Withdrawing from a Company Car Purchase Agreement for Hidden Defects

JUDr. Jakub Dohnal, Ph.D., LL.M.
JUDr. Jakub Dohnal, Ph.D., LL.M.
23.5.2026 | ARROWS law firm

Hidden defects when purchasing a company vehicle can significantly affect business operations, costs, and tax implications. In this article, you will find a practical overview of when a company may withdraw from a purchase agreement due to hidden defects, how to proceed correctly, and how to set up the contract so that your position is as strong as possible.

The photograph shows a lawyer advising on withdrawal from a purchase agreement.

Key takeaways:
  • A hidden defect is a fault that already existed at the time the vehicle was handed over, was not apparent during a standard inspection, and goes beyond normal wear and tear. In business relationships, the purchasing company (unlike a consumer) must actively prove that the defect already existed at the moment the vehicle was handed over.
  • A company may withdraw from the purchase agreement if there is a material breach of contract. This typically occurs in cases of serious concealment of a defect (e.g., odometer rollback, concealed structural accident damage) or a serious hidden fault preventing proper use of the vehicle, where repair is economically unreasonable.
  • Rights arising from defective performance must be asserted without undue delay after the defect is discovered, at the latest within two years of taking delivery of the item (often shortened by contract). For companies, there is no automatic presumption that a defect that becomes apparent within 12 months already existed at handover, which increases the buyer’s burden of proof.
  • To strengthen your position, high-quality contractual prevention (a detailed condition description and the seller’s representations) and a prompt response to a discovered defect are key. In practice, it is necessary to secure an expert assessment (expert report) and to submit a timely written complaint with a clearly formulated claim (repair, discount, withdrawal).

Hidden defects in a company vehicle 

When purchasing a company vehicle, hidden defects can very quickly turn an apparently advantageous transaction into a costly and time-consuming problem. This is especially true if the vehicle serves as a key production asset or is part of a larger fleet.

A hidden defect is a fault that already existed on the vehicle at the time it was handed over. It was not apparent during a standard inspection, does not correspond to normal wear and tear, and was not properly disclosed in the purchase agreement or handover protocol. In business relationships, the special consumer-protection regime does not apply in full. Under the Czech Civil Code, a company has strong rights arising from defective performance. This includes the option to withdraw from the purchase agreement if there is a material breach of contract. If a dispute over a hidden defect escalates and the other party refuses the claims, it is often appropriate to address the matter as a commercial and court dispute.

This typically happens when the defect prevents proper use of the vehicle, involves serious concealment (for example, an odometer rollback or structural accident damage), or the seller fails to remedy the defect properly and in time. In practice, however, what matters is the timeliness of notifying the defect, the content of the purchase agreement, the way the buyer responds to the discovered fault, and the evidentiary situation. The company must prove that the defect already existed at the time the vehicle was handed over.

ARROWS’ Prague-based attorneys in similar situations commonly combine legal argumentation, an evidentiary strategy, and tax or accounting impacts (VAT, depreciation, disposal from assets) to help the client either settle the dispute efficiently or successfully pursue it through proceedings.

Legal framework for hidden defects in company vehicles

The first step is to understand how the Czech Civil Code works with the concepts of quality upon acceptance, defective performance, and a hidden defect. It is also necessary to distinguish between the position of a consumer and a business.

The general regulation of a purchase agreement is based on the premise that the seller must deliver the item in the agreed quality, quantity, and design. If the quality and design are not expressly agreed, they must correspond to the purpose evident from the agreement or the usual purpose of the item.

For a vehicle, this means the car must be usable for road traffic for a reasonable period, be in roadworthy technical condition, and be consistent with the description in the purchase agreement and documentation.

An item is defective if it does not have the characteristics agreed by the parties, or that the buyer may reasonably expect in view of the agreement, the seller’s statements, ordinary use, and the price. In the case of a used company car, not only the age and mileage will be assessed, but also, for example, statements that the vehicle has not been in an accident. It is also verified whether the odometer corresponds to the actual mileage and whether the vehicle comes from the first owner.

If it later turns out that the car has structural damage after an accident or that the mileage is significantly higher, this constitutes a defect even if it was hidden and only manifested over time. To strengthen the buyer’s position, it is advisable to have clearly set representations and liability arrangements in the purchase documentation, which can be supported by the contracts and negotiations team. According to legal literature and practice, a hidden defect is defined as a defect that already existed at the time the item was handed over. It was not apparent during a customary inspection and only manifested later during use.

For used vehicles, a hidden defect is considered in particular a fault that is not visible at first glance and could not reasonably be detected during an inspection or test drive. The seller did not draw the buyer’s attention to it and it is not stated in the purchase agreement.

At the same time, it must be a defect that goes beyond normal wear and tear corresponding to the vehicle’s age and mileage. Ordinary degradation of brakes or shock absorbers after a certain mileage will therefore generally not constitute a hidden defect.

The vehicle’s roadworthiness for operation on public roads also plays a significant role. Act No. 56/2001 Coll., on the conditions of operation of vehicles on public roads expressly prohibits operating a vehicle that is technically unfit due to serious defects.

This applies, for example, due to significant defects in the braking system, steering, bodywork, tyres, or fuel leaks. If, after purchase, it becomes apparent that the vehicle already had these serious defects at the time of handover and nevertheless passed the technical inspection (STK) or was sold as “without defects preventing operation”, this is typically a material defect that may justify withdrawal from the purchase agreement.

A business as the buyer: difference compared to a consumer

For a company vehicle, the buyer is typically a legal entity or a self-employed individual. In such a case, the special regime for consumer purchases does not apply; instead, the general regulation of a purchase agreement between businesses applies. Alternatively, it may apply between a business and a non-business party who, however, is not acting as a consumer.

This has three fundamental consequences: the automatic two-year period for asserting rights arising from defective performance for consumers does not apply, together with the presumption that the defect already existed at the time of acceptance if it becomes apparent within the first 12 months. The burden of proof regarding the existence of the defect at the time of acceptance lies primarily with the buyer, and the parties have greater contractual freedom in arrangements on liability for defects.

Whereas a consumer may, in the case of a purchase of goods in a shop, assert rights arising from defective performance for 24 months from acceptance. In the first 12 months, a strong presumption applies that the defect already existed at the time of acceptance.

A business-to-business purchase is governed by a period for notifying defects, which must be done without undue delay after the buyer discovered the defect. However, no later than two years from acceptance of the item; for used vehicles, it is common to agree on a shorter period.

The rights arising from defective performance themselves must then be asserted within the limitation period, which is two years from timely notification of the defect. In practice, this means that a business cannot wait a year and a half to make a claim about a defect it knew about or should have known about, otherwise it risks losing its rights arising from defective performance.

Another difference is contractual freedom. While in a consumer purchase the seller’s statutory liability for defects cannot, as a rule, be contractually excluded or substantially limited, in B2B relationships it is possible to modify liability for defects to a certain extent, shorten time limits, or exclude certain claims.

Nevertheless, even in business relationships it is not possible to exclude liability for defects that the seller knew about and concealed from the buyer. Nor can liability be excluded for intentionally concealed or fraudulently disguised facts, such as a rolled-back odometer or a concealed total loss of the vehicle.

The attorneys at ARROWS therefore, when setting contractual terms for corporate fleets, always balance the client’s commercial objectives with the limits permitted by the Civil Code.

Hidden defects vs. normal wear and tear in a used company car

For used corporate vehicles, it is crucial to distinguish what still constitutes normal wear and tear and what is already a hidden defect. The seller’s liability for defects does not extend to defects corresponding to the degree of use or wear and tear that the item had at the time of acceptance, especially in the case of a used item.

The purchasing company therefore cannot complain, for example, about lower remaining tyre tread on a five-year-old vehicle with high mileage if it corresponds to the usual condition of such an item. Conversely, a hidden defect is considered to be a fault that exceeds normal wear and tear and could not reasonably have been detected during an inspection. 

Typically, this includes excessive hidden corrosion of load-bearing parts of the bodywork, hidden frame damage after an accident, a serious engine defect that manifests itself through extreme oil consumption only after a certain period of operation. This also includes interventions in control units and emissions systems (for example, removal of the particulate filter) carried out unlawfully.

Specialist literature and case law emphasise that even with older cars, the seller cannot tolerate defects that prevent the basic purpose of the item. This is safe and customary operation on public roads – even the vehicle’s advanced age does not excuse defects that make the vehicle effectively unusable for ordinary use.

For businesses, it is therefore important not only to assess the technical condition, but also to evaluate whether the identified fault will be considered by a court as normal wear and tear or as a hidden defect. Ambiguity can in practice lead to protracted disputes, expert opinions, and legal representation costs.

The attorneys at ARROWS typically combine a technical expert opinion with a legal analysis of the contractual documentation and the practice of the specific segment (for example, courier services, construction companies, leasing companies) in order to estimate the prospects of success in proceedings for withdrawal from the contract or a request for a discount on the purchase price.

Most common questions on the legal basis of hidden defects

1. When, in a business relationship, is it assessed whether the defect already existed at the time of acceptance?
The decisive moment is the transfer of the risk of damage to the item, typically the buyer’s acceptance of the vehicle, regardless of when the defect actually manifests itself. For rights arising from defective performance to arise, it is sufficient that the cause of the defect already existed at that moment, even if only latently – typically an engine fault that becomes apparent only after several thousand kilometres. If you need an assessment of a specific case, it is advisable to contact the attorneys at ARROWS via office@arws.cz.

2. Does the presumption also apply to a company that a defect manifested within 12 months existed at the time of acceptance?
This presumption is expressly regulated for consumer contracts, not generally for business relationships. In the B2B regime, the court will primarily rely on the evidence of both parties and the specific contract; nevertheless, case law sometimes takes into account that a defect manifested shortly after acceptance is probably of an earlier date. In borderline cases, a legal analysis by the attorneys at ARROWS can significantly strengthen your argumentation, so it is advisable to consult the matter in time at office@arws.cz.

3. Can the seller completely exclude liability for hidden defects in the contract?
In business relationships, liability for defects can be limited to a certain extent and time limits can be shortened; however, it is not possible to validly exclude liability for intentionally concealed or fraudulently disguised defects, such as a rolled-back odometer, a concealed total loss accident, or unlawful interference with vehicle identifiers. If your contract contains wording such as “without warranty for hidden defects” or “as is, where is”, it is advisable to have the text reviewed by the attorneys at ARROWS, who can help you at office@arws.cz assess what such a clause actually means in a specific dispute.

Seller’s liability and the rights of the purchasing company

The Civil Code is based on the principle that the seller is liable for the item having no defects at the moment the risk of damage transfers to the buyer and for it having the agreed characteristics. If this is not the case, the buyer acquires rights arising from defective performance.

These rights are intended to protect the buyer against defects of which it did not know and could not have known even with ordinary care. However, in the case of corporate vehicles, a higher standard of caution is required of the buyer, including verification of the technical condition, the vehicle’s history, and the contractual documentation.

The law distinguishes several levels of defective performance. If the performance is so seriously defective that it does not correspond to the contract at all (for example, a completely different type of vehicle is delivered, or a vehicle with a different engine than agreed), it may constitute so-called aliud (delivery of a different item).

From the perspective of the buyer’s rights, this is assessed similarly to a material defective performance with the option to withdraw from the contract. In the common practice of hidden defects in corporate cars, however, it more often concerns defects “within the same type”.

These are therefore hidden technical faults, legal defects (for example, a pledge or enforcement proceedings against the vehicle), or defects in declared characteristics (a rolled-back odometer, a concealed accident).

Rights arising from defective performance: repair, discount, replacement, withdrawal

Under the general rules, the buyer has several types of claims in the event of a defective item. Their choice depends on whether the defect constitutes a material or non-material breach of contract.

In the event of a material breach of contract, the buyer may request removal of the defect, delivery of a new item free of defects, a reasonable discount from the purchase price, or may withdraw from the contract. In the event of a non-material breach, the buyer primarily has the right to removal of the defect or a discount, and only if the seller fails to remedy the defect within a reasonable time or refuses to do so may the buyer withdraw.

A fundamental breach of contract is, under the law, a breach of an obligation which the seller already knew or must have known at the time the contract was concluded that, had the buyer foreseen it, the buyer would not have entered into the contract.

In the context of company vehicles, this typically includes a concealed serious accident that reduces the vehicle’s safety or service life, or odometer tampering on the scale of tens of thousands of kilometres. It also includes serious structural defects of the bodywork, legal defects preventing full ownership, or interference with the vehicle’s identifiers.

A non-fundamental breach of contract, by contrast, involves defects that can reasonably be repaired without frustrating the buyer’s basic expectations. These include, for example, partial defects in equipment, minor leaks, or electronic faults that can be remedied at reasonable cost. The purchasing company must choose a specific remedy when notifying the defect or without undue delay thereafter. If it fails to do so, it may, in some cases, end up with only limited options.

In practice, ARROWS’ attorneys at our Prague-based law firm therefore recommend that clients clearly state already in the first written complaint whether they request repair, replacement, a discount, or immediate withdrawal from the contract, and that they retain room to manoeuvre in case the seller challenges their claim.

When the defect arises and the burden of proof

The buyer’s rights arising from defective performance are established by a defect that the item has at the moment the risk of damage passes to the buyer, even if it becomes apparent only later. For a vehicle, this moment is typically the handover of the vehicle to the purchasing company, which is often evidenced by a handover protocol.

The defect may become apparent only after some time, for example after several thousand kilometres have been driven. However, to assert a claim it is necessary to prove that its cause already existed at the time of handover. This includes, for example, long-term engine wear or a design defect, rather than one-off improper use by the buyer.

In business relationships, the burden of proof lies primarily with the buyer. The buyer must prove both the existence of the defect and its existence at the relevant time, or the link to the seller’s breach of obligation.

Unlike consumers, for whom the law introduces presumptions in the buyer’s favour for the first months after handover, business entities do not have such automatic support and often must invest in expert opinions, thorough documentation, and legal argumentation. In practice, this means that without a professional service report or an independent expert opinion, enforcing a claim—especially withdrawal from the contract—is significantly more difficult.

Case law further emphasises that the buyer has a duty to inspect the item after taking it over and to verify its characteristics. For a company vehicle, the company is therefore expected to carry out at least a basic inspection, or possibly a professional check. This applies in particular to higher-value vehicles, fleets, or specific categories (for example, commercial vehicles). 

If the buyer fails to discover obvious defects and does not raise them, it may happen that later it will not have the right to rely on them. In practice, ARROWS’ Prague-based law firm recommends that clients set up internal processes so that every newly acquired vehicle undergoes at least a registration inspection, a basic technical inspection, and a history check based on the VIN code.

When a company may withdraw from a purchase agreement due to hidden defects

Withdrawal from a purchase agreement is the buyer’s remedy of last resort—it results in the contract being cancelled from the outset and the mutual return of performance. The company returns the vehicle and the seller returns the purchase price.

In a business environment, this is a step with significant operational, tax, and accounting impacts. It therefore makes sense only in cases where the vehicle’s defects are so fundamental that continuing the contract no longer makes economic or legal sense.

From a legal perspective, withdrawal is considered primarily in the case of a fundamental breach of contract. It may also apply in the case of a non-fundamental breach where the seller fails to remedy the defect within a reasonable period or refuses to do so.

Fundamental vs. non-fundamental breach of contract for a company car

The distinction between a fundamental and a non-fundamental breach of contract is key to assessing whether a company may withdraw from the contract immediately or only after the period for remedying the defect has expired without success.

A fundamental breach is one which the seller already knew or must have known at the time the contract was concluded that, had the buyer foreseen it, the buyer would not have entered into the contract. For company vehicles, a fundamental breach is typically considered to be a situation where the company was sold a vehicle with a serious hidden defect in the engine, gearbox, braking system, or frame that fundamentally limits or prevents operation and whose removal would be economically disproportionate in view of the vehicle’s price.

The seller concealed a total-loss accident or other material damage to the bodywork or chassis that reduces the vehicle’s safety or service life, and the vehicle was presented as “accident-free” or “without damage to load-bearing parts”. This also includes a case where the odometer has been rolled back or there has been other fraudulent interference with mileage data of such intensity that the actual condition significantly exceeds the declared mileage and fundamentally affects the vehicle’s value and expected service life.

Or the vehicle has a legal defect, such as an encumbrance (lien), enforcement proceedings, or it is registered as stolen, and the buyer is therefore not the full owner or faces the risk of the vehicle being seized.

In addition to these obvious cases, case law also recognises as a reason for withdrawal the repeated occurrence of the same defect which, despite previous repairs, continues to recur and prevents proper use of the vehicle.

In a decision concerning automotive air conditioning, the Supreme Court concluded that a recurring air-conditioning defect may give rise to the right to withdraw if it prevents proper use of the item under the contract. This applies even if it is not a defect that would render the vehicle technically unfit under public-law regulations.

For company vehicles, this may have practical significance, for example, for cars that transport sensitive cargo or persons, or are used for representation. By contrast, in the case of a non-fundamental breach of contract—for example, a defect that causes complications but does not completely prevent ordinary use and can be repaired at reasonable cost—the buyer primarily has the right to have the defect remedied or to a discount on the purchase price.

Only if the seller fails to remedy the defect within a reasonable time or refuses to do so may the buyer withdraw from the contract. Typical examples include recurring infotainment faults, partial leaks, or cosmetically significant but technically solvable defects. However, if they occur repeatedly, they may lead to considering withdrawal.

Hidden defects that typically allow withdrawal

In practice, with company vehicles we encounter recurring types of hidden defects for which withdrawal from the purchase agreement is often a realistic option. These include in particular:

Serious technical defects of the engine or gearbox that originate in long-term wear or improper handling before the sale and manifest shortly after purchase. These include, for example, extreme oil consumption, loss of compression, or major problems with an automatic transmission.

If an expert opinion proves that the cause of the defect already existed at the time of handover, it may constitute a fundamental breach of contract and a reason for withdrawal. This applies in particular if the repair costs exceed a reasonable proportion of the vehicle’s price.

Hidden structural damage after an accident, such as frame deformation, poorly performed repairs to load-bearing parts, or extensive welds outside the manufacturer’s technology, which reduce the car’s safety or service life. If the vehicle was sold as “accident-free” or without mention of these facts, this is generally a fundamental breach of contract and the buyer may request withdrawal.

Manipulation of vehicle identifiers, typically the VIN, or illegal modifications that result in the loss of roadworthiness. For example, removal of the diesel particulate filter (DPF), non-homologated interventions in the exhaust system, or illegal chiptuning without the required approvals. 

Such interventions often mean not only a private-law defect, but also a risk of penalties when operating the vehicle, and may therefore constitute a material breach of contract. In each of these cases, however, it is crucial to document the vehicle’s condition, obtain an expert report, and correctly legally qualify the defect as a material breach of contract.

In practice, the attorneys of ARROWS, a Prague-based law firm, often recommend combining a claim for withdrawal with a potential claim for damages (for example, costs of replacement vehicles, logistical complications, contractual penalties vis-à-vis customers), which strengthens the client’s negotiating position in out-of-court negotiations.

Time limits, defect notification and use of the vehicle

For a company to withdraw from a purchase agreement due to a hidden defect, it must notify the seller of the defect in a timely manner. The general rules on hidden defects provide that the buyer must notify the defect without undue delay after it discovered it or could have discovered it with due care, and no later than two years from taking over the item, unless the parties agreed on a shorter period.

For used vehicles, it is common for the contract to expressly shorten the period for asserting rights from defective performance to twelve months. Alternatively, it may define specific complaint periods; in B2B relationships, such arrangements are usually valid unless they cover defects that were intentionally concealed.

A practical question is how to handle the defective vehicle after discovering a hidden defect. Experts recommend that, if you intend to claim a hidden defect, you should not continue using the vehicle and should not carry out your own repairs, as this could make evidence more difficult and weaken the buyer’s position.

Experience from used-car dealers and service centres shows that, during the complaint process, the car should essentially remain in the condition in which the defect manifested itself, and any interventions should be agreed in advance with the seller or carried out at the seller’s expense.

However, for company vehicles it sometimes makes economic sense to remedy the defect provisionally so that the company’s operations are not paralysed. In such a case, it is essential to have a thoroughly documented procedure, service records and a clear legal strategy to avoid losing the claim.

Most common questions on the practical procedure for a hidden defect

1. Can we send the car for repair immediately so it does not sit idle, and deal with the complaint retrospectively?
This is one of the riskiest decisions. Experts recommend keeping the hidden defect in its original state before making a complaint, because your own interventions may make evidence more difficult and allow the seller to argue that the defect was caused by the buyer’s intervention. If you must repair the vehicle for operational reasons, do so only after thorough documentation and ideally after prior written notice to the seller; the attorneys of ARROWS, a Prague-based law firm, can help you set up a safe procedure and can be contacted at office@arws.cz.

2. How long can we wait to make a complaint if we are not sure whether it is a hidden defect?
The law requires that a hidden defect be notified without undue delay after the buyer could have discovered it, and at the same time no later than two years from taking over the item, unless shortened by contract. In practice, this means it is not worth delaying the complaint—the later you assert it, the easier it will be for the seller to claim that the defect arose only after takeover. In uncertain cases, it is advisable to consult the attorneys of ARROWS, a Prague-based law firm, and have a brief legal opinion prepared, which you can order easily via office@arws.cz.

3. What if the seller simply ignores the complaint?
If the seller does not respond, you can send a written demand to remedy the situation within a reasonable period and at the same time warn that, in the event of further inaction, you will exercise the right to withdraw from the contract or request a price reduction and, if necessary, turn to the court. It is also advisable to prepare a pre-action letter and consider filing a claim for a reduction of the purchase price, a refund of the purchase price or damages; the attorneys of ARROWS, a Prague-based law firm, can help you prepare these steps and represent you in negotiations and in court, and you can contact them at any time at office@arws.cz.

A company’s practical procedure upon discovering a hidden defect in a company car

Discovering a hidden defect in a newly acquired company vehicle is always unpleasant—especially if the vehicle has already been included in business assets, depreciation has started, and it is part of key processes (deliveries, business trips, construction work).

The correct procedure in the first days after discovering the defect has a decisive impact on whether a successful complaint, a price reduction or withdrawal from the contract will be possible. Overly hasty repairs at your own expense, informal agreements by phone, or insufficient documentation of the vehicle’s condition can significantly worsen the company’s evidentiary position.

Technical assessment and evidentiary basis

The first step should be an expert assessment of the vehicle’s condition. This usually means towing or transporting the vehicle to a service centre that is not directly connected to the seller (for example, an authorised service centre for the brand in question or an independent expert).

Next, it is necessary to obtain a detailed service report or an expert opinion. The report should describe the symptoms, identified defects, the presumed cause and an estimate of repair costs. In more significant disputes, it is advisable to immediately commission an expert opinion from a registered expert in the field, which will become key evidence in any court proceedings.

At the same time, it is advisable to secure photographic documentation of relevant parts of the vehicle, save diagnostic reports, records of error messages, and all prior communication and documents from the seller (purchase agreement, handover reports, complaint terms, SMS messages or emails).

This evidence will help not only in negotiations with the seller, but also in dealings with the insurer, tax adviser or auditor, who will assess the impact of any withdrawal from the contract on accounting and tax matters.

Written complaint and choice of remedy

The next step is the formal assertion of the complaint with the seller. Even though this is a business relationship, experts clearly recommend a written form.

A combination of email and a registered letter, or a data box (datová schránka), is recommended—with a clear description of the defect, the date it was discovered, and specification of the requested remedy (repair, discount, replacement or withdrawal).

In business contracts, there are often specific complaint procedures in the terms and conditions or the purchase agreement; failure to comply with them may be used by the seller as an argument to reject the claim. In the text of the complaint, it is advisable to expressly state that the company is asserting rights from defective performance under the relevant provisions of the Czech Civil Code. Also, that it considers the defect to be a hidden defect existing at the time of taking over the vehicle.

If it is a serious defect that makes the vehicle unusable for the agreed purpose, the company may already state in the complaint that it considers the defect a material breach of contract and chooses withdrawal from the purchase agreement. At the same time, it is prepared to return the vehicle by agreement.

In other cases, it may be more pragmatic to request repair or an appropriate discount first. The option to withdraw can be kept in reserve in case the defect recurs or the seller does not cooperate.

Negotiations with the seller, time limits and out-of-court resolution

After the complaint is asserted, it is up to the seller to respond within a reasonable period. For consumer contracts, the law sets a maximum thirty-day period for handling a complaint.

After this period expires without result, the consumer may withdraw from the contract or request a discount. In business relationships, this fixed statutory period generally does not apply. Nevertheless, thirty days is often a reasonable benchmark for an adequate period to remedy a defect or provide a relevant response. If the seller does not respond at all, or rejects the complaint without substantive justification, this strengthens the procedural position of the purchasing company in any potential dispute.

Many disputes over hidden defects in company vehicles can be resolved out of court – for example, through a combination of a partial discount on the purchase price, reimbursement of part of the repair costs, or an exchange for another vehicle.

The success of these negotiations depends on the evidentiary situation and the legal arguments of both parties. The experience of ARROWS, a Prague-based law firm, shows that involving an attorney in the communication often leads to a faster and more advantageous settlement for the client, because the other party perceives the real risk of court proceedings and potential reputational or regulatory impacts.

Contractual prevention: how to set up a purchase agreement for a company vehicle

The most effective way to reduce the risk of disputes over hidden defects and strengthen the potential option to withdraw from the purchase agreement is high-quality contractual documentation.

For corporate vehicle purchases – whether individual cars or entire fleets – it pays to devote significantly more attention to the purchase agreement and related documents than in a standard consumer purchase. The Czech Civil Code allows the parties to contractually adjust a number of parameters of liability for defects, which is common practice for business entities.

What a purchase agreement for a company vehicle should include

Professional sources state that a vehicle purchase agreement should include, in particular, precise identification of the contracting parties. It should also include clear identification of the vehicle (make, model, VIN, date of first registration, colour, licence plate number, odometer reading), the purchase price, and the method of payment.

It should also include a detailed description of the vehicle’s technical condition, including a list of known defects. For used cars, it is recommended to describe in detail the condition of the bodywork, engine, chassis, braking system, interior, and all equipment elements, including non-functioning components. The more detailed the description, the less room there is for a later dispute as to whether it was an apparent defect that the buyer was made aware of.

An important element is the seller’s declaration that it is the sole owner of the vehicle. Further, that the vehicle is not encumbered by third-party rights (for example, pledges, enforcement proceedings) and that it is not aware of any defects in the vehicle other than those expressly disclosed to the buyer and listed in an annex to the agreement or in the vehicle condition report.

In the case of an altered odometer or a concealed accident, this declaration has crucial evidentiary value. It allows the buyer to argue that the seller concealed the defect and breached the contractual arrangement. This strengthens the argument for a material breach of contract and withdrawal.

For new vehicles or relatively new used vehicles, it also makes sense to contractually regulate a quality guarantee – i.e., a contractual warranty beyond the statutory liability for defects – for example, for certain parts of the vehicle, a number of kilometres, or a time period.

In B2B relationships, a contractual warranty is purely a matter of agreement and can be set up to the advantage or disadvantage of either party. Importantly, it cannot limit the seller’s basic statutory liability for hidden defects, but it can address defects that arise only after handover.

“As is” clauses and limitation of liability

In practice, used vehicles often include clauses such as “the vehicle is sold as is” or “without warranty for hidden defects”.

Experience from legal practice shows that such a clause does not deprive the buyer of the right to assert hidden defects, especially if they were concealed by the seller. The purpose of similar clauses is rather to express that the buyer takes over the vehicle in its current condition and is aware of its wear and tear; they cannot be interpreted to mean that the seller could lawfully conceal a fundamental defect or material information about the vehicle’s history.

Moreover, the Czech Civil Code does not allow the seller to exclude liability for a defect that it knew about at the time the agreement was concluded and concealed, nor for a defect caused by an intentional breach of duty. Any clause attempting to do so would be invalid to that extent.

For the purchasing company, it is therefore important not to rely on contractual wording without legal assessment and, in case of doubt, to have the contractual documentation reviewed by attorneys from ARROWS, a Prague-based law firm.

Checking the vehicle’s history and preventing disputes

In addition to the purchase agreement itself, an important preventive practice is checking the vehicle’s history by VIN in available databases. These can reveal an altered odometer, historical damage, or use of the vehicle as a taxi or under an operational lease.

Especially for vehicles with low mileage and an attractive price, it may be essential to verify whether the stated information corresponds to reality. If the seller claims that “the vehicle has never been in an accident” or that “the odometer reflects the actual mileage”, it is recommended to expressly incorporate these statements into the agreement.

This strengthens the possibility of later asserting rights arising from defective performance if the opposite is proven.

ARROWS, a Prague-based law firm, often sets up procedural manuals for clients for purchasing company vehicles, combining internal technical checklists, the use of vehicle history databases, and standardised contractual documentation. Such an approach not only reduces the risk of hidden defects, but also improves the company’s negotiating position vis-à-vis fleet suppliers, leasing companies, and dealers, because it signals that the buyer actively protects its rights and has legal backing.

Most common questions on setting up a contract for a company vehicle

1. Is a standard contract or handover protocol from a car dealership enough for us?
Standard forms used by car dealerships are typically drafted primarily in their favour and often include provisions limiting liability for defects, shortening time limits, or providing a vague description of the vehicle’s condition. For a one-off purchase of an inexpensive car, this may be an acceptable risk, but for expensive or fleet vehicles it is advisable to insist on amendments to the agreement or on using your own template documents. ARROWS attorneys in Prague can assist you with drafting or reviewing contracts; you can contact them at office@arws.cz.

2. Does it make sense to request a specific declaration regarding accidents and mileage?
Yes, it has a significant evidentiary effect. If the seller expressly declares that the vehicle has not been in an accident or that the odometer reading corresponds to the actual mileage, and the opposite is later proven, this significantly strengthens the argument that there was a material breach of contract and intentional concealment of a defect. ARROWS attorneys in Prague can incorporate these declarations into contracts so that they are practically usable and enforceable in Czech courts; they can advise you on setting them up at office@arws.cz.

3. How should a purchase agreement be structured if we are buying a vehicle cross-border within the EU?
In cross-border purchases, not only the Czech Civil Code but also private international law and EU rules come into play, including different VAT regimes. In such situations, it is essential to clearly determine the applicable law, court jurisdiction and the complaints process, and also to take tax implications into account (VAT deduction, and any obligations when acquiring a new means of transport from another Member State). ARROWS, a Prague-based law firm, through the ARROWS International network, often handles similar transactions with an international element and can prepare a tailor-made contractual and tax structure for you; just contact us at office@arws.cz.

Typical issues and the role of ARROWS, a Prague-based law firm

Potential issues

How ARROWS can help (office@arws.cz)

Unclear right to withdraw: the company is unsure whether the identified defect constitutes a material breach of contract

Legal analysis of the case: we assess both the technical and legal aspects of the defect, apply relevant case law, and determine whether the conditions for withdrawal, a price reduction or another claim are met; we will prepare a recommended strategy for the next steps.

Weak contract and an ambiguous description of the vehicle’s condition

Contract review and set-up: we prepare or amend purchase agreements, handover protocols and terms and conditions so that they clearly define the vehicle’s condition, the seller’s representations, the complaints regime and liability for hidden defects; this significantly strengthens your evidentiary position.

The seller refuses the complaint and ignores communication

Representation in negotiations and disputes: we take over communication with the seller, prepare a pre-action demand letter and, if necessary, file a claim for a price reduction, refund of the purchase price or damages; during the dispute we also coordinate expert opinions and tax implications.

Questions regarding VAT, depreciation and the accounting implications of withdrawal from the contract

Legal and tax advice: in cooperation with tax advisors, we set up the correct accounting and tax treatment of the transaction and any withdrawal (residual value, depreciation, VAT deduction and output VAT, adjustments to deductions, removal from business assets) to avoid additional assessments or penalties.

Risk of reputational damage and loss of negotiating leverage in a dispute with a major fleet supplier

Strategic negotiation and out-of-court resolution: we help set a communication strategy that minimises public conflict and preserves business relationships, while also preparing legally substantiated arguments to achieve a fair settlement without the need for lengthy court proceedings.

Final summary

Hidden defects when purchasing a company vehicle are not merely a “technical problem”, but a complex legal, tax and business issue. It can significantly affect a company’s operations, cash flow and relationships with partners.

Under the Czech Civil Code, the purchasing company has strong rights arising from defective performance in the case of hidden defects, including the option to withdraw from the purchase agreement if it constitutes a material breach of contract or if the seller fails to remedy the defect within a reasonable time.

However, timely notification of the defect, proof that the defect already existed at the time of handover, and high-quality contractual documentation that clearly describes the vehicle’s condition and the seller’s representations are decisive.

For entrepreneurs, management and investors, this topic is important not only because of the vehicle’s price itself, but also because of secondary impacts: fleet downtime, replacement vehicles, contractual penalties vis-à-vis customers, impacts on depreciation and VAT, or reputational risks in protracted disputes.

Properly structured contracts, preventive vehicle checks and a swift response to identified defects significantly reduce the likelihood that it will be necessary to take the ultimate step—withdrawal from the purchase agreement—and, if it does occur, increase the chances of successfully enforcing the claim. If you do not want to risk mistakes, losses, delays or penalties, it is safer to entrust the assessment of the specific situation, contract drafting and the conduct of any dispute to the experts at ARROWS, a Prague-based law firm.

The attorneys at ARROWS, a Prague-based law firm, have long focused on hidden vehicle defects and commercial transactions, are insured for professional liability up to CZK 400,000,000, and thanks to the ARROWS International network can also handle cases with an international element. For a non-binding consultation on your case or a contract review, you can contact us at any time at office@arws.cz.

FAQ - Hidden defects when purchasing a company vehicle

1. How can I tell whether it is a hidden defect and not just normal wear and tear?
A hidden defect is a fault that already existed at the time the vehicle was handed over, could not be detected during a standard inspection, the seller did not point it out, and it does not correspond to normal wear and tear given the vehicle’s age and mileage. Typically, this includes hidden accident damage, a serious engine defect, an odometer rollback, or an illegal intervention in technical systems. If you are unsure, it is advisable to have the car inspected by an expert and consult the attorneys at ARROWS, a Prague-based law firm, at office@arws.cz.

2. Until when can our company make a claim for a hidden defect, and when can we withdraw?
As a general rule, hidden defects must be notified without undue delay after the buyer could have discovered them, and no later than two years from taking delivery of the item, unless the contract provides for a shorter period. Withdrawal is possible in particular where there is a material breach of contract (a serious defect or intentional concealment) or where the seller fails to remedy the defect within a reasonable time or refuses to do so. The specific time limits and options for withdrawal should always be assessed based on the wording of your contract—ARROWS’ attorneys in Prague can assist you with this; you can reach them at office@arws.cz.

3. Do we have a chance of succeeding with withdrawal if we used the car for some time after discovering the defect?
Using the vehicle after discovering the defect does not in itself exclude the claim, but it may make evidence more difficult and affect the scope of any price reduction or compensation. What matters is when the defect was notified and whether it could reasonably be expected that the vehicle would remain temporarily in operation. In any case, documentation of the vehicle’s condition, service records and a timely written complaint are key; an individual assessment of prospects in a specific dispute can be provided by the attorneys at ARROWS, a Prague-based law firm, at office@arws.cz.

4. What is the procedure if we buy a company vehicle abroad and a hidden defect appears?
In cross-border transactions, not only the Czech Civil Code but also the applicable law of the chosen state, international court jurisdiction and VAT rules for acquiring a vehicle from another EU Member State are assessed. The complaints procedure may differ and it is necessary to address not only the defect itself, but also the tax and accounting implications of any withdrawal or price reduction. In such situations, it is advisable to involve the attorneys at ARROWS, a Prague-based law firm, who, thanks to ARROWS International, also handle these cross-border disputes; you can contact them at office@arws.cz.

5. What documents should we prepare if we are considering litigation due to a hidden defect in a company car?
The key documents are the purchase agreement and all its provisions on the vehicle’s condition, handover/acceptance reports, communication with the seller, service reports, expert opinions, photo documentation, and records of costs incurred for repairs or replacement vehicles. The better the documentation, the stronger your position in the proceedings. The attorneys at ARROWS, a Prague-based law firm, can help you sort these materials, supplement them with missing evidence, and prepare a litigation strategy; just contact them at office@arws.cz.

6. We are a large company with a fleet – does it make sense to address hidden defects systematically, or always individually?
For larger fleets, a systematic approach pays off: standardised contracts, internal procedures for vehicle acceptance, history checks, documentation archiving, and setting up claims processes. This significantly shortens response times, reduces the risk of missing deadlines, and strengthens your negotiating position vis-à-vis suppliers. ARROWS, a Prague-based law firm, often prepares comprehensive contractual frameworks and internal policies for similar clients; if you are considering such a solution, you can contact us at office@arws.cz.

Notice: The information contained in this article is of a general informational nature only and is intended to provide basic guidance on the topic under the legal framework as of 2026. Although we strive for maximum 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 security we are insured for professional liability 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 the independent use of the information in this article without prior individual legal consultation.

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