts?

Arbitration is generally faster and offers easier international enforcement (New York Convention). However, it can be expensive and there is no appeal. Courts are cheaper but slower and public. The choice depends on the specific deal. Contact office@arws.cz for strategy.

6. What are the most important provisions to include?

(1) Precise definitions of scope; (2) Reasonable contractual penalties; (3) Explicit clarification if damages can be claimed in addition to penalties; (4) Force majeure clause; (5) Clear termination rights; (6) Governing law and dispute resolution mechanism. For contract review, contact office@arws.cz.

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