Purchase Contract

Contract for purchase of a flat or a house

Expats.cz Staff

Written by Expats.cz Staff Published on 05.08.2008 10:26:54 (updated on 05.08.2008) Reading time: 5 minutes

Written by Richard Gürlich
of GÜRLICH & Co.


Purchase Contract

The next important subject is the Purchase Contract itself. In this case it is necessary to differentiate between a plot of land and house/flat and non-residential unit. A Contract for the purchase of a flat or non-residential unit has specific differences compared to a Purchase A Contract for the purchase of a plot or a house is analysed below in detail. The  Purchase Contract for a house or  a flat relates also to the  Purchase contract for a flat or non-residential unit.

Contract for purchase of a flat or a house

Due to the comprehensive nature of this subject the whole article is divided into three parts, namely; the formal terms of the Purchase Contract, the contents a contract and important clauses about method of payment of the purchase price.

Formal terms

The law concerning the form of a Purchase Contract stipulates several conditions. The contract for the purchase of plot or a house normally has to be executed in writing and the  signatures of the buyer and seller have to be on the same document. As the cadastre office verifies the signatures of the seller and buyer, it is recommended that the signatures are verified on the contract itself. Also it is a significant condition that the correct description and locating of the real estate being sold is in accordance with cadastre law. Finally, the contract should be clear as to the purchase price or the method of its calculation.

Content of a contract The contract must state the buyer and seller´s names, domicile and personal idenfication number( date of birth for foreigners) correctly. The contract needs to state clearly what is being sold. Within the contract the seller must be obliged to sell the real estate and the buyer must be obliged to purchase the real estate at the purchase price. To ensure that there are no problems acquiring real estate in the Czech Republic it is necessary to ensure that there are substantial guarantees built into the contract for the buyer. Similarly, the seller will need guarantees to be provided by the buyer to ensure the payment of the purchase price- whether by mortgage or similar credit.
These guarantees legally secure the position of the buyer and the seller in the event that problems occur during the sale or at completion. Guarantees have the form of a statement or a commitment. The parties declare the facts about what does and does not exist and what has or has not happened.A guarantee in form of a commitment means that the buyer or the seller is obliged to do something or ,on the contrary, not do anything. In order to ensure that the provisions of a contract are not toothless and that the buyer and the seller are motivated to uphold the guarantees it is useful to link the breach of guarantees to the payment of a contractual penalty. Provided the said party breaches its guarantee granted to the other party, or such a guarantee is found as false, distorted or incomplete, then the breaching party is obliged to pay to the other party the contractual penalty. At the same time it is necessary to recommend inclusion of the rights of the affected party to withdraw from the Purchase Contract should  the other party breach the main guarantee. This situation is made easier by the stipulation of the obligation of the seller to return any part of the  purchase price, already paid,  within a certain period and an obligation of the buyer to vacate the real estate within the same period. The latter is the case where the affected party will use their right to withdraw from the purchase contract. We are of the opinion that it is best to stipulate the right of withdrawal from the contract in the situation that the buyer will not be registered as the owner by the third application to the land registry. Last, but not least, it is necessary to determine exactly when the real estate will be handed over to the buyer, and who will finally submit the application for recording into the cadastre of real estates. Payment of purchase price Payment of purchase price for the real estate is the decisive moment of the purchase of real estate, even though this is finalised by registry in the cadastre of real estate.Therefore the timing of the payment is crucial, because if the registry is refused the buyer cannot take ownership. In this situation the buyer would not be sure that the seller would return the purchase price. On the other hand, if the buyer waits until the real estate is registered before paying, then the seller is not sure to receive the purchase price and would have to go to court. The standard, and for both parties a compromise solution, is to deposit the purchase price into an escrow account. The custodian of the purchase price could be anybody but normally it is a lawyer, a notary or a bank. Payment is then effected on the basis of an Escrow Contract that includes all rights and duties. The contract is concluded by the buyer, the seller and the custodian and precisely governs  the deposit of  the purchase price into escrow, the release of the purchase price to the seller and covers the situations were the purchase price is returned to the buyer. It is recommended that all the provisions of the Escrow Contract should  accurately follow the respective provisions of the Purchase Contract.
In case that the buyer has sufficient funds then it is standard that the buyer deposits the purchase price into an escrow during signing of the purchase contract and the purchase price is then released to the seller after recording the  ownership right of the buyer to the purchased real estate into cadastre of real estates. Should the buyer not have funds immediately available , and the funds are to come from a mortgage, then the deposit and release of the purchase price from the escrow is slightly  different. This relates to the  conditions and possibilities of drawing credit . This is to be modified individually, according to the conditions of the respective mortgage and the purchase.


Purchase of real estate

The question of real estate purchases is presently enjoying great interest,  due to the desire of many people to live in their own dwelling and ,for example, as a result of entrepreneurial activity. Additionally, relating to real estate contracts there could be a few legal pitfalls, that I will refer to. Due to the comprehensive nature of this subject it is necessary to split it up into several partial stages.

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