Legal Support for Development Projects in the Czech Republic: Key Risks
Development projects in the Czech Republic face a complex legal labyrinth that conceals unexpected risks. From preparation and financing through to final approval for use, legal issues can delay a project, increase its costs, or bring it to a standstill. ARROWS, a Prague-based law firm, specialises in legal support for development projects, helping to prevent threats and ensuring clients have solid legal certainty from the very beginning through to successful completion.
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The legal complexity of development projects in the Czech Republic: why you cannot afford to underestimate it
When a developer decides to buy land and prepare construction, they often think it is enough to “buy the land” and “build”. The reality is far more complex. The Czech legal system, which is constantly evolving, requires review on many levels, from ownership rights to environmental protection. Any failure in any of these dimensions can mean delays, additional costs, or a legal dispute.
In the Czech Republic, ownership of real estate is governed by the Civil Code (Act No. 89/2012 Coll.) and is registered in the Cadastral Register, administered by the Czech Office for Surveying, Mapping and Cadastre. This registration is not mere administration – it is a legally determinative record that provides legal certainty for the buyer against future claims, unless fraud is proven.
A developer who does not buy land with “clean” title risks being later surprised by hidden third-party rights, mortgages, or an unremoved easement. This is a binding legal framework, not a recommendation. The attorneys at ARROWS, a Prague-based law firm, therefore verify from the very beginning whether the land is truly unencumbered and available.
Another layer is zoning and building permits. The Czech Building Act (Act No. 283/2021 Coll., fully effective from 1 July 2024), which replaces the previous Building Act, introduced a fundamental reform of construction law. It replaced the old system with a number of separate permits with a single unified permit.
On the one hand, this has accelerated processes; on the other hand, it has left courts and the legal community with many questions about how to interpret the new rules and how the new legislation will connect with existing regulations. A developer who is not aware of these changes will often hire a designer who prepares documentation under the old procedures, and then ends up trapped: the building authority may reject the documentation, the project is delayed, and the developer loses time and money.
Environmental review is also critical. The Czech Republic is bound by relevant European Union directives transposed into national law, in particular by the Act on Environmental Impact Assessment (Act No. 100/2001 Coll.). If a developer does not know that there is contamination on or near their land, they inherit the problem and the state regulator may require remediation. Such costs can range from tens of thousands to millions of Czech crowns. The attorneys at ARROWS, a Prague-based law firm, therefore always recommend at least a basic environmental survey or asset audit to avoid similar surprises.
Another issue that many developers only realize after making a mistake is securing financing. A bank financing the project will require a number of conditions – a legal opinion on the status of the property, verification of clean title, security by a mortgage, and recently also evidence of compliance with the Act on certain measures against the legalization of proceeds of crime and the financing of terrorism (the AML Act).
If financing is insufficiently prepared or the legal documentation required by the bank is missing, the project will be blocked at the very moment construction is supposed to begin. This is where it becomes clear why it is important to have a lawyer who also understands the banking and financial environment. The attorneys at ARROWS, a Prague-based law firm, know the practice of Czech banks and financial institutions and will help you prepare all documentation so that the financing proceeds without interruption.
Stages of a development project and the legal risks in each of them
For a developer to be prepared, it is necessary to understand that a project goes through several interdependent stages, each of which carries its own legal risks. We will look at these stages in the order in which they are commonly applied.
Stage I: property pre-selection and due diligence
Before any real estate purchase, a developer must carry out comprehensive due diligence. This means all verification that reveals hidden risks and unknown circumstances. In practice, it looks like this: a lawyer obtains a current extract from the Cadastral Register for the land or building to verify who the owner is and what rights encumber the property (pledges, bank pledges, easements, third-party rights).
What appears simple often is not. The land may be encumbered by a right to build for someone else, an old pledge that is no longer being repaid but was never formally recorded and cancelled, or a right of passage across someone else’s property.
Each of these encumbrances limits what a developer can do with the land, and some restrictions may be practically impossible to resolve without legal intervention. The attorneys at ARROWS, a Prague-based law firm, conduct a thorough review of title and help negotiate the cancellation of old rights or their amendment so that the project can move forward. In the case of old, non-functional encumbrances, they assist with having them cancelled by the courts.
The second critical task is verifying zoning. The developer must ensure that the intended use (e.g., an apartment building, shopping center, warehouse) is legally permitted on the given land.
Local building regulations and the zoning plan contain a number of restrictions – an area may be designated for residential use, and the developer therefore cannot build an industrial complex. If they did not realize this and bought the land without verification, they are trapped. A lawyer will request a statement from the competent authorities on compliance with zoning and will point out potential obstacles, such as the difficulty of obtaining a zoning change in the future.
The third pillar is an environmental assessment. Czech legislation requires an environmental impact assessment (EIA) in certain cases, especially for larger projects or projects with significant potential impact.
If a developer does not know that there is contamination on or near their land, they inherit the problem and the state regulator may require remediation. Such costs can range from tens of thousands to millions of Czech crowns. The attorneys at ARROWS, a Prague-based law firm, therefore always recommend at least a basic environmental survey or asset audit to avoid similar surprises.
The fourth element of due diligence is verification of title and then review of all relevant seller documents – building permits or occupancy approvals for existing structures, energy performance certificates, technical documentation, and in particular compliance with the Building Act and any orders of the building authority. A missing energy performance certificate or unknown irregularities in construction documentation may result in the project being unable to start, or the authority later requiring additional works.
Stage II: preparation of project documentation and obtaining a building permit
After purchasing a property, a lengthy process begins of preparing the project documentation and registering it with the building authority. In the Czech Republic, this is now governed by a single integrated permit under the new Building Act (fully effective from 1 July 2024). The developer must ensure that the project documentation contains all required details – construction drawings, site plans, building energy performance certificates, health and safety aspects, and in some cases also special surveys (e.g., geological or seismic).
The building authority collects opinions from all relevant authorities – from the municipality through environmental authorities to security services. This process can take months, and if the developer or their designer omits required information, the authority will request supplementation, which delays the decision. The attorneys at ARROWS, a Prague-based law firm, who have experience with the permitting process at various building authorities across the Czech Republic, know which details matter to which authority and will help you avoid unnecessary delays.
It is also critical to understand that the project documentation is a legally binding document. It forms part of the building permit, and once construction begins, any material deviation from the approved documentation constitutes a breach of the Building Act, and the contractor or developer may be fined. The new Building Act has introduced greater flexibility, but there are still limits to what can be changed without a new permit. The attorneys at ARROWS, a Prague-based law firm, will advise on preparing the documentation so that it includes sufficient flexibility for minor adjustments during construction and does not unnecessarily lock you into details that cannot be changed later.
Phase III: financing and securing resources
A developer who does not have sufficient funds to cover the entire project must arrange financing. Banks and investors are not naive – they have strict requirements. Typically, they require a legal due diligence report on the property, verification of title, a risk analysis, a financing agreement with conditions, and a mortgage/lien over the property as security.
In recent years, another layer has been added: AML compliance checks. The bank must verify who the beneficial owner of the investment is and confirm that the money does not come from illegal sources or terrorism. In the Czech Republic, this legislation is continuously being tightened and its implementation refined.
Non-compliance can lead to a bank account being blocked for several months, which means a practical paralysis of the business. The attorneys at ARROWS, a Prague-based law firm, know the practices of Czech banks and financial institutions and will help you prepare all documentation so that the financing proceeds without interruption.
An interesting issue is also the so-called “share deal” versus “asset deal” – i.e., purchasing a company that owns the property versus purchasing the property directly. In the Czech Republic, until 2020 share deals were recently preferred because they were more advantageous for the buyer from a tax perspective, as they were not subject to real estate acquisition tax. However, this tax has been abolished.
Nevertheless, share deals still remain relevant for other tax and commercial reasons, such as transaction speed and continuity of operations (existing lease or operating agreements remain in force), or other specific tax optimisations, such as VAT on new constructions. Choosing the right structure is important not only from a tax perspective, but also in terms of security and risk management. The attorneys at ARROWS, a Prague-based law firm, will help you choose the right transaction structure.
Phase IV: contractual structuring of construction and managing the relationship with the contractor
Once the developer has a building permit and financing, construction can begin. This requires entering into a number of contracts – primarily with the construction contractor, but also with the designer, engineer, subcontractors, and suppliers of construction materials. One of the greatest risks is often hidden here: insufficiently prepared or vague construction contracts.
The construction contract must contain a clearly defined scope of work, completion deadlines, pricing terms (and how they will change in the event of changes), insurance, handling of delays, and dispute resolution. In the Czech Republic, we often encounter practices where the contractor and the developer work “on a handshake” or with minimal contractual documentation. That is a major mistake.
The new Building Act places strong emphasis on the responsibility of the builder (investor/developer) for the overall course of construction and for selecting qualified suppliers. Liability for defects and damages must always be carefully agreed primarily in the contract for work. If the construction is delayed or contains defects, the developer (in fact, the investor) can claim compensation from the contractor if this is agreed in the contract.
However, contractual penalties may also be agreed for the developer if they breach their contractual obligations, e.g., by failing to provide timely access to the construction site or failing to approve recommended works. In such a case, the contractor typically bears no liability for delays caused by the developer. The attorneys at ARROWS, a Prague-based law firm, will help you draft a contract that properly allocates risks between both parties.
Another critical element is dealing with changes during construction. In practice, almost no construction project proceeds without changes – whether due to discovered underground obstacles, changes in the financier’s requirements, or changes in the building authority’s decisions. If the construction contract is vague on “what happens if something changes”, it creates room for disputes. The attorneys at ARROWS, a Prague-based law firm, will help you determine which changes can be handled flexibly and which require additional design work and a permit from the building authority.
Related questions on the legal structuring of construction
1. What happens if the contractor completes the construction on time, but the quality of the work is poor?
Under Czech law, the developer is entitled to remedy of defects. The contractor must remedy all defects free of charge during the warranty period (i.e., the period of liability for defects) – usually 12 months from handover of the construction, unless the contract provides for a longer period. If the contractor refuses to remedy the defects, the developer may seek a court solution and claim compensation, including the costs of repair by a third party. However, in practice this means a legal dispute that can take years.
2. Should I arrange construction insurance?
Yes. Although the Building Act places strong emphasis on the responsibility of the contractor and the builder, that does not mean the developer should not have insurance. If the construction were destroyed (e.g., by flooding, a storm, an earthquake – anything beyond the contractor’s control), the developer should have insurance for restoration. The attorneys at ARROWS, a Prague-based law firm, will help you negotiate with the contractor who exactly arranges the insurance and who pays for it.
3. What if the contractor collapses or goes bankrupt in the middle of construction?
This is a classic risk. In the final contract, the parties should agree that the contractor will provide security – usually in the form of a bank guarantee or insurance. If the contractor goes bankrupt, the developer turns to the guarantor and the guarantor pays a financial amount to complete the construction with another company. Without such security, the developer would be trapped. The attorneys at ARROWS, a Prague-based law firm, therefore negotiate from the outset for the contractor to provide appropriate security.
The new Building Act and changes in the building permit system: opportunities as well as new risks
The new Building Act (Act No. 283/2021 Coll.), fully effective from 1 July 2024, is one of the most important changes in Czech construction law in the last twenty years. It was intended to bring acceleration and simplification, and in many respects it has succeeded. The single integrated permit has replaced the previous system in which the developer had to obtain a number of separate permits from different authorities, and the building authority now coordinates everything. That is a positive development.
In practice, however, it has become clear that the new Act leaves a number of uncertainties. Building authorities interpret it differently, and sometimes individual authorities share “best practices” only verbally or through their informal networks.
A developer who is not aware of these nuances risks delays during the preparation phase because the local building authority requires a precisely defined procedure that is not apparent from the wording of the Act. The attorneys at ARROWS, a Prague-based law firm, have a network of contacts at building authorities in the Czech Republic and are familiar with their practices. They can therefore advise you on what a specific authority expects and how to navigate the process safely and efficiently.
The new Building Act also introduces the concept of the “designer” with more precisely defined duties and liabilities. The designer must ensure that the project documentation complies with the Building Act and is feasible to implement. If the designer fails and the project cannot be built, they may be held liable. This means that selecting the right designer is important. The attorneys at ARROWS, a Prague-based law firm, will help you negotiate a contract with the designer that clearly defines their duties and liabilities so that, if an issue arises, the developer has a legal tool to seek compensation.
Another change concerns the role of the “builder” (investor/developer). The new Building Act clarifies the roles and responsibilities of various participants in construction, including the “builder”. The builder now bears more comprehensive responsibility for the entire process, including selecting the contractor and supervising the construction, which gives them greater control but also greater responsibility.
This means that a developer who decides to manage the contractor selection themselves (e.g., through public tenders) must be aware of all the duties and risks that come with it. The attorneys at ARROWS, a Prague-based law firm, will help you clarify these duties and set up an organisational structure.
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Potential issues |
How ARROWS can help (office@arws.cz) |
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Land encumbered by hidden rights or third-party liens – The developer buys land and later discovers that it is subject to an old right to build or an easement that prevents the planned development. |
ARROWS attorneys carry out a thorough review in the Czech Real Estate Cadastre and negotiate with the affected parties to remove the encumbrance, or with authorities regarding official restrictions. In the case of old, no-longer-functional easements, they assist with having them cancelled by the courts. |
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Non-compliance with zoning or the land-use plan – The developer’s plan (e.g., a shopping centre in an area designated only for housing) conflicts with building regulations and the building authority rejects the project. |
ARROWS attorneys verify zoning compliance already at the preparatory stage, secure formal opinions from the competent authorities, and, if necessary, initiate a zoning change or pursue a solution via an exemption/administrative decision. |
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Missing or invalid building permit or defective project documentation – The developer starts construction and later finds that the building permit contains errors, or the building authority subsequently identifies a conflict with legal regulations. Construction must stop. |
ARROWS attorneys review and check the project documentation from a legislative perspective, ensure its proper submission to the competent authorities, communicate with authorities throughout the process, and address any legal deficiencies without unnecessary delays. |
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A poor-quality construction contract that leaves room for disputes with the contractor regarding deadlines, quality, price, or obligations – The construction is delayed, additional costs arise, and the developer is unable to enforce their rights because the contract is unclear. |
ARROWS attorneys draft robust construction contracts with a clear allocation of risks, define procedures for handling changes, insurance, delay penalties, and mechanisms for resolving disputes without unnecessary hold-ups. |
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Breach of anti-money laundering rules or failure of AML checks – A bank blocks financing because the sources of funds have not been verified or the ownership structure is opaque. The project is stalled. |
ARROWS attorneys ensure compliance with the Czech AML Act, verify beneficial owners, prepare all documentation for banks and regulators, and help overcome any AML-related blocks. |
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Environmental contamination of the land or failure in environmental impact assessment – After the purchase, the developer discovers that the land contains heavy metals or other hazardous substances. The state regulator orders remediation costing hundreds of thousands to millions of Czech crowns. |
ARROWS attorneys recommend a Phase I and, if necessary, a Phase II Environmental Site Assessment already during preparation. If contamination is identified, they assist with negotiations with the regulator and define who will fund the remediation (typically the original owner or an insurer). |
Issues relating to encumbrances on real estate in share deal structures and hidden risks
In the Czech Republic, until 2020 the so-called “share deal” structure was preferred—i.e., the acquisition of a company (SPV – special purpose vehicle) that owns the real estate, instead of purchasing the real estate itself. The main motivation was that such a transaction was not subject to real estate acquisition tax. Although this tax has been abolished.
However, share deals still remain relevant for other tax and commercial reasons, such as transaction speed and continuity of operations (existing lease or operating agreements remain in force). They also offer specific tax optimisations, such as VAT treatment for new developments. Nevertheless, this approach also conceals specific risks that require thorough legal due diligence.
When you buy a company that owns real estate, you also buy all of its liabilities—all debts, all legal disputes, all environmental liabilities the company may have in the background. This is entirely different from buying real estate directly, where the buyer legitimately relies on the entry in the Czech Real Estate Cadastre.
If a person is registered in the Cadastre as the owner, the buyer is granted good-faith protection, even if it later turns out that the seller was not the true owner. For this reason, in share deal transactions, the attorneys at ARROWS, a Prague-based law firm, carry out exceptionally thorough due diligence—not only legal (titles, contracts, liabilities), but also accounting (reviewing tax history, bonds, receivables) and factual/technical (checking the technical condition of the properties). It is demanding, but necessary.
In the Czech Republic, checks under the Czech AML Act are also becoming stricter—the bank or regulator wants to know who the ultimate beneficial owner of the target company is, especially where the owner is an international holding company. The attorneys at ARROWS, a Prague-based law firm, thanks to the ARROWS International network, also have experience with such complex structures.
Final summary
A development project in the Czech Republic is not a simple undertaking. From selecting the land through financing and construction to handing over the keys, it is a complex process governed by an extensive set of legal regulations and administrative procedures, where an error at one stage can cause serious problems at subsequent stages. Legal certainty is not a given—it is the result of careful planning, expert legal oversight, and proactive risk management.
ARROWS law firm in Prague has many years of experience providing legal support for development projects in the Czech Republic. The ARROWS attorneys know how the new Building Act works in practice, how individual building authorities proceed, what the most common mistakes are, and how to avoid them.
They are also familiar with the new requirements for compliance with AML regulations, work with banks and financial institutions, and have experience with complex share deal structures. Thanks to the ARROWS International network, they can also assist with cross-border aspects of the project if needed.
If you want to be sure that your project will be managed safely and without unnecessary delays or penalties, contact the attorneys at ARROWS law firm in Prague. We will be happy to provide an initial consultation, during which we will clarify the key risks of your project and prepare a plan on how to avoid them. Don’t leave anything to chance – entrust the legal safeguarding of your project to professionals.
Contact ARROWS law firm in Prague at office@arws.cz. We are insured for damages up to CZK 400,000,000, which means that if something is overlooked, we have the financial capacity to cover it.
FAQ
1. Is it mandatory to have a lawyer to prepare the project?
The law does not explicitly require it, but in practice it is very sensible. Without a lawyer, you risk making mistakes in the details of the Building Act, hidden rights attached to the land, or financing terms. The attorneys at ARROWS law firm in Prague will help you avoid these mistakes.
2. How much does legal support for a development project cost?
The price varies depending on the scope of the project and on the stage at which you engage a lawyer. A small project may cost a few tens of thousands, while a larger project can reach hundreds of thousands. However, an engaged lawyer usually saves more than they cost—by helping you avoid mistakes and unnecessary disputes. Contact office@arws.cz; we will be happy to provide an estimate.
5. What happens if occupancy permits are not issued for the project?
If the contractor does not complete the construction in accordance with the building permit and the project documentation, the building authority may not issue an occupancy approval. The developer then cannot use, lease, or sell the building. In that case, the developer has the right to require the contractor to bring the construction into compliance with the permit, or to sue them. They may also request a refund. The attorneys at ARROWS law firm in Prague will help you enforce your rights.
6. What are the main legal differences between acquiring real estate and acquiring a company that owns the real estate (share deal)?
When purchasing real estate, the buyer legitimately relies on the entry in the Cadastral Register. If a person is recorded in the Cadastral Register as the owner, the buyer is protected by good faith, even if it later turns out that the seller was not the true owner. In a share deal (acquisition of a company), you are buying all of its liabilities and rights—any and all debts, all litigation. A much deeper due diligence is therefore necessary. For share deal transactions, the attorneys at ARROWS law firm in Prague also carry out, among other things, reviews of accounting and tax aspects.
Notice: The information contained in this article is of a general informational nature only and is intended for basic orientation in the matter based on the legal situation as of 2026. Although we take the utmost care to ensure accuracy, legal regulations and their interpretation evolve over time. We are ARROWS law firm in Prague, an entity registered with the Czech Bar Association (our supervisory authority), and for maximum client safety we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact ARROWS law firm in Prague directly (office@arws.cz). We accept no liability for any damages arising from the independent use of the information in this article without prior individual legal consultation.
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