CZECH REPUBLIC Law and Practice Contributed by: Matěj Manderla, Jan Wagner, Ivo Hartmann and Aleš Malach, Tenacta, advokátní kancelář, s.r.o.
A mortgage is typically enforced either: • through judicial enforcement, usually resulting in a sale of the real estate via public auction conducted by a court or bailiff; or • by way of a contractual private sale, if expressly agreed in the mortgage agreement. Alternatively, the parties may agree on a forfeiture of the collateral, whereby ownership of the pledged asset is transferred to the creditor. Such an arrange - ment must comply with separate statutory require - ments governing the appropriation of collateral, including limitations designed to protect the debtor against undervaluation and abuse. Securing Priority Priority follows a strict “first-in-time, first-in-right” rule based on registration in the Cadastral Register. Non-Performing Loan (NPL) Market There is an active, albeit highly consolidated, market for the sale of NPLs in the Czech Republic. It is primar - ily driven by specialised distressed-asset investors and qualified investor funds. However, the market is not currently experiencing any massive wave of dis - tressed real estate sales, as major banks continue to maintain relatively healthy portfolios. 3.7 Subordinating Existing Debt to Newly Created Debt Debt may be subordinated to newly created debt by agreement, typically in a subordination agreement. Such arrangement is usually entered into by the sen - ior creditor, the subordinated creditor and the debtor, so that the agreed payment blockage and priority mechanics bind all relevant parties. At the security level, a newly created mortgage may also be regis - tered in second or subsequent rank over the same real estate, but this does not by itself subordinate an existing first-ranking mortgage to the new debt. 3.8 Lenders’ Liability Under Environmental Laws A lender is not liable for environmental damage simply because it finances real estate or holds or enforces security over it. Liability may arise only if there is a
separate legal basis, not from the lender’s role as such. 3.9 Effects of a Borrower Becoming Insolvent The borrower’s insolvency does not invalidate existing security. However, once insolvency proceedings are started, claims must generally be enforced within the insolvency process, and individual enforcement is no longer possible. A secured creditor is one whose claim is backed by assets belonging to the insolvency estate, based on a security right recognised by the Insolvency Act (eg, mortgage, retention right or assignment by way of security). Such a creditor has the right to be satisfied separately from the proceeds of the relevant collateral. Security granted shortly before insolvency may be challenged by the insolvency administrator. 3.10 Taxes on Loans There are currently no rules imposing recording, stamp or similar taxes on mortgage or mezzanine financing. While some security interests may require registration in public registers, these usually involve only nominal administrative fees. Overall, the framework is consid - ered cost-efficient for lenders, and no changes are currently expected. In the Czech Republic, land use, development, design and construction are governed primarily by the Build - ing Act, together with implementing regulations and a hierarchical system of spatial-planning instruments. The key planning instruments are the Spatial Devel - opment Policy, the Spatial Development Plan, the Spatial Development Principles, the Zoning Plan and the Regulatory Plan, supported by spatial analytical documents and spatial planning studies. The Spatial Development Policy is a national strategic instrument binding on the development and issuance of spatial planning documentation, whereas spatial planning documentation is binding for lower-level documenta - 4. Planning and Zoning 4.1 Planning and Zoning Framework
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