NEWSLETTER (NOT ONLY) FOR BROKERS - Legalization of black buildings, How (not) to negotiate a competition clause, Termination of sublease of an apartment

Legalization of black buildings under the new Building Act

According to the data of the Ministry of Regional Development, almost every tenth building in the Czech Republic has been built "in the black" in recent years. A black building is a building requiring a building permit, built without a permit or in violation of it. Black building can also be a case of a change to a building, such as an extension or addition to a legally constructed building. The existence of a black building can usually be ascertained by consulting the land register, in which the building is not registered at all or is registered but incorrectly. If in doubt, you can contact the building authority directly.

A black building on a plot of land brings with it a number of complications. From difficulties in obtaining a mortgage and insuring the property, to the risk of being fined or having to remove the building. Selling a plot of land with a black building can also be a problem for the real estate agent who does not warn the buyer of the consequences associated with legalization. The legislator has responded to the above risks by tightening the conditions for additional permits for black buildings.

The originally adopted bill envisaged the possibility of legalising black buildings only if the builder acted in good faith. However, the final version of the law brings several softenings, yet remains stricter than the existing regulation.

For example, one of the conditions for obtaining an additional permit is the payment of a fine for an offence. Although fines for black buildings are not new, building authorities have often not used them in practice. Therefore, the implementation of a black building can become more expensive. Fines can amount to several million crowns in extreme cases.

Furthermore, it will not be possible to legalise black buildings that require an exemption from the construction requirements or an exemption under a special legal regulation. In other words, if a building requires an exemption, for example because it is located in the habitat of a specially protected animal, it cannot be subsequently authorised. The same applies if the building does not respect the minimum setbacks, unless the neighbour concerned agrees.

This legislation comes into force on 1 July 2024, with the exception of so-called reserved structures such as motorways, water reservoirs and the like, where it is already in force. Therefore, real estate agency clients can be advised to hurry up with the legalization of black buildings and avoid possible future problems.

Useful advice: how to (not) negotiate a competition clause in a brokerage contract

Brokerage contracts commonly contain so-called competition clauses. The purpose of a competition clause is to oblige the estate agent not to compete with the broker in terms of its activities, for a certain period of time and in a certain territory, after the end of the cooperation. Since brokerage contracts normally fulfil the characteristics of a commercial agency contract, the limits set by the law apply to such clauses:

• the competing clause should be limited to the territory in which the broker actually carries on business as an agent of the real estate agency;
• the activity prohibited by the non-compete clause should correspond to the work that the broker performs for the estate agency, i.e. primarily estate agency;
• the duration of the prohibition should not exceed two years;

If the agreed non-compete clause and the sanction for its violation is not adequate to the scope of the cooperation, it may be limited or even invalidated in court proceedings.

Decision: termination of the sublease

The decision announced under file no. 26 Cdo 1002/2023 of 13 March 2024 sparked an interesting debate concerning the grounds for termination of a sublease of an apartment. In that decision, the Supreme Court concluded that the parties to a sublease agreement may agree on any grounds for termination of the agreement, irrespective of the legislation. This means that the subtenant does not enjoy the same level of protection as the tenant, for whom the law provides precise grounds for termination.

This interpretation of subletting is of fundamental importance for real estate practice, especially in cases where owners entrust the management of their apartments to professional management companies, which sublet the apartments. The above conclusion of the Supreme Court, however, raises criticism among experts, as it allows the circumvention of the statutory protection of tenants by creating "formal" lease relationships with the aim of subletting apartments and thus limiting the protection of their users.

Supreme Court, 26 Cdo 1002/2023-98, 13 March 2024: The Civil Code's regulation of subletting is rather sketchy, and does not contain any regulation of the grounds for termination of a sublease agreement. There is therefore no doubt that, if the general regulation in the Civil Code does not contain such a regulation, it is necessary to proceed from the basic regulation of private law that what is not prohibited is permitted. (...) The parties to a sublease agreement may therefore agree on any grounds for termination regardless of the regulation; the previous legislation allowed this as well.