1.Introduction 

An amendment to Act No. 89/2012 Coll., the Civil Code (hereinafter the “Code”), came into force on 30 December 2016 The amendment changes the provisions on trust funds in a significant manner, and, with reference to the current non-transparent arrangement, introduces the duty to register them. The amendment also re-introduces the option to purchase of co-owners, which until now was limited only to some cases named by the law. Only these two changes will come into effect as of 1 January 2018.

As far as concerns the other changes that the amendment brings and that will come into effect as of 28 February 2017, these deal with some fundamental disputed questions that arose when the Code came into effect (e.g. interest on outstanding maintenance, acquisition of an interest in a company as a consequence of the acquisition of an interest by a spouse and the mandatory form of a power of attorney).

The amendment also introduces several less significant changes (e.g. a reduction in the maximum amount of a deposit for an apartment rental from six times to three times and the exclusion of line structures from being a part of a lot).

2. Records of Trust Funds (effective from 1 January 2018) 

The amendment to the Code introduces the long-discussed mandatory records of trust funds. This amendment was proposed in response to the comments of some ministries and the Supreme Public Prosecutor’s Office in Prague due to the non-transparent ownership structure of trust funds and the possibility they could be abused for the purpose of money laundering.

As we already informed you during the preparation of the amendment in an article dated 2 February 2015, the amendment primarily introduces mandatory registration of trust funds in the Trust Fund Records and sets out the obligatory information that will be stated in the register. The records will primarily contain identification data for the founder, beneficiary and trustee, where the naming of the beneficiary will be effective on the day of entry in the records. The amendment therefore does away with the current anonymity of trust fund beneficiaries.

According to the current provisions, a fund is created by the setting aside of assets and acquiring the status of a fund, and it comes into being at the moment the trustee accepts authorisation for his trusteeship. The amendment, however, states that a fund is established at the moment of the acceptance of authorisation to administer the fund; it then arises at the moment of entry in the Trust Fund Records.

The provisions of the amendment to the Code concerning trust funds will come into effect on 1 January 2018. From this date trust funds will be obligated to register themselves in the Trust Fund Records. Existing trust funds are obligated to register in the Records by 31 July 2018; if an application for registration is not filed by this date, the administration of the trust fund ceases to exist in accordance with amendment’s transitory provisions.

The Trust Fund Records undoubtedly represent significant interference with the anonymity of trust funds. They do not, however, in any way affect the functioning, financing or taxation of trust funds. With the exception of higher transparency for trust funds, the amendment does not represent significant interference with this institution and the Trust Fund Records should therefore not be a significant barrier for their founders.

It is recommended that administrators of existing trust funds bear in mind the key date of 31 July 2018 and, by this date, file an application for the entry of the trust fund they administer in the relevant records.

3. Form of Power of Attorney (effective from 28 February 2017) 

The amendment to the Code also deals with the issue of the form of granting a power of attorney for specific acts in law, which is set out in Section 441 of the Code. According to the current text of this provision, if a special form is required for an act in law, a power of attorney is granted in the same form. With reference to this provision, a power of attorney for an act in law in the form of a notarial record also had to be granted in the form of a notarial record.

Courts, however, have repeatedly made statements on whether it is sufficient for a power of attorney for an act in law in the form of a notarial record to be granted only in written form with a notarised signature.

The supreme court expressed its opinion on this matter in a judgment dated 27 November 2014, file reference 29 Cdo 3919/2014, where it stated, “if it is quite clear who granted the power of attorney, the power of attorney is not invalid just because it was not granted in the form of a notarial record, despite the fact that it was granted for an act in law that has to be in the form of a notarial record under the law.”

The relevant issue was therefore handled quite differently in statute and in case law. The amendment to the Civil Code that comes into effect on 28 February 2017, however, provides certainty on the question of whether a power of attorney with a notarised signature is sufficient for an act in law in the form of a notarial record, in favour of the lower form of the act in law.

4. Line Structures Will Not Be Part of Lot (effective from 28 February 2017) 

There is also an expansion of the impact of Section 509 of the Code, where utility networks were not part of a lot until now. Now, no line structure will be part of a lot.

Utility networks are understood to mean inflow or outflow lines for energy, water, gas, etc. on and from a lot.

A line structure is understood to be a structure where one dimension is dominant, i.e. the length over the width and height. This concerns, for example, structures for roads, railways, utility networks, etc.

As a consequence of the amendment to the Code, all roads, railways and other line structures will become independent real estate and the ownership of them will be transferred independently, not together with a lot as a part of it.

5.Acquisition of Interest by One Spouse and Its Influence on Participation of Other Spouse (effective from 28 February 2017) 

The Code, in contrast to the previous Civil Code, did not accept provisions that expressly excluded the participation of a spouse in a company as a consequence of the acquisition of an interest in the company by the other spouse. After the Code came into effect, there was a dispute about whether it was the legislator’s intention with the aim of enabling the acquisition of an interest for the other spouse, or of establishing his/her interest in a company.

The opinion of the professional public was split on this question. Dědič, Zuklínová and Šuk, in particular, accented continuity with the old legal provisions. They argued, for example, that nobody could become a member without giving his/her consent to it, and also that the Act on Business Corporations expressly set out such possibility for housing co-operatives.

Other experts, e.g. Čech, Pokorná, Psutka and Bezouška, on the contrary, accented the abandonment of the express provision that prevented the acquisition of an interest, based on which they deduced that the acquisition of an interest by one spouse established an interest of the other spouse.

The amendment to the Code therefore, with final validity, resolves this dispute in favour of continuity with the old legal provisions, i.e. there is a return of the express exclusion of participation in the company by a spouse that is not the transferee of an interest, with an exception for housing co-operatives.

6. Penalty Interest for Maintenance (effective from 28 February 2017)

The amendment to the Code deals with another disputed question, the question of whether penalty interest can be awarded for outstanding maintenance. This disputed question was relatively recently resolved by the Supreme Court of the Czech Republic in its opinion file ref. Cpjn 204/2012, dated 19 October 2016, in the exact opposite way to that of the amendment.

The Supreme Court of the Czech Republic therefore concluded that if courts decide, applying the Code, on outstanding maintenance for children, it is not possible to award statutory penalty interest to the beneficiary, together with the outstanding maintenance.

This, however, will be expressly enabled from 28 February 2017 by Section 921(2) of the Code.

With regard to the abovementioned, it therefore applies that from 1 January 2014 to 28 February 2017 it is not possible to request penalty interest, whereas from 1 March 2017 it will be possible. 

7. Return of Co-owner’s Right of First Refusal (effective from 1 January 2018)

One of the changes that the Code brought was the termination of a co-owner’s right of first refusal on a remaining interest in common property held in co-ownership.

The amendment, however, re-introduces this right of first refusal from 1 January 2018, with the very same text as used in the previous legal provision, i.e. “If a co-ownership interest is being transferred, the co-owners have a right of first refusal, unless it is a transfer to a close person. If the co-owners do not agree on the exercise of the right of first refusal, they have the right to purchase an interest in accordance with the size of their interests.”

This right of first refusal can be waived with effects for legal successors, where in the case of real estate this fact is entered in the land registry (see Section 1125 of the Code).

8. Deposit on Rental of Apartment Halved (effective from 28 February 2017)

Another significant change that the amendment introduces is a reduction in the maximum deposit for an apartment rental, from six times the monthly rent to three times the monthly rent.

9. Conclusion

With regard to the above, it can be summarised that the amendment deals with some fundamental disputed questions that arose when the Code came into effect (e.g. interest on outstanding maintenance, acquisition of an interest in a company as a consequence of the acquisition of an interest by a spouse and the form of a power of attorney).

The amendment changes the provisions on trust funds in a significant manner and introduces the duty to register them. This part is undoubtedly the most wide-ranging and fundamental change in the whole amendment.

The amendment also introduces several less significant changes (e.g. a reduction in the maximum amount of a deposit for an apartment rental and the exclusion of line structures from being a part of a lot).

Overall, it can be said that it commenced the process of correcting some legislative shortcomings the Code brought in. The amendment, however, by a long way does not deal with all shortcomings in the Code and their resolution will evidently be the subject of further amendments.

For the sake of completeness, we draw attention to the fact that the above list is not a complete list of the changes the Code brings. We have only selected the more important changes.

For more information, please contact our office’s partner, Mgr. Jiří Kučera, e-mail: jkucera@kuceralegal.cz ; tel.: +420604242241.