Many foreigners and locals own property which they rent as an investment. Although all have probably heard of the dangers associated with the laws governing the relationship between an owner and their tenant (Civil Code, 40/1964 Coll §685), few realize just how difficult it could become with a disagreeable and knowledgeable tenant. However, there is a way owners can protect themselves.
First, as an example, consider the following situations where the law could seriously affect an owner and the investment return he gets on his property.
I. An owner wishing to sell his property must first offer it to the tenant at the owner‘s asking price. The owner must allow the tenant six months to decide.
A tenant´s legal rights: A tenant could block the purchase process of the sale of a property if the full six months are not provided.
II. An owner does not have the legal right to enter his own property, even after giving reasonable notice, unless the right of access is specifically stipulated in the contract.
A tenant´s legal rights: A tenant could refuse to allow access to the owner or someone designated by the owner in the process of finding another tenant or viewings of a potential buyer.
III. Eviction of a non-paying or undesirable tenant is extremely difficult under Czech law.
A tenant´s legal rights: A tenant could stop paying rent and stay in your property for as long as two years while your case proceeds through the Czech court system.
IV. Use of money collected as a damage deposit can rarely be used to pay for tenant damages.
A tenant´s legal rights: Unless there is a final court decision on the use of the damage deposit or the tenant agrees in writing to its usage, the owner must return all of it to the tenant.
These certainly do not seem like fair terms, but biased instead towards the tenant. However, this is the current state of Czech law.
Chances are, the situations above may never arise because most tenants are unaware of their rights. However, if you get a disagreeable and knowledgeable tenant, it could really prove damaging to your investment.
How do owners protect themselves? As a solution to the above situations we recommend a two tier contract system whereby the actual first tenant (ie. the relationship governed by Civil Code, 40/1964 Coll §685) is with a trusted friend or partner. They cannot be a co-owner in the property and must be over 18 but it could be your married partner. This is the first tier contract.
Then the actual contract by which the tenant occupies your flat is with a sub-rental contract. Under Czech law this agreement does not fall under the same law code as the direct relationship from owner to tenant and the terms in the contract (without breaking other rights dictated in the law such as maximum penalty for late payments) are those which are actually agreed between the two parties. This would be the second tier contract.
If the amount of the rental on both the first tier contract and the second tier are the same, there is no net income to the first tier renter, avoiding a potential tax issue.
The definition of an investment is: “the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.” (per dictionary.com.) Protect your Czech investments by having a secure and fair rental contract system in place.
©2009 CZECH POINT 101 s.r.o.
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