Reducing disputes in real estate development Project sales contracts

The sale of a real estate development project is not a straightforward transaction. The buyer will thoroughly review the construction, rely on the promised specifications, and have high expectations. If reality differs from what you promised in the contract, or if the documentation contains inaccuracies, you can expect a series of claims, disputes, and potential court proceedings. In this article, we will show which key elements to focus on and which wording and mechanisms will help you reduce the risk of future disputes.

• The purchase agreement must precisely define all essential parameters of the project (size, location, materials used, construction works, fit-out) and must match the actual condition—vague wording leads to disputes.
• Without clearly defined and documented records of defects and their remediation, you face lengthy court proceedings and the risk of liability for defects that were apparent upon acceptance.
• Agreed quality guarantees and their time limits must be realistic and substantively defined, including a clear procedure for reporting claims; overly long or vague guarantees increase your legal and financial risk. Statutory time limits for asserting rights arising from defects (liability for defects) are set for buildings at .
• The handover and acceptance protocol for the building is decisive evidence of its condition; if the buyer refuses to sign it, this may weaken your position in a later dispute regarding the condition of the property at the time of acceptance.
• Proven risk-reducing techniques: a list of defects, security mechanisms (e.g. , a contractual penalty for breach of the buyer’s obligations), clear exclusions and limitations of liability (in compliance with the law), agreed dispute resolution procedures.

What is worth including in a purchase agreement: key points

Accurate description of the building and individual elements

The more specifically you describe what you are selling, the less room there is for interpretation. The buyer cannot later demand higher quality if you defined precise parameters in the agreement.

What to include specifically:

• The floor area of the building and each unit being sold in square metres (with reference to the project documentation, the owner’s declaration or a geometric plan, or an expert report, as applicable).
• The location and orientation of the property (relevant floors, exposure).
• Materials and technologies used (type of façade, windows, heating system, water supply), including references to specific technical standards (ČSN, EN) or suppliers’ technical specifications. For development projects, it is worth checking whether the description of materials and technologies also corresponds to the permitting documentation and as-built/implementation documentation, which falls within development and construction law.
• Interior description—colours, type of flooring, bathroom and kitchen fit-out, etc.
• A list of immovable and movable items included in the sale (parking spaces, cellars, front gardens, built-in appliances, inventory, etc.).
• The technical legal term here is: quality specification—i.e., a precise definition of what is considered proper performance, not what is considered deficiencies (defects). Defects are defined in the Czech Civil Code as deviations from agreed or usual characteristics.

Avoid general wording such as “the building has been inspected”, “it is in good condition” or “it will be carried out according to the project documentation”. The buyer will simply ignore such sentences and later claim they understood something else.

Clear records of defects and their remediation

If there are any deficiencies at the final handover of the building—cracks in plaster, a non-functioning socket, damp on a wall—they must all be documented. Without this documentation, it is difficult to defend yourself later.

How to do it properly:

• Already during construction (or at the latest before handover), prepare a list of defects (inspection report, report on identified defects). It should include photographs, exact locations, a description of the defect, and an estimate of the time required for repair.
• The list of defects should form part of the handover protocol or be attached to it, so there is no doubt as to which defects were known at the time of handover.
• Key point: Set a clear deadline by which the defect must be remedied, and who will bear the costs. For setting enforceable deadlines and penalties, including linkage to the handover protocol, practical examples relating to inflation clauses in contracts for work may also be useful, as they often affect the cost side of defect remediation. If the buyer accepts the building “with knowledge of defects” and agrees that they will not be remedied or will be remedied later, this should be expressly stated in the handover protocol.
• If certain defects cannot be remedied (for example, an accepted structural or aesthetic deviation from the standard), this fact should be included in the agreement or the handover protocol so that the buyer cannot later claim they were unaware of it.

Our attorneys in Prague at ARROWS can help you draft the wording of a list of defects that is factual, clear, and legally robust.

Related questions on construction documentation

1. What if a hidden defect appears during the sale that I did not see?
If you carried out a proper inspection and prepared a list, you have strong evidence of the building’s condition. A hidden defect that appears later and that you could not objectively identify at handover (e.g., defects in electrical wiring inside a wall that was covered) is addressed in accordance with the Czech Civil Code (Act No. 89/2012 Coll., hereinafter the “CC”) and, where applicable, the agreed warranty terms. The key is that the buyer notifies the defect in time. The more precise your agreement and list of defects are, the better you can defend yourself against unjustified claims.

2. How long should the description of the building be? Isn’t it too lengthy?
It is better to have a detailed description than to end up in court later. Modern practice is to attach to the agreement a technical report, project documentation, a list of equipment, or other documents specifying the quality and scope of the work. For residential projects, it is also advisable to monitor whether changes in the documentation amount to unauthorised works, as discussed in the text on apartment alterations without a permit. All annexes are simply referenced in the main text of the agreement.

Warranties and their scope

This is a common mistake. Developers set overly long and vague quality warranties without properly defining them, while buyers believe they are entitled to decades of “free” repairs. It is important to distinguish between statutory liability for defects and a contractually agreed quality warranty.

Correct setup:

• Liability for defects (statutory): The Czech Civil Code provides that the buyer is entitled to notify a hidden defect in a building within five years from acquiring title. This is a statutory period for notifying a defect, not a quality warranty in the sense of guaranteeing defect-free performance for the entire period. The buyer must notify the defect without undue delay after they could have discovered it.
• Warranty period (quality warranty agreed contractually): This can be agreed contractually and typically relates to specific parts of the building or the works. If the developer decides to provide a quality warranty, its duration and scope must be clearly defined. A commonly agreed quality warranty is in the range of 24 to 36 months for construction works and supplies. Long-term warranties (e.g., 60 months) increase your risk; choose a more realistic period consistent with the service life of materials and equipment.
• Scope of the quality warranty: Clearly define what is warranted (e.g., “construction works carried out at least in accordance with applicable ČSN and EN technical standards, consistent with the design documentation and the purchase agreement”) and what is not (e.g., wear and tear, normal maintenance, physical damage caused by the buyer, defects caused by unprofessional intervention by a third party, defects caused by force majeure).
• Reporting procedure: The buyer must report a defect without undue delay after discovering it, but no later than in accordance with the Czech Civil Code (5 years for a hidden defect in a building, unless a different notification period is agreed in the contract). The contract may set a reasonable period for notifying an apparent defect from the time it is discovered; however, failure to comply must not lead to an automatic “loss of defect rights” for hidden defects contrary to law. It is advisable to specify written notice, including delivery requirements and contact details. This condition protects you from a buyer waiting a year and then suddenly alleging a dozen “old” defects.
• Responsibility for rectification: Explicitly state that you or your contractor will remedy the defect at your cost, and that the buyer is not entitled to hire their own tradesperson and invoice you, unless you fail to remedy the defect within a reasonable time or you have given prior consent to such a procedure.

Technical legal term: **quality warranty** constitutes the legal basis on which the seller’s liability for the agreed quality of the предмет of sale rests for a certain period. If you do not set it properly in the purchase agreement, you will be liable under the default rules of the Czech Civil Code, which is typically less predictable for you.

Handover and acceptance protocol for the building

This protocol is not just a formality. It is a legal document that determines the moment when the risk of damage to the item passes to the buyer and when the building is accepted with all its characteristics, including apparent defects.

Specific steps:

• The protocol is signed by your representative, the construction supervisor (if present), and the buyer (or their representative).
• It must include: the date and time of handover, an inventory list, a list of known defects (with reference to the defect list), confirmation of utilities/functions (water, electricity, heating, drainage), and meter readings (electricity meter, water meter, gas meter).
• If the buyer refuses to sign the standard protocol (e.g., because they believe the building is defective and the defects were not stated in the protocol), it is crucial to properly document the situation (e.g., a record of refusal to accept, presence of witnesses). In such a case, we do not recommend handing over the keys until the dispute is resolved or until the buyer unjustifiably refuses acceptance. Resolve the disagreement under the contract (e.g., by an independent expert assessment).
• Even if the buyer signs the protocol, this does not deprive them of legal claims arising from liability for hidden defects of the sold item under the Czech Civil Code. However, signing the protocol significantly weakens their position when asserting claims for apparent defects, as they confirmed that they accepted the building in that condition.

Attorneys from ARROWS advokátní kancelář will prepare the protocol in a way that is legally relevant and safe for both parties.

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Additional risk-reducing measures: practical mechanisms

Escrow account

Sometimes, in larger transactions, a model is used where the buyer pays a certain percentage of the price (typically 5–10%) into an escrow account held by a notary, attorney, or bank. These funds are released only after the agreed warranty period has elapsed (with no claims) or are used to cover the costs of remedying defects. Such a model reduces your risk of the buyer increasing the number of artificial claims at the last minute.

Contractual penalty and limitation of liability

The purchase agreement should include:

• Contractual penalty: A contractual penalty may be agreed for a breach of specific contractual obligations of the buyer (e.g., late payment of the purchase price, delay in acceptance, unauthorised use of the property before payment of the purchase price).  A penalty for the mere reporting of a defect that the buyer caused themselves, or that was listed in the original defect list, is legally problematic and likely unenforceable. Instead, it is more appropriate to agree reimbursement of costs associated with an unjustified claim.
• Limitation of liability: It is possible to expressly agree a cap on the amount of your liability for damages (e.g., beyond agreed quality warranties or statutory liability for defects), for example as a certain percentage of the purchase price, provided such limitation is not contrary to  (e.g., liability for intentionally caused damage or damage caused by gross negligence cannot be limited, nor can it conflict with consumer protection rules). The limitation of liability should be drafted clearly and with regard to the specific risks.

These clauses are legally valid in the Czech Republic provided they are not “unreasonably detrimental” to the other party (especially in the case of a consumer) and are not contrary to good morals or mandatory provisions of the Czech Civil Code. In developer projects in B2B relationships they are common and accepted, but their use is limited in consumer contracts.

Most common questions on legal definitions in the purchase agreement

1. If I stated in the purchase agreement that the building has certain characteristics, but it later turns out that this is untrue, can I be penalised?
Yes. If you knowingly stated something untrue (e.g., that the building has energy class A when in fact it has class D), this may constitute misleading conduct (in civil law) or sometimes even fraud (in criminal law, if the relevant intent is also present and damage has occurred). A properly prepared agreement avoids such ambiguities and states only truthful and verifiable information. Attorneys from ARROWS advokátní kancelář will point out wording that could be interpreted in the future as providing false information.

2. What if the buyer requested a change during construction and is now complaining that it is not according to the plans?
Changes must be documented. The purchase agreement should stipulate that any changes must be approved in writing by both parties (by an amendment to the agreement or a written record) and that their price must be settled. Without this measure, the buyer may later claim that they did not approve anything and that you breached the agreement.

3. How long does it take to handle a complaint before I can reject it as unjustified?
The law does not set a strict deadline for the seller to resolve a complaint (unless agreed otherwise). However, what matters is the deadline for the buyer to notify the defect. The Czech Civil Code sets a five-year period for hidden defects in a building, running from the date the buyer acquires title. The buyer must notify the defect without undue delay after they could have discovered it. Contractually, this period may be shortened only in relationships between businesses (B2B), and even then only to a certain extent. However, the statutory period for notifying a hidden defect in a building cannot be limited in contracts with consumers. The contract should clearly state what procedure must be followed when reporting a defect and what the seller’s response time will be.

4. What if an error in the design documentation is discovered during the sale? Who is responsible for it?
Liability depends on who prepared the documentation and to what extent it was approved by the developer. If it was prepared by an authorised designer (a third party), they should primarily bear liability. If you, as the developer, duly reviewed it and built in accordance with it, you are in a strong position. The contract should clearly state that “responsibility for the accuracy of the design documentation lies with the designer; the developer is not liable for errors in the documentation if the works were duly carried out in accordance with the documentation provided.” However, it must be borne in mind that, as the developer, you have certain supervisory and coordination responsibilities. The attorneys at ARROWS, a Prague-based law firm, will help you define this liability correctly – office@arws.cz.

5. What if the buyer changes their mind and the transaction is not completed? Are we entitled to keep the deposited security?
This is where the so-called ** security ** applies (in common practice often referred to as an advance payment or reservation fee). If you agreed in the purchase agreement that the buyer will deposit, for example, 10% of the price as security, you are entitled to keep it if the buyer frustrates the transaction for a reason attributable to them, and if this is expressly and validly agreed in the contract (e.g., forfeiture of the security in the event of the buyer’s breach of a contractual obligation). Without a contractual agreement on what will happen to the security, it is harder to defend your position and the general rules on unjust enrichment apply. Make sure this is stated clearly and in a legally valid manner in the purchase agreement, and have it reviewed by the attorneys at ARROWS, a Prague-based law firm – office@arws.cz.

6. What minimum insurance obligations should we have as a developer?
The developer should have liability insurance covering potential damage caused in connection with its activities. The specific scope and amount of insurance depend on the size and type of the project, as well as on legislative requirements for certain types of buildings or professions under Czech legislation. ARROWS, a Prague-based law firm, is itself insured up to CZK 400,000,000 in accordance with the regulations governing attorneys. We recommend verifying what insurance obligations arise from your role and whether you have arranged sufficient coverage. We can advise you at office@arws.cz.

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Risk table: typical issues and how to address them

Final summary

The sale of a development project requires an investment in legal protection. If you prepare the purchase agreement carefully, you will have strong tools against future complaints. There are four key elements:

1. An accurate, detailed description of the building and its parameters.
2. A documented list of apparent defects, which becomes part of the agreement or the handover protocol.
3. Realistically defined quality warranties (if agreed) with a clear reporting procedure and respect for statutory liability for defects.
4. A legally formalised handover protocol for the building, signed by the buyer.

If it seems to you that preparing all of this is time-consuming, bear in mind that the investment in a properly drafted agreement is an order of magnitude lower than the costs of court litigation. 

The attorneys at ARROWS, a Prague-based law firm, have experience with dozens of development projects and know the typical pitfalls and how to avoid them. Specialists at ARROWS, a Prague-based law firm, will help you draft the agreement, review it from a risk perspective, and prepare you for negotiations with the buyer.

If you want to minimise the risk of future disputes and complaints, contact office@arws.cz to request legal advice for your specific transaction.

Frequently asked questions about the sale of a development project

1. Is it necessary to have a list of defects if it is a new project?
Even in new buildings, minor imperfections may appear—cracks, elements that are not fully functional, etc. A list of defects protects the seller because it shows that known apparent defects were recorded at the time of handover and that the buyer was aware of them. Without it, the buyer may later complain about defects that were already apparent upon handover. We recommend preparing such a list in all cases, even for buildings that appear to be “defect-free”. For more information, contact the team at ARROWS, a Prague-based law firm, at office@arws.cz.

2. What risk do we face if we agree with the buyer on an oral amendment to the contract?
Oral amendments are not legally guaranteed, and later everyone remembers them differently. Most real estate purchase agreements require changes to be made in writing. If you have orally agreed with the buyer on a change to warranties or parameters, such an agreement is legally risky and may be considered invalid and therefore legally ineffective. All contract changes must be in writing. If you want certainty, have the amendment reviewed by the attorneys at ARROWS, a Prague-based law firm – email office@arws.cz.

3. Can I reserve in the purchase agreement that certain parts of the building are not warranted?
Yes, in the purchase agreement you can agree on exceptions to the agreed quality warranty (if you provide one) or clearly define the scope of your statutory liability for defects, if permitted by law (e.g., limiting liability for ordinary wear and tear, or for defects caused by the buyer). For example, you can write: “The roof is not covered by the quality warranty because it was installed by a third party (Supplier A), and Supplier A is responsible for its quality.” Or: “Earthworks are not warranted due to geological influences that the seller could not affect.” Such exceptions are legally valid if they do not conflict with the law (in particular consumer legislation) and are not unreasonably burdensome for the buyer. However, they must be expressly stated in the contract and reasonably justified. If you are not sure which exceptions are acceptable and how to word them, the attorneys at ARROWS, a Prague-based law firm, will advise you – office@arws.cz.

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Notice: The information contained in this article is of a general informational nature only and is intended for basic guidance on the topic under the legal framework as of 2026. Although we take the utmost care to ensure accuracy, legal regulations and their interpretation evolve over time. We are ARROWS, a Prague-based law firm, an entity registered with the Czech Bar Association (our supervisory authority), and for maximum client protection we maintain professional liability insurance with a limit of CZK 400,000,000. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact ARROWS, a Prague-based law firm, directly (office@arws.cz). We accept no liability for any damages arising from independent use of the information in this article without prior individual legal consultation.

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