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The purchase of a project land as a final step just before construction?

Do you have a short-term opportunity to acquire a site for construction purposes? What are the legal risks and what aspects need to be clarified before you decide to purchase such land?

JUDr. Timotej Braxator, Senior Associate, Noerr s.r.o.(Source: Courtesy of Noerr s.r.o.)

Do you have a short-term opportunity to acquire a site for construction purposes? What are the legal risks and what aspects need to be clarified before you decide to purchase such land?

The opportunity to purchase strategically well-located land often comes with certain time pressure, as competitors and other investors might be interested in that land as well. However, there are a number of issues and aspects which need to be clarified and assessed in advance to ensure that your investment costs are not expended in vain.

As a first point, when purchasing real estate from the owner registered in the Land Registry, one should be aware of the fact that there is no guarantee that this person is the true and legitimate owner of the real estate. Without a prior title examination (real estate due diligence), the risk of future claims being raised by other alleged owners of the acquired real estate cannot be avoided or minimized. Such due diligence gives the investor the opportunity to eliminate or at least reduce legal risks which otherwise could (in the worst case scenario) endanger the entire investment and even if the identified irregularities cannot be resolved, the due diligence serves as a basis for the project’s further evaluation and the subsequent negotiations of the terms of the transaction with the counterpart.

Further, in order that the prospective investor can be certain that his construction project can be realised on the land, not only the investor’s own designers and planners are to be consulted. In addition, if the land is to be acquired from a real estate developer, the investor must, before the actual purchase of the land, request the developer to obtain a valid and effective zoning decision and construction permit for the investor’s contemplated construction project. In the event the land is acquired from private individuals or entities, the investor should proceed to procure an effective zoning decision and construction permit, in advance if possible, or to at least assess in detail the conditions for the issuance of such permits.

These zoning decisions and construction permits, including the statements of authorities issued in connection with them, must be thoroughly reviewed as to whether they impose pre-conditions or other requirements which may be costly or time-consuming in regards to the project’s construction. In this context, the investor must not fail to verify whether an environmental impact assessment (EIA) must be performed and/or whether other legal preconditions must be fulfilled before the issuance of the construction permit.

Naturally, from a technical point of view, an examination regarding any possible environmental contamination of the land is recommended as well.

Last but not least, the investor as the land’s prospective owner, must verify the right to access neighbouring plots for the purposes of laying, using and maintaining power lines, gas, water mains and other utilities, and, of course, for the purposes of crossing neighbouring plots in order to access the owned property.

In view of these numerous issues that must be clarified and resolved, some investors could be tempted to begin construction without an effective construction permit and to apply for a construction permit after starting construction. In this context, we would like to point out the following related risks.

Presently, there is a new bill in legislative proceedings with the aim to introduce more effective remedies against so-called “black constructions” – buildings constructed without a valid construction permit. The proposed amendment proposes, in particular, more effective protection of rights held by owners of adjacent and neighbouring land who are detrimentally affected by construction activities without a valid permit, particularly in cases where the unauthorised construction is built on parts of their land.

The current sanctions, fines in particular, which can be levied upon such a builder amount to approximately €160,000 and will probably not remain as the only penalty for unauthorised constructions.

An amendment to the Penal Code is also envisaged by the introduction of a new criminal act –unauthorised construction – which may involve a penalty of up to €1.6 million or imprisonment of up to two years. Criminal sanctions may be triggered by the construction of anything other than minor or simple buildings, as defined by the Construction Act. The seriousness of the crime would be determined on a case by case basis with the main criteria being an infringement of property or personal rights, devaluation of an individual’s property, restriction of its use, and/or serious interference with the privacy of the affected individual.

Another remedy against unauthorised buildings is a contemplated amendment to the Construction Act, which, in order to prevent continuation of illegal construction, allows an interruption in the supply of water, electricity and other utilities required for the construction in the event the builder ignores the construction authority’s ruling to suspend the work at the illegal construction site.

As outlined above, before the purchase of land for a project, a number of issues must be clarified in order to ensure that the investment will be successfully realised. If not, the investor runs the risk of losing money and time in order to remedy these insufficiencies afterwards (if at all possible). Should the construction be built without a valid building permit, the investor should be aware that the sanctions and consequences for such actions are currently being materially reassessed, and that such actions may be regarded as criminal offences in the near future.

Timotej Braxator is a senior associate and Eva Pauerová is a junior lawyer with Noerr s.r.o.

This article is of an informative nature only. Should you need any further information on the issues addressed in this article, please contact our Law Office
Noerr s.r.o.,
Tel: +421 2 59 10 10 10,
Email: recepciaba@noerr.com,
www.noerr.com

Noerr is a Top 10 leading legal office in Germany and Europe – with more than 480 professionals, five offices in Germany, seven in Central and Eastern Europe, an office in London, a representative office in New York and a nearly-opened office in Alicante. Our expertise has been consistently ranked among the best practices in the leading publications on the legal market, such as Chambers, Legal500 and ILFR. Additionally, Noerr has been honoured as Commercial Law Firm of the Year - Eastern Europe at the ACQ Global Award 2009 for being the law firm which "had the greatest impact on the industry in 2008".

Topic: Real Estate


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