Real Estate Flash/Focus
29. 8. 2018
In practice cases are encountered in which an entitled person under a permit issued pursuant to the Building Code – typically a zoning decision or a building permit (“permits”) – transfers the ownership of a property for which the permit was issued to another person before the relevant placed and permitted structure is finished. These cases do not necessarily have to involve transfer of an ownership title to a particular property on the basis of a purchase, donation or exchange agreement though. Often a property is transferred during a transformation to a successor company as the new owner without the transfer of the rights under the permit to the successor company being covered in the draft terms of transformation. In our practice, we are often asked by our clients about the entitled person under such a permit – whether it is still the person who applied for the permit as the previous owner and to whom the permit was issued as the original owner or whether the entitled person under the permit is the new property owner. A correct answer is important for further use of the transferred property if, for example, the new owner wants to apply for a building permit based on a zoning decision issued for the previous property owner or wants to build a structure under a building permit issued for the previous property owner.
It is necessary to realise that a permit places or permits the construction of a property which by its nature can pass or be transferred to another person (owner) that is different from the original applicant/owner. The legal theory is based on this fact as it understands such permits as so-called decisions in rem. This means that the permits apply only to a certain thing, i.e. a particular property, but not to a particular person (applicant). This conclusion follows from the Code of Administrative Procedure1 pursuant to which if a right to a movable or immovable thing is decisive for the rights and obligations of parties attached to a movable thing or real estate, the enforceable decision is binding also for legal successors of the parties.
Thus, in the case of passage or transfer of an ownership title to the relevant property, entitlement under the permit automatically “passes” to the new property owner under the law given the very nature of these permits. The new owner is the legal successor of the original owner as the entitled person under the permit and, therefore, after acquiring an ownership title to the property, the new owner is automatically regarded from the legal perspective as the entitled person under these permits.
In practice a legal successor can be a person who acquired a property on the basis of a purchase, exchange or other agreement, a donee under a donation agreement, an heir, an acquirer determined by a court decision or other person on the basis of facts laid down by law such as a successor company to which assets (including the property which the permit applies to) were transferred as a consequence of a transformation.
These conclusions are also confirmed by case-law. As regards the question of legal successorship in the case of zoning decisions, the Supreme Administrative Court2 inferred that a zoning decision is tied to the land plot to which it relates, so it passes to transferees of that land plot upon the transfer of the ownership title. As regards the legal successor in the case of a builder under a building permit, the Supreme Court concluded3 that a person that acquires an unfinished structure as a new owner becomes the builder even if the building permit has not been issued to them and that such a person also takes over the obligations under public law attached to the ownership of the structure. It is then at the discretion of this legal successor to determine what kind of work needs to be carried out or whether the structure will be completed at all.
In connection with building permits the Supreme Administrative Court4 also commented on the question of legal successorship. In addition to the aforementioned, the Court concluded that it does not matter whether a legal successor of the original builder acquired an ownership title to a property to which a permit was issued by way of originary (primary) or derivative acquisition. The difference between these two ways of acquisition is that in the case of originary (primary) acquisition an ownership title is created independently from the previous owner of a thing. This can be for example an ownership title acquired upon the fall of the hammer in an auction. On the other hand, derivative acquisition of a thing involves the transfer of an ownership title, typically under a purchase agreement. Thus, according to the Supreme Administrative Court, the only requirement is that a new owner acquires a property for which a building permit has been issued; at the same time it is not relevant how such property was acquired. Given that a zoning decision has the same character as a building permit (i.e. they are both decisions in rem), the conclusions of this decision can also be applied to a zoning decision.
Under the law, a new owner of a property in relation to which the permits have been issued automatically becomes the entitled person under the permit without any other acts or arrangements (such as an agreement on the transfer of rights and obligations under the permits, an express mention in the draft terms of the transformation in the case of a transformation, etc.) being required in this connection. As a matter of fact, these permits are public decisions which by definition cannot be changed or otherwise dealt with under a private contract. Therefore, according to the Supreme Court, it is not possible to assign the rights and obligations under a permit by an agreement concluded pursuant to the Civil Code as such an agreement would be invalid5 . In contrast, it is necessary for a legal successor to secure their rights to the project documentation that are required for the permit and without which the project could not be implemented or changed by means of private law even if they automatically become the new entitled person under the permit.
Although the situation described above is easy to solve by interpreting legal regulations and case-law, in some cases the building authority requests for example an agreement with the original property owner on the assignment of rights and obligations under a permit which was issued for the original owner. However, such approach of the building authority is incorrect in light of the legal regulations and case-law.
Despite the fact that the issue outlined in this article (transfer or passage of a property to which a permit issued in favour of the original property owner applies) may be seen as clear and simple from the legal point of view, complicated situations may be encountered which always need to be considered on an individual basis while taking into account all aspects of the relevant agreements. This will be necessary in particular if a permit was issued in favour of a third party (rather than in favour of the property owner) on the basis of the property owner’s consent or on the basis of another contractual relationship with the property owner, or if the permit relates to several properties owned by different persons. We recommend that such cases always be thoroughly considered before the intended transaction.
Authors: Lukáš Syrový, Jan Fikar