Legal and Financing Phases of Off-Plan Property Purchases in the Czech Republic

If you are considering purchasing an apartment or house "off-plan" in the Czech Republic, you will likely encounter a reservation agreement, a future purchase agreement (SOSBK), and the final purchase agreement – each of which fundamentally affects your risks and financing options through a Czech bank loan.

Quick Summary

• Pre-sales provide the developer with key data for the bank and cash flow, but represent the highest legal risk for the buyer; therefore, a high-quality Future Purchase Agreement (SOSBK) and properly set up escrow accounts are essential.
• The reservation agreement is a purely contractual construct often underestimated – poor provisions regarding the fee and its refund create disputes and reputational risks.
• The actual sale via a Purchase Agreement handles the transfer of ownership rights, discharge of pledges, and handover of the property – developer errors at this stage turn into direct claims by buyers under Czech law.
• A correctly set up process (Reservation → SOSBK → Purchase Agreement) linked to LTV, future value, and security interests significantly reduces the risk of default and disputes; it pays to prepare this with our Prague-based attorneys.

What is development and why address the sales stages?

A development project is not just the sale of a finished apartment, but a combination of project financing, construction proceedings, bank lending, and managing relationships with end buyers. The selection and setup of legal sales phases (pre-sale, pre-contractual reservation, actual sale) directly affects whether the project will be fundable and the extent of litigation risk you will face in the Czech Republic.

The legal setup of reservation agreements, SOSBKs, and purchase agreements determines how banks, buyers, and potential investors will react if the project is delayed or encounters problems in financing or construction proceedings.

In practice, three contractual types are primarily combined – the reservation agreement (an innominate contract under Section 1746 of the Czech Civil Code), the agreement on a future purchase agreement (SOSBK) under Section 1785 et seq., and the final purchase agreement. An experienced developer treats these as a single functional unit, where a mistake in the first phase can create problems as late as the final inspection (kolaudace) or loan drawdown.

Pre-sales – Selling "off-plan" in the Czech Republic

In the pre-sale phase, construction is often not yet complete, and sometimes a valid building permit has not even been issued, yet you are already offering units and entering into the first contracts. Typically, these are reservation agreements and SOSBKs, based on which buyers pay deposits in the range of 10–20% of the purchase price.

For the bank, pre-sales are proof of demand and often a condition for project financing; however, for the buyer, they represent a higher level of risk as they are financing a project that may not proceed exactly according to plan.

At this stage, the developer must balance the need to finance preparation and construction with the obligation to set fair and predictable conditions for clients who do not yet have a finished property at their disposal. Ambiguities or one-sidedly advantageous provisions can lead to disputes and damage the reputation of the entire project and the developer's brand.

How pre-sales affect loans and LTV

Mortgage banks for buyers work primarily with the future value of the unit upon completion, not with the current value of the building under construction. An appraiser determines the value of the completed property, and the maximum loan amount and LTV ratio (typically 80%, up to 90% for younger clients) are calculated accordingly.

For the developer, this means that the payment schedule in the SOSBK must be aligned with the mortgage drawdown conditions, otherwise the buyer will be caught between two stools – the contract demands payment, but the bank will not release the funds.

At the same time, it is necessary to account for the period when the bank cannot yet register a pledge (mortgage) against the unit under construction and secures itself through the land and the future building, which places higher demands on coordination with the bank and documentation. If the appraiser sets the future value lower than the agreed purchase price, the buyer must pay the difference from their own funds, which can slow down or block the sale.

MicroFAQ – Pre-sales and Loans

1. How high are the deposits usually in pre-sales?
The usual range is around 10–20% of the purchase price before the final inspection (kolaudace), with the remaining part paid from the mortgage after a higher stage of construction is reached or upon completion.

2. How do banks work with the future value of the property?
An appraiser determines the value of the apartment upon completion, and the bank calculates the maximum loan amount from this sum; the difference between the purchase price and the loan must be covered by the buyer from their own resources.

3. Can pre-sales improve project financing terms?
Yes, a high share of pre-sales is usually a positive signal for the bank and can contribute to better loan terms, provided the contracts are legally sound and enforceable under Czech law.

Pre-contractual reservations – When is a reservation enough and when is a Future Purchase Agreement (SOSBK) needed?

A reservation agreement is an innominate contract under Section 1746 of the Czech Civil Code, intended to ensure that a specific apartment will not be offered to another interested party for a certain period, typically in exchange for a reservation fee. In contrast, the SOSBK is a legally regulated obligation for both parties to enter into a future purchase agreement under pre-agreed conditions.

From the developer's perspective, it makes sense for the reservation agreement to serve primarily to block the apartment and set up basic financing, while detailed obligations and penalties belong in the SOSBK, where the transaction parameters are already clearly described.

An overly complex reservation agreement increases transaction costs and tends to be a source of disputes, while an overly brief and one-sided agreement can damage the trust of buyers and real estate partners. It is therefore crucial to clearly regulate the amount of the reservation fee, its application toward the purchase price, refund conditions, and its link to securing a loan.

Managing reservation fees and escrow accounts

The reservation fee usually ranges around 3–5% of the purchase price or a fixed amount in the tens or hundreds of thousands of Czech korunas. A secure model is when the fee is deposited in an attorney, notary, or bank escrow account, and the contract precisely stipulates when it is credited toward the purchase price and when it is returned to the buyer.

The reservation agreement must also address scenarios that buyers often underestimate – delays in loan approval, mortgage rejection, a change in the buyer's situation, or a change in the bank's view of the project.

Precisely the ambiguities in provisions regarding fee refunds and cooperation during mortgage processing are among the most common sources of conflict that can escalate into litigation in Czech courts or serious reputational damage for the developer. In the long term, it makes sense to invest in high-quality reservation agreement templates and unify practice across projects and partners with our Czech legal team.

MicroFAQ – Reservation Agreements from a Developer's Perspective

1. Should the reservation fee always be part of the purchase price?
In practice, it is standard for it to be credited towards the purchase price, but this must be explicitly stated in the reservation agreement and subsequently in the Agreement on the Future Purchase Agreement (SOSBK); otherwise, unnecessary disputes arise under Czech law.

2. Is it advisable to refund the fee if the buyer does not obtain a mortgage?
This depends on the business strategy. Proven methods include clear rules, such as a refund upon documented rejection of the loan by two banks, which limits the scope for disputes in the Czech Republic.

3. Is it safe to accept reservation fees into the developer's operating account?
From a short-term perspective, this can improve cash flow, but for smaller or new projects in the Czech Republic, an escrow account is safer, as funds are protected even in the event of insolvency.

The Sale Process – SOSBK and the Purchase Agreement as the Core of the Transaction

The Agreement on the Future Purchase Agreement (SOSBK) is a key document for a developer, securing the buyer and providing banks and investors with predictability regarding future income. It must contain a precise specification of the future purchase agreement, including the price, deadlines, payment schedule, and penalties for delay under the Czech Civil Code.

The Purchase Agreement then transfers the specific unit registered in the Czech Land Registry to the buyer, regulates the conditions for the discharge of encumbrances, and the handover and reclamation process – at this stage, legal errors turn into specific claims by buyers.

It is in the Purchase Agreement that the quality of the previous steps is fully revealed: ambiguities regarding inflation clauses, sanctions, or execution standards easily turn into demands for discounts, payment deferrals, or litigation in Czech courts. Especially for larger projects with dozens or hundreds of units, it is essential to have documentation unified and linked to internal processes and client communication.

How do the SOSBK and Purchase Agreement relate to buyer financing?

Banks closely assess the text of the SOSBK and use it as a basis for determining the loan amount, the drawdown schedule, and the conditions under which funds will be released. If the payment schedule anticipates payments earlier than the bank is willing to release, the transaction may be blocked, and the buyer may default against the developer.

The Purchase Agreement must allow for a secure flow of funds through an escrow, which protects the buyer, the developer, and the bank simultaneously, and links the payment of the purchase price to the filing of the application for the registration of ownership rights and the discharge of the developer's bank's mortgage.

An incorrectly set mechanism for disbursement from escrow can lead to a situation where the developer receives the purchase price before their mortgage is discharged, which is unacceptable for the buyer and a source of long-term disputes for the developer. For projects financed by multiple banks or with international participation, extraordinary attention must be paid to the construction of contracts under Czech commercial law.

Legal and Financial Risks in Individual Phases – What to Watch Out For?

Real estate development projects combine Czech construction law, civil law, banking regulation, and often cross-border elements, so even seemingly simple steps can have unexpected consequences. A single procedural error or an indefinite provision in a contract can later become a problem that blocks loan drawdown or triggers a dispute with a buyer.

A prudent developer therefore manages risks systematically – analyzing weak points in reservation agreements, SOSBKs, and Purchase Agreements, aligning the flow of funds with banks, and continuously checking whether contracts comply with current Czech case law and regulatory requirements.

The tables below summarize the most common scenarios where errors in the setup of contracts, escrows, and mortgages are most evident. In practice, these situations lead to the greatest financial losses, blocked projects, or lengthy disputes with buyers and banks in the Czech Republic.

Risks in Contractual Setup and Payments

The Relationship Between Mortgages, Discharge Certificates, and Banks

Project financing usually means that the bank financing the developer's project holds a mortgage (zástavní právo) on the land, the building under construction, and often the receivables from future purchase agreements. The buyers' mortgage banks then require a mortgage on the specific unit and the developer's bank's consent to the creation of an additional mortgage and its discharge after part of the loan is repaid.

If the relationship between individual mortgages is not precisely handled contractually and procedurally, the Czech Land Registry may reject filings, banks will stop loan drawdowns, and the project will come under time and financial pressure.

A critical point is the phase of final payment of the purchase price and the transfer of ownership – the buyer expects a "clean" title deed, while the developer's bank does not want to release the mortgage until the relevant part of the loan is repaid. Without a clearly set procedure (including the discharge certificate/kvitance and links to the escrow), a risk may arise where the buyer pays, but the developer's mortgage remains registered in the Land Registry.

Risks in Mortgages and Financing

Essential contractual elements in practice – what should not be missing?

Modern development projects in the Czech Republic rely on a standardized procedural chain where every document has a clear role and is linked to financing and internal processes. A reservation agreement should precisely describe the unit, the reservation fee, its allocation, refund conditions, and its link to the Future Purchase Agreement (SOSBK).

The SOSBK must contain a fixed or clearly definable price, an attached draft of the final Purchase Agreement, a payment schedule aligned with bank financing, and sanctions for developer default; otherwise, it loses its function as a tool for predictability.

The Purchase Agreement should then regulate in detail the identification of the unit, conditions for payment of the purchase price and release of funds from escrow, the removal of all undesirable mortgages and easements, the apartment handover process, and the claims mechanism including deadlines under Czech law. It is at this stage that it becomes clear whether the contractual documentation matches the reality of the construction and client expectations, or whether disputes and additional agreements will be necessary.

MicroFAQ – Practical transaction process from the developer's perspective

1. What is a reasonable time gap between the reservation and the SOSBK?
An interval of 1–3 months is standard, allowing buyers to obtain mortgage pre-approval and the bank to assess the project and the client without unnecessarily slowing down sales.

2. When is it appropriate to launch pre-sales?
At the moment you have realistic certainty of obtaining a building permit and a clear financing structure; launching pre-sales without these certainties significantly increases legal and reputational risks in the Czech Republic.

3. How to approach the assignment of rights from the SOSBK?
Assignment is a common tool, but it requires the prior consent of the developer and often the bank; therefore, it should be explicitly regulated in the text of the SOSBK, including conditions and fees.

Conclusion

The difference between pre-sale, pre-contractual reservation, and the actual sale is not merely formal; it represents three different legal and economic situations with varying levels of protection and risk for all parties involved. Especially in the pre-sale and reservation phases, it is decided whether the project will proceed smoothly or turn into a series of improvisations and disputes that increase costs and reduce returns.

Once an SOSBK or Purchase Agreement is inappropriately set up, it is very difficult to change project parameters in the middle of construction, as every change affects relationships with banks, investors, and buyers.

If you do not want to risk errors, litigation, or blocked loan drawdowns, it is wise to leave the drafting of contractual documentation, escrow setups, and coordination with banks to experienced professionals. ARROWS law firm in Prague has long-term expertise in development projects, project financing, and transactions with international elements, and thanks to high insurance coverage, provides a secure professional background for your project. If you are considering a new project or an update of existing contractual standards, you can contact office@arws.cz.

FAQ – Most frequent legal questions regarding development loans

1. What type of contract is most suitable for pre-sales?
In practice, a combination of a reservation agreement (for quickly securing an interested party) and an SOSBK (for detailed setting of purchase and financing conditions) proves most effective; a standalone reservation agreement without a link to an SOSBK is usually insufficient for larger projects.

2. What to do if the buyer's bank does not accept the payment schedule in the SOSBK?
It is usually necessary to adjust the payment schedule to match the loan drawdown conditions (construction progress, collateral, appraisal); strictly insisting on the original schedule can lead to the buyer's withdrawal or a dispute. Our Prague-based attorneys at ARROWS can assist you with setting up such schedules; simply write to office@arws.cz.

3. How to manage the risk of construction delays towards buyers?
We recommend clearly defined contractual penalties, precise completion and final inspection deadlines, reasonable grace periods, and clearly established rights to withdrawal or discounts; vague wording leads to costly litigation in Czech courts. If you wish to set up or adjust these mechanisms, it is advisable to contact our Czech legal team at office@arws.cz.

4. How to safely set up an inflation clause during price fluctuations?
An inflation clause must be unambiguous, for example, linked to a specific index or parameter, and must not leave room for arbitrary interpretation; otherwise, it is susceptible to challenges and disputes. The specialists at our law firm in Prague can help you prepare a legally sound and commercially reasonable inflation clause; just reach out to office@arws.cz.

5. How to align the developer's bank mortgage with the buyer's bank mortgage?
From the start of project financing, it is necessary to anticipate the developer's bank's consent to an additional security interest, the process of issuing a discharge, and the precise link to buyer payments and escrows; otherwise, there is a risk of rejected registrations and blocked drawdowns.

6. Does it make sense to involve an external law firm if we have in-house counsel?
For larger or more complex projects in the Czech Republic, it is common for internal legal departments to cooperate with a specialized external firm that has experience in development, bank financing, and cross-border transactions; the combination of both perspectives increases certainty and reduces the risk of errors.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the subject matter. While we strive for maximum accuracy, Czech legal regulations and their interpretation evolve over time. To verify the current wording of the legislation and its application to your specific situation, it is essential to contact our Prague-based law firm, ARROWS, directly (office@arws.cz). We assume no liability for any damages or complications arising from the independent use of information in this article without our prior individual legal consultation and professional assessment. Every case requires a tailored solution under Czech law; therefore, please do not hesitate to contact our Czech legal team.

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