CZECH REPUBLIC Law and Practice Contributed by: Matěj Manderla, Jan Wagner, Ivo Hartmann and Aleš Malach, Tenacta, advokátní kancelář, s.r.o.
3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate Commercial real estate acquisitions are typically financed through a mix of equity and bank loans, with secured bank financing being the most common. Finance leasing is used less frequently. The market includes not only direct investors but also regulated fund structures, particularly real estate funds and funds for qualified investors, which are important sources of capital. Transactions are usually structured either as asset deals or share deals. While both are common, larger transactions are often carried out as share deals. 3.2 Typical Security Created by Commercial Investors In commercial real estate financing, the main security is a mortgage over the property, usually combined with a pledge over the shares in the company holding the property. A mortgage becomes effective upon registration in the Cadastral Register. Similarly, a pledge over shares or ownership interests must be registered in the relevant register to be enforceable against third parties. Lend - ers also secure the project’s cash flow, usually through pledges or assignments of receivables, such as rent, insurance proceeds and bank account claims. If there is shareholder or intra-group debt, it is typically subordinated to the bank financing to ensure priority repayment of the senior lender. Loan agreements are frequently backed by notarial deeds with direct enforceability, allowing lenders to enforce claims without the need for prior judicial con - firmation. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders There are no specific restrictions on granting secu - rity over Czech real estate to foreign lenders. Foreign lenders can take a mortgage or other security on the same basis as Czech lenders. As described in 2.11 Legal Restrictions on Foreign Investors , all transac -
tions must also comply with anti-money laundering regulations. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security In the Czech Republic, creating and enforcing real estate security involves fees rather than taxes. There is no transfer tax or stamp duty. The main cost is the cadastral fee (EUR80) for regis - tering a mortgage. Additional notarial fees may apply, especially for enforceable notarial deeds, and a fee may also arise for registering a pledge over shares. Upon enforcement, costs consist mainly of court and legal fees, with no special enforcement tax. Annual real estate tax is separate and not affected by the security. 3.5 Legal Requirements Before an Entity Can Give Valid Security Granting security over real estate assets is generally permissible and forms a standard part of financing transactions. Particular attention must be paid to financial assis - tance rules. Where applicable, these rules impose statutory limitations and conditions, especially in situ - ations involving the acquisition of shares in the com - pany or its parent. To the extent required by applicable law, a whitewash procedure must be duly carried out to validate the provision of financial assistance. Non- compliance with financial assistance regulations can, in certain circumstances, result in the invalidity of the security or expose the transaction to legal challenge. Finally, for the security to be effective and enforceable against third parties, it must be duly created, typically through registration in the relevant public register. 3.6 Formalities When a Borrower Is in Default Enforcement Formalities and Obstacles Enforcement of a mortgage under Czech law primarily requires the existence of a valid and duly created mort - gage right over the relevant asset. Once the secured claim becomes due and remains unpaid, the creditor is entitled to satisfy its claim from the collateral.
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