How to buy flat form development in Czechia

If you are planning to purchase an apartment or a house from a developer, you will not be dealing with just a single contract – you will navigate through a system of several legal stages. This article clarifies the differences between pre-sale, reservation, and the actual sale, how these distinctions affect your financing through a bank loan, and what legal risks are associated with each stage.

What is Development and Why You Must Understand the Differences Between Sales Phases

A development project is not simply the sale of a finished property. It is a complex process during which the developer plans, finances, and executes construction. At each phase of this process, you may enter into a legal relationship with the developer as a future owner, but each phase carries entirely different legal consequences.

Many lay buyers believe that once they sign any contract with the developer and send money, the matter is settled. It is crucial to understand that pre-sale, reservation, and sale represent three distinct legal states in which you have varying degrees of legal protection. In reality, the greatest risks are hidden within the initial contracts, and the worst decisions often carry the highest price.

Lawyers from ARROWS Law Firm daily resolve situations where buyers encounter problems precisely because they did not understand the differences between these phases. These errors are often irreparable and lead to significant financial losses. Let us therefore explain what lies behind each term.

Phase 1: Pre-sale

What is Meant by Pre-sale in the Context of Development Projects

Pre-sale is the most preferred phase from the developer's perspective, but the riskiest phase from the buyer's perspective. During pre-sale, the developer often does not yet have a building permit, construction has not taken place or even physically commenced, and the property exists only as visualizations, plans, and descriptions. At this stage, the developer typically owns only the land, not the building itself.

When looking at the legal reality of a pre-sale, the developer is essentially inviting you to enter into an agreement on a future contract. In legal terms, this is usually an Agreement on the Future Purchase Agreement (SOSBK) or a Reservation Agreement. The physical structure does not exist at this moment, and sometimes it is not even certain whether the developer will obtain the building permit in the planned scope.

For the developer, the pre-sale is ideal because it provides proof to the financing bank that there is interest in the project (the so-called pre-sale condition of the bank). Often, the developer finances the initial costs of the project precisely from the funds received from the first buyers. This means your money is financing the preparation of construction for which the developer may not even have full permits.

What Funds You Will Pay in Pre-sale and Mortgage Financing

In the pre-sale phase, the buyer usually prepares to sign an SOSBK, where approximately 10–20% of the purchase price is paid. Further tranches follow gradually depending on the progress of construction (e.g., after completion of the shell and core, after utility installations, etc.) until final inspection (occupancy permit) and handover of the property. All this occurs in a situation where nothing physically exists that you could use.

Here we come to the question of financing and how a bank will lend you money in such a situation. The bank will lend you money for the purchase of an apartment under construction, but it proceeds according to the so-called future value of the property. The bank's appraiser determines the value the apartment will have upon completion, and the loan amount is derived from this figure. However, since the property does not physically exist, the bank establishes a mortgage (security interest) on the land and the future building.

At this stage, banks require the fulfillment of drawdown conditions (e.g., construction progress). They require your own resources according to current LTV (Loan-to-Value) limits set by the Czech National Bank – typically 20% (for applicants under 36, 10% may suffice). In the pre-sale phase, the bank is dependent on the progress of construction and the developer's fulfillment of obligations.

Furthermore, there are periods during construction when the bank cannot yet register a mortgage on the unit under construction (until the building reaches a certain stage). Your money (own resources) is often already with the developer or in escrow at that point.

FAQ – Legal Tips for Financing in Pre-sale

1. Why is financing in pre-sale administratively more demanding?
Because the bank releases funds gradually (in tranches) based on construction progress reports. It cannot disburse the entire mortgage at once until the value of the property under construction covers the loan amount.

2. What percentage of my own resources must I have?
According to current CNB rules, usually 20% of the property value (LTV 80%), and for applicants under 36 years of age, 10% (LTV 90%). For development projects, banks often accept the future value, which can help in qualifying for the loan.

3. Can I take out loans gradually for individual installments?
You negotiate the mortgage for the total amount at once, but you draw it down gradually. The bank sends money to the developer (or into escrow) in parts as the building grows.

Phase 2: Pre-contractual Reservation

Difference Between a Reservation Agreement and an SOSBK

In a reservation agreement, the developer (or real estate agency) ensures that you reserve a specific apartment, and you pay a reservation fee (blocking deposit) for this. A reservation agreement is a so-called "innominate contract" under Section 1746 of the Civil Code, which means its content depends purely on the agreement of the parties.

The opposite is the Agreement on the Future Purchase Agreement (SOSBK), which is specifically regulated in the Civil Code (Section 1785 et seq.). The SOSBK obligates the parties to enter into a final purchase agreement in the future under pre-agreed conditions. This obligation is strong and enforceable, including through court action.

A problem arises when developers or intermediaries use simple reservation agreements to bind you to enter into a purchase agreement under the threat of forfeiting the fee. Such provisions may, in certain cases, be invalid or unenforceable, but relying on this is risky—especially if the future purchase agreement is not sufficiently specified.

Want to know how we can assist you in this area? See our service Development & Construction Law.

The most underestimated risk of a reservation agreement lies in its content. It is here that non-refundable fees are often set, or where the developer's obligation to return money if they fail to obtain a building permit or financing is missing.

Amount of the Reservation Fee and Method of Deposit

The reservation fee usually ranges between CZK 50,000 and CZK 200,000, or as a percentage (approx. 3–5% of the purchase price). In most cases, this amount is credited towards the payment of the purchase price.

Crucially, where is this fee paid? Ideally, it should be deposited in a restricted attorney, notary, or bank escrow account. If you pay the reservation fee directly to the developer's operating account (and it is not a large, proven player) and they become insolvent, you will likely lose the money.

Lawyers from ARROWS Law Firm strongly recommend insisting that even the reservation fee be placed in escrow. The Real Estate Brokerage Act even prohibits real estate agencies from accepting purchase price escrows into their operating accounts unless the client requests it in writing.

Phase 3: The Sale Itself

SOSBK as the Core of the Entire Transaction

The SOSBK represents the key legal commitment of both parties to enter into a purchase agreement in the future. It must contain all essential elements of the future purchase agreement – i.e., the exact specification of the property (including the share in common parts and land), the purchase price, and the obligation to transfer ownership.

You should sign the SOSBK only after you have thoroughly vetted the developer and their legal status. Furthermore, you must familiarize yourself with the project and construction standards and have pre-approved financing (banks can work with a draft SOSBK). If a broker pressures you to sign an SOSBK immediately, it is a red flag.

FAQ – Legal Tips for the SOSBK

1. May I have the SOSBK reviewed by a lawyer?
Absolutely yes. This is a commitment in the range of millions of crowns. Legal review is a standard for every secure transaction.

2. What happens if the developer refuses to enter into the purchase agreement?
If you have a valid SOSBK, you can seek a court ruling for the so-called "replacement of the declaration of will" – the court decides that the purchase agreement is concluded even without the developer's signature (procedure according to Section 161 of the Civil Procedure Code).

3. Can the price in the SOSBK change?
Standardly, the price should be fixed. However, in times of high inflation, so-called inflation clauses appear. These must be formulated specifically and clearly, otherwise they are invalid.

Purchase Agreement and Transfer of Ownership Title

The purchase agreement is typically signed only after the completion of construction and the issuance of the occupancy permit (final inspection). At that time, the property is already surveyed and registered in the Land Registry as an independent unit (or house).

The Purchase Agreement must contain:

• exact identification of the contracting parties,
• definition of the unit according to the law (including co-ownership shares),
• purchase price and confirmation of its payment (or a mechanism for payment from escrow),
• declaration of no debt and non-existence of legal defects (except those agreed upon, e.g., utility easements),
• the developer's obligation to file the application for registration of ownership title.

You acquire ownership title only upon registration in the Land Registry (with effects as of the date of filing the application) according to Section 1105 of the Civil Code, not by signing the contract.

How Individual Phases Affect Your Financing and Bank Loan - LTV (Loan-to-Value) and "Future Value"

LTV (the ratio of the loan amount to the property value) is a key indicator. Current CNB limits are generally 80% (i.e., 20% own resources), and 90% for applicants under 36.

The specificity of development projects is that the bank bases its assessment on the future value of the property (price after completion). This is advantageous for the buyer because the future value is usually higher than the current value of the building under construction. This allows you to obtain a loan that covers most of the purchase price.

However, if the bank estimates the future value to be lower than the purchase price (which happens with overpriced projects), you must pay the difference from your own funds beyond the standard 10–20%.

Installment Schedule and Loan Drawdown According to Construction Phases

The bank will not release the entire loan amount to the developer at once. Funds are drawn gradually (so-called drawdown in tranches) based on the bank appraiser's confirmation of construction progress.

1. First, you pay your own resources (e.g., 20%).
2. Then the bank steps in, sending money according to construction phases (e.g., after shell and core completion, after installations, after the facade).
3. The bank always checks whether the value of the property under construction (plus the land) sufficiently secures the disbursed loan amount.

If construction stops, the bank stops the drawdown. At that point, you may find yourself in a contractual trap – the developer wants money (if the contract ties installments only to time, not progress), but the bank will not release it. Therefore, it is necessary to align the installment schedule in the SOSBK with the mortgage drawdown conditions.

Legal Risks in Individual Phases and How to Protect Yourself

Development is usually financed by the developer's bank loan (project financing). The developer's bank therefore has a first-priority mortgage on the land and the entire building, and often a prohibition on alienation and encumbrance.

Your mortgage bank will also want a mortgage. In order to lend to you, the developer's bank must grant consent to the establishment of your mortgage (second in priority) and issue a so-called "letter of release" (kvitance). The letter of release is a promise that after the purchase price is paid, the developer's bank's mortgage on your apartment will be deleted.

Without this mechanism, you would be buying an apartment burdened by the developer's massive debt. Lawyers from ARROWS check whether the contracts contain a clear obligation for the developer to ensure the deletion of their mortgage and whether this process is secure.

Creation and Termination of Mortgage After Signing the Purchase Agreement

The greatest risk occurs when paying the final part of the purchase price. You send the money, but the developer's mortgage still encumbers the apartment. The safe procedure is to send the money (or mortgage drawdown) into attorney, notary, or bank escrow.

The money is released from escrow to the developer (or directly to their bank to repay part of the loan) only once the application for registration of your ownership is filed and the deletion of the developer's mortgage is secured. If you send the last installment directly to the developer's account without a secured mortgage deletion, you risk the apartment still serving as collateral for the developer's bank.

What Risks You Face in Each Phase

Risks and Sanctions	How ARROWS Helps (office@arws.cz)
Developer Insolvency: If the developer goes bankrupt and the money was in their operating account, you become just one of many creditors with a low chance of recovery.	Vetting and Escrow: Lawyers verify the developer's economic health and ensure the setup of a secure attorney or bank escrow so that money does not sit with the developer prematurely.
Change in Apartment Price (Inflation Clauses): The developer wants to increase the price citing rising material costs, even if the contract does not clearly allow it or the clause is vague.	Legal Review of Contracts: We check the validity of inflation clauses and, if they are invalid or ambiguous, we help you defend against the price increase.
Construction Delay: Construction is delayed, but the contract lacks effective contractual penalties or the option to withdraw.	Setting Sanctions: We incorporate contractual penalties for delays in completion and final inspection into the SOSBK, along with the right to withdraw if the delay exceeds a tolerable limit.
Discrepancy in Area and Equipment: The apartment is smaller or has different standards. The developer claims a deviation of up to 5% is acceptable and will not reduce the price.	Specifications and Deviations: We define in the purchase agreement what constitutes a permissible deviation and ensure the right to a discount on the purchase price for every missing square meter.
Problem with Mortgage Deletion: You have paid, but the developer's bank's mortgage still appears on the title deed.	Process Control: We set up the flow of funds so that the payment of the purchase price is directly tied to the developer's bank's obligation to issue a letter of release for the mortgage deletion.

Essential Contractual Elements – Checklist

When you are about to sign any contract with a developer, it should contain the following elements. Lawyers from ARROWS Law Firm will assist you with this list and professionally review the contract.

Reservation Agreement

• Exact Specification: Not just the apartment number, but also the identification of the land, floor, and approximate dimensions.
• Fate of the Fee: Clearly stated that if the SOSBK is not signed for reasons on the developer's side (e.g., failure to obtain permits, bank rejection of the project), 100% of the fee is returned to you.
• Reservation Period: By when the SOSBK must be signed.
• Financing: If you are taking a mortgage, a clause regarding the return of the fee in case the bank does not approve your loan (if the developer accepts this).

SOSBK (Agreement on the Future Purchase Agreement)

• Binding Text of the Purchase Agreement: The purchase agreement should already be an annex to the SOSBK so that you are not buying "a pig in a poke."
• Fixed Price: Or clear and specific rules for its change (beware of inflation clauses).
• Deadlines: Construction completion date, final inspection date, Purchase Agreement signing date, and handover date.
• Contractual Penalties: For the developer's delay in completing construction.
• Warranty: Scope of the quality guarantee (for new apartments usually 24 months + liability for construction defects for 5 years).

Purchase Agreement

• Payment Terms: Exact instructions for escrow and the release of funds.
• No Debt: Guarantee that the apartment is free of debts, easements (except necessary ones), and mortgages (except your mortgage).
• Handover: Handover procedure and drafting of a handover protocol with a list of defects and unfinished work.
• Claims: Procedure for claiming defects discovered after handover.

Practical Transaction Scenario

Let's go through a realistic scenario. A developer plans the "Green Station" project.

1. Reservation (December 2025): You sign a reservation agreement. You send the CZK 100,000 fee ideally into escrow, or to the real estate agency's account (if they have a separate account and you signed consent).

2. SOSBK (March 2026): You have an approved mortgage based on "future value." You sign the SOSBK and pay 15% from your own resources (approx. CZK 450,000). This money often already goes to the developer for construction.

3. Construction (2026–2027): The building grows. The bank sends further money from your mortgage to the developer based on invoices and appraiser confirmation. You begin paying interest on the drawn amount (not yet the principal).

4. Delay: Construction is delayed by 4 months. Because you have a contractual penalty in the SOSBK, you claim a discount from the remaining purchase price.

5. Final Inspection and Sale (March 2028): The building has passed final inspection. The Purchase Agreement is signed. The remaining part of the price (from the mortgage) goes into attorney escrow.

Conclusion: The attorney pays the money to the developer (or their bank to release the mortgage) only after confirming that the apartment is registered in your name and the developer's mortgage will be deleted.

When it is Suitable and When Not – Pre-sale vs. Purchase Agreement from a Risk Perspective

Buying in pre-sale ("off-plan") is usually cheaper and you have a wider selection of apartments. However, the risk is higher – construction may not be completed, it may have defects, or the developer may go bankrupt. This requires precise legal handling.

Buying a finished property is safer (you see what you are buying, you can move in immediately), but prices are usually higher and the selection is already picked over.

Lawyers from ARROWS Law Firm will help you minimize risks in both cases.

Conclusion

The difference between pre-sale, pre-contractual reservation, and the sale itself is fundamental. These are three distinct legal states with varying degrees of protection. In pre-sale and reservation, you are financing a promise; only with the purchase agreement do you acquire property.

It is crucial not to underestimate the SOSBK phase, where the "deal is made" and rules for the entire construction are set. Once you sign a poor SOSBK, it is difficult to rectify in the purchase agreement.

Lawyers from ARROWS Law Firm handle this agenda daily. We are insured for damages up to CZK 400 million, so you can be sure your matter will be handled professionally.

Do not hesitate to contact ARROWS Law Firm – office@arws.cz – and have your situation analyzed before you sign.

FAQ – Most Frequent Legal Questions Regarding Development Loans

1. What is the most treacherous difference between a reservation agreement and an SOSBK?
A reservation agreement is often less formal, and its enforceability (regarding compelling the signing of a purchase agreement) can be questionable, especially in tripartite agreements with a realtor. An SOSBK is a legally regulated type of contract that gives a direct claim to enter into a purchase agreement, including through court action.

2. What happens if the developer goes bankrupt?
If the developer enters insolvency, it depends on where your money is and what phase the construction is in. If the money is in escrow, it is safe. If you sent it to the developer as a deposit and construction is halted by the developer's bank, you are in the position of an unsecured creditor and recovery may be low.

3. Can I withdraw from the SOSBK if the bank does not approve my mortgage?
Not automatically by law. You must have this right explicitly negotiated in the contract (a so-called "condition subsequent" or a right of withdrawal upon failure to obtain a loan). Without this clause, you are obliged to conclude the contract even without a mortgage, otherwise you face contractual penalties.

4. Can the bank cancel the mortgage if the project is delayed?
The bank may stop drawdown if conditions (schedule, construction progress) are not met. Total loan acceleration is more likely in the event of a fundamental breach of contract. Usually, it is possible to negotiate an extension of the drawdown period with the bank (often for a fee).

Disclaimer: The information contained in this article is of a general informative nature only and serves for basic orientation in the subject matter. Although we strive for maximum accuracy of content, legal regulations and their interpretation evolve over time. To verify the current wording of regulations and their application to your specific situation, it is therefore necessary to contact ARROWS Law Firm directly