Good Faith in Czech Acquisitions: Two Worlds, Two Rules

When acquiring assets in the Czech Republic, the level of due diligence required to protect a title depends entirely on one factor: whether the asset is registered in a public list (official publicly accessible register). Two decisions by the Supreme Court draw a sharp line between real estate and movable assets, establishing a "double standard" that buyers must navigate carefully.

The concept of "acquisition from a non-owner" serves as a critical safety net in transactions. It allows a purchaser to retain an asset even if the seller’s title later proves invalid, provided the purchaser acted in good faith. However, the Supreme Court has clarified that "good faith" is interpreted very differently depending on whether the asset is a registered building or not.

Real Estate: The Register Prevails

In a landmark decision, the Supreme Court strengthened the position of real estate investors. The case concerned a buyer who acquired land at a price significantly below market value. Lower courts initially stripped the buyer of the title, arguing that the low price and the non-standard nature of the seller should have triggered an "investigative duty".

The Supreme Court overruled this approach, reinforcing the principle of Material Publicity. It held that investors are generally entitled to rely on the Real Estate Register. A favorable purchase price alone is not an objective circumstance that obliges a buyer to investigate the seller’s history or title. Unless there are physical discrepancies on site that clearly contradict the register (such as a fence demarcating a different owner), the reliance on the public record is robustly protected.

Movables: A Stricter Standard

Conversely, for non-registered assets - such as machinery, vehicles, inventory or even real property not registered in the Real Estate Register - the standard is significantly higher. In another decision, the Court ruled against a buyer of a luxury vehicle. Although the seller claimed ownership, the vehicle's "small technical license" (registration certificate) listed a different entity as the operator.

The Court established that for movable assets, buyers bear an active investigative duty. If a document or circumstance casts doubt on the seller’s verbal claim, the buyer may not simply remain passive. Failure to verify the underlying chain of title in the presence of such "red flags" is considered reckless, effectively nullifying the good faith protection.

Implications for Transactional Due Diligence

For investors, this judicial dichotomy necessitates a bifurcated due diligence strategy. In both, real estate share and asset deals, the primary focus remains on the status recorded in the Real Estate Register. Absent obvious defects, the registered state provides a high degree of certainty. However, when acquiring movable assets, reliance on representations and warranties is insufficient. The presence of any discrepancy in operational documentation triggers a legal obligation to conduct a deeper forensic verification of ownership titles.

Navigating this dual regime requires a precise understanding of where the "investigative duty" begins and ends. Distinguishing between standard commercial risks and legal "red flags" that could invalidate a title is essential. Only this can ensure that an acquisition remains secure long after closing.

By Mgr. Radek Werich LL.M.

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