On 1 July 2020, there was another legislative change in the issue of pre-emption rights of co-owners of real estate, namely its abolition. It is a law that has changed four times in the past 10 years, almost as if the legislator could not decide whether to keep the pre-emption right or not.
Practical implications of the pre-emption right
The basis of the issue is whether the co-owners of real estate, be it land, a building (if it is not part of the land), a housing unit or a commercial space, have a mutual pre-emptive right to their co-ownership shares in case of sale (or other method of alienation).
The right of pre-emption undoubtedly fundamentally restricts the holder of a co-ownership share in real estate in the management of their share. In some cases, this seems natural and logical, for example, when siblings inherit an apartment or house together from their parents or grandparents. It would be absurd to allow the sale of one half of such a property to a stranger by one sibling, without the other sibling being able to buy the share offered preferentially. This is even more true in cases where the immovable property forms one functional unit, such as a cottage.
On the other hand, there are many other cases where the pre-emption right of co-owners brings a disproportionate complication in the management of real estate. This is very common in development projects, where some units (typically garages or cellars) or land (gardens or courtyards) may be co-owned by many, or even all, of the unit owners in the building. A given piece of real estate can have dozens or even hundreds of co-owners. The problem materializes when an owner wants to sell its apartment, including the garage attached to it. The garage parking space is represented by a co-ownership share in the unit (or units) in which the garages are located, and therefore all other co-owners of the garages have a pre-emptive right at the time of the sale.
In practice, this can be resolved in only two ways: either by obtaining a written waiver of the pre-emption right from all co-owners, or by offering all the co-owners the chance to buy the parking space and simply hoping that no one does so, as this would frustrate the sale of the apartment unit. In addition, the correct procedure under the law in such a case would entail sending a purchase offer by registered mail, including the full text of the purchase contract, to all addresses listed on the relevant title deed. Needless to say, where there is a higher number of co-owners, the administration involved is extremely demanding and expensive, especially as the permanent addresses of the co-owners may be all over the world.
Development of legislation
Before describing the current situation after the latest change, allow us to briefly map the recent history of regulatory developments:
- Until 31 December 2013 there was a legal pre-emption right for co-owners of real estate (with one significant exception in the form of the sale of a share to a close person, when the pre-emption right of the co-owner does not apply).
- As of 1 January 2014, the new Civil Code abolished the pre-emption right of co-owners in its current form, with some exceptions. The amendment was criticised mainly because it did not sufficiently protect the co-owners from speculators and allowed the ownership of unified functional units to be fragmented.
- From 1 January 2018, the pre-emption right of co-owners of real estate was reintroduced in general, with some exceptions. This posed a significant problem in the transfer of units in some apartment complexes, as described above.
- As of 1 July 2020, the pre-emption right of co-owners of real estate was revoked again. There are again a few exceptions, where the co-owners still have the right of pre-emption; for example, when the co-owners acquired the property by inheritance or other similar means, they have a pre-emption right for six months (again with the exception of transfers to loved ones).
We always recommend monitoring the transitional provisions of the relevant amendments, according to which older legislation may continue to apply to some special cases.
Today, we are again in a situation where the pre-emption right of co-owners of real estate does not exist, with some exceptions. We believe that this is a step in the right direction, which will remove countless obstacles for developers, especially when planning the construction of housing projects, and for thousands of apartment owners when selling. On the other hand, we can recommend the establishment of a contractual pre-emption right of co-owners in a number of scenarios, especially where the real estate forms one functional unit. This is best done in a comprehensive arrangement of co-owners' relationships in the use and care of jointly owned real estate. The right of pre-emption can continue to be established as a right in rem and registered in the Land Register, which is effective for everyone and has greater legal force for the beneficiary.