Lease or purchase of business premises
Every business operation needs a suitable space for growth. Among first things to consider when starting business in the Czech Republic is choosing offices and premises for operation. The investor thus faces a choice, whether to lease or purchase such property. While leasing is easier to arrange with lower initial costs, purchasing property may be a more cost-efficient solution in the long run. The final decision, of course, depends on the individual circumstances, expectations and investment plans.
Lease of business premises
Leasing office space, manufacturing facilities, or retail properties in the Czech Republic is governed by the Civil Code (Act No. 89/2012 Coll.). The legal framework for leases is notably flexible, allowing parties to negotiate their own terms to a large extent.
Before entering into a lease agreement, it is crucial to conduct a thorough inspection of the property. This includes assessing its status to ensure it meets the requirements for its intended use and is free from any legal or technical issues.
Key elements that should be defined in the lease agreement include the property's description in accordance with the Cadastral Register, the lease's purpose, procedures for addressing defects and conducting regular maintenance, liability for damages, arrangements for insurance and property tax payments, and terms for compensation for the investments in the property.
Rent is typically paid monthly and can also be denominated in foreign currency. Tenants should scrutinize provisions concerning their rights and responsibilities related to utilities and services.
Lease agreements can be established for either a fixed term or an indefinite period. Unless specified otherwise, the termination notice period for a fixed-term commercial lease is three months (subject to statutory conditions for the termination), and for an indefinite-term lease, it is (under certain circumstances) six months.
Purchase of business premises
The acquisition process can be conducted through either an asset deal or a share deal. Under the Czech law, it is mandatory for the transfer deed to be in writing. Typically, acquisitions are financed through a mix of debt and equity. Financing banks often require a pledge over the property as security for their receivable.
Before proceeding with any acquisition, conducting thorough legal and technical due diligence is highly recommended. This ensures the clear title of the transferee, the absence of encumbrances, adequate access, or the absence of other issues. Depending on the findings from due diligence, the contract may include various representations and warranties by the seller and/or provisions for price adjustment.
According to Czech law, the ownership title becomes effective upon the filing of the transfer deed with the Cadastral Register. After the registration of the ownership title, the handover of the property should be documented through a written protocol, which includes details such as utility meter readings. Engaging commercial, legal, and technical advisors can facilitate a smooth lease or transfer of property.
|
Jakub Lichnovský |
 |