Protection of the donated property: prohibition of alienation, encumbrance and easement of use

Author of the article: Mgr. Alice Dajčarová, LL.M., MSc., Attorney at ARROWS

If you are thinking of donating real estate, you may be wondering how to ensure that the donee disposes of it as well as possible. There are several legal tools you can use in the gift agreement that can protect your gift to some extent. These may include a prohibition on sale (alienation), a prohibition on encumbrances on the property, or the creation of an easement of use that allows you to continue to use the property. Let's take a closer look at each option.

How to ensure that your gifted property stays in the family: prohibition of alienation

With a non-alienation clause, you can be sure that the donee cannot sell or give the property to someone else without your consent for a certain period of time. This is particularly useful if you are worried that the donee might act rashly or get into a situation where he or she feels the urge to transfer the property quickly.

In practice, the prohibition on alienation works simply: you stipulate in the gift deed that the donee cannot transfer the property to a third party without your express consent. This prohibition must be time-limited, either for a specific period of time or, for example, for your lifetime, to ensure long-term control. For this measure to have the intended effect on third parties (other than you and the donee), it must also be registered in the Land Registry.

How to prevent your property from becoming a mortgage: prohibition of encumbrances

Another tool to protect your gift is the prohibition of encumbrances on the property. You may not want the donee to use the property as collateral or encumber it with an easement. An encumbrance prohibition means that the donee cannot use the property, for example, to guarantee a loan or other obligations without your consent.

This is useful if you are concerned that the donee may encumber the property with third party rights in rem, which could lead to, for example, the property being sold in foreclosure or its value being reduced. Again, such a prohibition must be entered in the Land Registry and you must ensure that it is sufficiently specific. This will ensure that your gift becomes a true family asset, not just an asset to be quickly cashed in. Even with a prohibition on alienation, it can only be set up for a certain period of time, not indefinitely.

Easement: stay in your home even if you are no longer the owner

Do you want to give a property to your loved ones but would like to continue living in it? An easement of occupancy allows you to keep this option. This legal instrument ensures that you retain the right to use the property even after the gift. Whether it is the whole house or even just a specific room, everything can be specified within the gift agreement.

In practice, the creation of an easement of use is most often encountered when real estate is donated between parents and children. This way, the parents can be sure that they can continue to feel at home where they have lived part of their lives. The easement is also registered in the Land Registry and, as it is linked to the property and not to its current owner, it is valid even if the donor later sells the property. However, it is always advisable to consider whether the aforementioned prohibition of alienation should be negotiated with the easement of use so that the property is not transferred to a (foreign) third party who could make it difficult/unpleasant for you to use the property, as unfortunately already happens in practice.

How to do it: registration in the Land Registry

You may now be wondering how to get all these modifications and conditions on paper and ensure that they are really binding. Once the deed of gift has been drawn up with the relevant restrictions (or even after the aforementioned restrictions have been negotiated in a separate agreement), you need to register it in the Land Registry. Without this registration, the prohibition of alienation, encumbrance or burden of use are not generally binding on third parties and do not provide the intended protection.

The application must comply with the statutory requirements, which include, inter alia, the identification of the parties to the proceedings, a detailed identification of the property and an indication of the rights to be registered. In the event that the above restrictions are negotiated directly within the donation agreement, the main thing is that you can register everything in the Land Registry through one application for registration, which also means only one administrative fee.

If you are not sure what the donation agreement should contain and how to fill in the application for registration correctly, it is worth contacting a specialist. This will prevent potential problems and a forfeited administration fee if the requirements of the deposit procedure are not met.

Why use protective instruments when donating a property?

You may be wondering whether these measures are necessary, especially if you have full confidence in the donee. However, all of these arrangements are safeguards even if you trust the donee to act reasonably. No one can see into the future and life circumstances can change at the snap of a finger. What if the donee becomes financially distressed or unable to pay his or her obligations? Or what if the estate is inherited by the next generation who doesn't have your best interests in mind? After all - it is not for nothing that they say "better to be prepared than surprised", in which case it would be a very unpleasant surprise.