A specialised team from HAVEL & PARTNERS provided full-service administration of an international architectural competition in which the design of the future first high-speed railway terminal in the Czech Republic was selected.
The firm’s partner Josef Hlavička and senior associate Kamila Kulhánková from the specialised public sector team not only provided legal advice but also ensured the overall organisation of the competition, including communication with the jury, competition participants and the participation of expert advisors.
The aim of the competition was to select an architectural and urbanistic design for the future construction of the new railway terminal Prague East, which will form part of the first ever high-speed railway line in the Czech Republic and which is to become an important transfer hub on the line between Prague and Brno and Prague and Hradec Králové.
The winning design was selected by a professional jury of architects and representatives of Správa železnic and the municipality of Nehvizdy, where the project will be implemented, from a total of 21 accepted competition designs submitted by Czech and international architectural studios.
The winning design was submitted jointly by MP + ov Nehvizdy 2020. The authors of the winning design are high-profile architects Jiří Opočenský and Štěpán Valouch from the ov-a studio (holders of the 2020 Czech Architecture Award) and Petr Malinovský and Petr Vyskočil from METROPROJEKT Praha.
Following an architectural competition for the design of the Veleslavín railway station in Prague, this is the second competition HAVEL & PARTNERS has successfully organised for Správa železnic.
Autoři: Robert Neruda, Roman Světnický, Martin Rott
A new regulation sets up a system for controlling investments from outside the EU in strategic assets relevant to the security and internal order of the Czech Republic. From 1 May 2021, certain foreign investments in Czech assets (including private) will thus be subject to prior approval by the Ministry of Industry and Trade. The ministry will also be entitled to review any foreign investment up to five years after its completion. The Act defines a wide variety of entries into the target as foreign investment (not only asset ownership but also, for example, membership of a body). There is no experience with investment approval procedures yet, but failure to notify can lead to enormous fines (up to 1% of turnover). Comprehensive preparation of the required documents and information and legal representation in negotiations with the Ministry of Industry and Trade are therefore highly recommended.
The Act on Foreign Investment Screening (the “FDI Act“) will enter into effect on 1 May 2021. It establishes a regime for screening foreign investment in undertakigns relevant from the perspective of protecting the security or public order of the Czech Republic. By the way of the FDI Act, the Czech Republic will join other countries with a foreign investment screening regime. In principle, the FDI Act is based on EU regulation. However, the regulation only lays down a basic framework for foreign investment screening and for cooperation between Member States. As a result, the regimes for reviewing foreign investments, including the types of investment subject to approval, differ (sometimes substantially) from one Member State to another. Due attention should be paid to individual national legislations, including the new regulation in the Czech Republic.
Foreign investments which meet the conditions laid down by the FDI Act must be approved by the Ministry of Industry and Trade (the “MPO”). As is the case with notifications of concentrations to competition authorities, investors are prohibited from implementing the investment before the MPO’s approval (the so-called standstill obligation). We recommend foreign investors from third countries to take the new obligations into account in investments involving Czech assets and evaluate in a timely manner whether their entry into the target is subject to approval under the FDI Act.
The next pages will provide you with a basic overview of the rules laid down by the FDI Act.
The FDI Act will only apply to foreign investments. Who is considered a foreign investor and what level of control must be gained in the target (Czech) person is defined directly by the FDI Act.
Under the FDI Act, a foreign investor is any person who:
In contrast to the FDI regulation in some other EU Member States (i.e. Germany or France), the scope of the FDI Act is broader, as it also applies to investors from countries belonging to the European Economic Area, including Norway and Liechtenstein. After Brexit, natural and legal persons from the United Kingdom will also have to be considered foreign investors within the meaning of the FDI Act.
FDI Act defines as foreign investment any entry of a foreign investor into a target person which enables the investor to exercise an effective degree of control over the economic activity of the target. An effective degree of control over the economic activity of the target is considered to be:
It is evident that the FDI Act does not only focus on the acquisition of equity interests in the target, but on a wide range of other types of investor involvement, including membership in a target’s body or access to information or technology important for the security of the Czech Republic. As a result, a significantly wider portfolio of investors’ entries will be subject to notification under the FDI Act than in the case of notifications to competition authorities. Meanwhile, for some types of “investments,” investors’ legal uncertainty may considerably increase – after the FDI Act comes into effect, it will not be possible, for example, to appoint a foreign investor as an executive director until the MPO issues its approval. If there are delays in the MPO’s approval proceedings and it will not be possible to retain an existing director in the company, this can lead to the company’s decision-making being temporary paralysed.
Under the FDI Act, it is mandatory to notify investments in case the target person engages in specified activities relevant to the security of the Czech Republic or its internal order. These activities include the following:
Additionally, it is also mandatory to consult an investment with the MPO in case the target:
The consultation can be considered as a preliminary step before the FDI screening procedure – the consultation may either lead to initiation of approval proceedings, or to a notice to the investor that the investment does not pose a threat to the Czech Republic and thus does not require approval.
In addition, if the target’s activities do not fall under the categories above, the investment may be consulted with the MPO on a voluntary basis. Such consultation might be useful to increase investor’s legal certainty, because the FDI Act enables the MPO to initiate proceedings on approval of any foreign investment within 5 years after its completion in case it has concerns it could pose a risk to security or internal or public order (even in cases in which the target’s activities do not concern any of the activities set out above). This subsequent review might be avoided by engaging in the voluntary consultation of the investment and obtaining a confirmation from the MPO that the investment cannot endanger the security or internal order of the Czech Republic.
If the foreign investment meets the criteria described above, the investor is obliged to file a notification and obtain the MPO’s approval. The notification of the investment includes the investor’s obligation to provide a wide range of information, including information about the investor’s and target’s ownership structure, its business activities or source of financing of the foreign investment. Notifications will be filed on a unified form, the details of which will be set by government regulation [note: as of the publication date, the details about the form are unknown].
It does not follow from the text of the FDI Act or the explanatory memorandum to the act whether the notification will be subject to an administrative fee. However, it is questionable whether there will be a change in this respect in the future, as most similar filings (e.g. merger clearance by the competition authority or foreign person authorisation under the Act on Management Companies and Investment Funds) are subject to a filing fee.
In the event of failing to comply with the notification obligation, the MPO will initiate the approval procedure ex-officio and will be entitled to impose a fine on the investor, which could reach up to 1% of its total turnover for the last accounting period.
Once the investment screening procedure under the FDI Act is initiated, the MPO reaches out to other ministries and state agencies, including the intelligence services, with a request for an opinion. The details on exactly how the review will be conducted and what parameters will be assessed are not clear yet. However, the outcome of the screening procedure can in principle be as follows:
| Approval | If the investment does not raise concerns, the MPO will issue an approval decision within 90 days from the initiation of the proceedings (the period might be extended by 30 days in particularly complex cases). |
| Conditional approval | In case the investment is likely to threaten security, internal or public order, the MPO may negotiate on conditional approval with the investor. The conditions may consist, for example, of the obligation to enter into consultations with the MPO in cases of an increase in shareholding in the target. The MPO then submits the matter to the Czech Government, which issues a resolution within 45 days. The resolution may either approve the MPO’s proposal of conditions or reject it in case the investment does not pose a risk (which should lead to unconditional approval of the investment). The MPO will then issue an administrative decision in line with the Governmental Resolution. |
| Prohibition | In case the investment could threaten security or internal/public order and that risk could not be eliminated by conditional approval, the government may, on the basis of a proposal by the MPO and within 45 days after the proposal being submitted, issue a resolution prohibiting the investment. The MPO will subsequently issue an administrative decision on the prohibition. |
The procedure only has one instance, it is not possible to file an appeal against the MPO’s decision. The decision can be challenged by an action filed before an administrative court; the action does not have a suspensory effect.
The FDI Act will come into effect on the first day of the third calendar month following its publication. Therefore, the FDI Act will apply from 1 May 2021 (as the Act was not published in January 2021, contrary to initial assumptions).
The FDI Act will also apply to investments that have not been completed before the FDI Act comes into effect. Under the FDI Act the date of completion is the date:
depending on whichever of these events occurred later.
Under the definition of the date of completion, the notification obligation arising from the FDI Act must also be taken into account in transactions and investments that are currently being negotiated. In case the notification criteria laid down by the FDI Act are met and the investment is not completed before 1 May 2021, the foreign investor will be obliged to file a notification to the MPO.
The FDI Act brings another regulation that non-EU investors must take into account when structuring their investments involving businesses active on the domestic market. According to the explanatory memorandum to the FDI Act, the Ministry expects dozens of applications for screening procedures, consultation proposals and ex officio proceedings every year. However, given the wide definitions in the FDI Act, we expect that an assessment of the notification obligation and also consultation with the MPO may be relevant in hundreds of transactions each year.
Investors will face certain uncertainty as to whether their investment will be approved for foreign investments subject to mandatory approval. The FDI Act does not provide any specific criteria the MPO should evaluate in order to identify whether the investment may threaten security, internal or public order. The MPO and the Government will be granted wide discretionary power whether to approve or prohibit the investment. Investors should take into account that the government decisions can also be influenced by the political environment, which makes the outcome of the procedure harder to predict. In addition, investors’ uncertainty will also be higher due to the MPO’s power to review investments that were not subject to mandatory notification within 5 years after their completion. Such reviews may also occur following changes in the political environment. Foreign investors should therefore consider the possibility of prior consultation with the MPO in order to avoid the risk of a subsequent review of their investment.
HAVEL & PARTNERS specialized FDI team:
Robert Neruda
Partner
robert.neruda@havelpartners.cz
Roman Světnický
Senior Associate
roman.svetnicky@havelpartners.cz
Martin Rott
Junior Associate
martin.rott@havelpartners.cz
Source: Getting The Deal Through / Lexology
Authors: Robert Nešpůrek, Štěpán Štarha, Richard Otevřel, Dalibor Kovář
One of the most important laws adopted this year is Act on the Right to Digital Service, the so-called digital constitution. The Act was drafted by the private sector as its engagement has been beyond doubt the key to the digitalisation progress of (not only) public administration, but was further endorsed by the administrator of the respective area, the Ministry of Interior of the Czech Republic.
The Act will provide for gradual digitalisation of all partial steps (digital services) carried out by public administration and those that can be theoretically carried out digitally. The administration must come up with a list of their obligations and types of actions with the outward impacts, i.e. to make a “service catalogue” until February 2021.
In the following four years, the Government together with other public authorities and bodies will digitalise all non-digital agendas, primarily those that could be of benefit to the wide public as well as those generating the highest value added and will be greeted by the public with general acceptance. It is thus about transforming processes that were non digital or manual to digital processes.
The service catalogue will be updated regularly, and it will be available on-line in order to allow digitalisation of not only certain actions but also of entire agendas and dependencies of comprehensive life situations. The open catalogue will thus throw the digital service into an unknown perspective from which the private sector should benefit. This would help the digitalisation also from the bottom to the top. The Act will allow attaching distant certified signature from 1 February 2022 that will be the final farewell to the paper documents for which people had to personally collect the certification of their own wet signature.
Further, eGovernment cloud has been introduced into Czech law also this year based on three years of preparatory works. Government is now newly and expressly allowed to use cloud computing solutions that will allow major savings and simplification of state IT infrastructure once used in a coordinated way. The cloud computing will also have its own service catalogue (offer and demand) that will directly influence the use of the cloud solutions. Existing solutions must be entered in the catalogue within three years from the force of the act, otherwise the public authority should disconnect such solution. In fact, the cloud is now poorly used by the government in IT vendors feel an opportunity to build their business on existing private sector solutions.
There have been few modifications into Act on Cybersecurity and recently governmental bodies started to be very active in education and preventive measures within the Czech market (in reaction to e.g. cyber attacks on public hospitals). This meets with clearer focus of organisations, particularly the biggest private and almost all public, on cybersecurity.
Bank identification described in more detail in the next question also became a key feature of Czech digitisation laws as further developed in the following point.
The recent development in digital transformation in the Czech Republic is led rather by the private industry than by the governmental policies.
The most noteworthy development in the Czech Republic is by all means the upcoming electronic identification via Czech banks. The BankID will enhance mainly the scope of activities carried out by banks, namely by providing electronic identification, authentication, and trust services as well as other related services. The basic element of provided services will be the means for electronic identification such as log-in tools to internet banking for bank clients. Probably everyone has such tools and knows how to use them. This is the basic difference as compared to national means for electronic identification (ID card with electronic chip); using them requires chip card reader, servicing application and knowledge of several numeric codes.
No wonder that the existing means have not been used widely. The bank means should allow both logging-in to national digital services and (in synergy with the above mentioned Act on the Right to Digital Service) concluding and signing a distant contract, view an electronic file or verify own identity with all online services providers and using these service from back home.
From 1 January 2021, the upcoming BankID offers the Government and private sector up to 5.5M potential users who already have and know in detail their means of access. Along with the above, the connected legislation will allow banks and insurance companies to access basic registers and other selected public administration IT systems and to verify the up-to-datedness of clients’ data in order to comply with their obligations stipulated by legal regulations. This development represents a digital transformation as to the sense of invention of new digital business models.
Besides the above, organisations might benefit from more frequent technology partnerships built between Czech banks and technology (incl. start-up) companies – e.g. wider facilitation of payments, use of AI within interaction with the clients and focusing on their (eventual) needs or building reliable platforms for various legal acts for the public.
It is very important to assess what data / processes are to be operated within Cloud or a data centre, particularly whether they are critical or non-critical for the organization and whether a public or a private Cloud is in question.
Many organizations in the Czech Republic rely on a public cloud but private cloud is not an exception as well. In the Czech Republic, the main focus is usually on the areas (among others) of
Despite there being many specialized providers of various services, Amazon, Google and Microsoft are the key players in the Czech Republic cloud services. There is a high number of providers specializing particularly on helping organizations with their migration to Cloud.
When negotiating contract with a Czech provider (and thus it is expected such a contract will be governed by the Czech law unlike in cases of the international players mentioned before), it’s good for organizations to know that a liability for damages cannot be fully excluded, although providers are keen to do so in their standard contract documents.
The Czech law forbids to limit liability for damage caused to a person’s natural rights, intentionally or by a gross negligence. More importantly, it does not allow a limitation of liability towards a weaker party. The weaker party is a concept brought to the Czech law by the Civil Code effective from 2014 and on of its definitions says that it is any person in a business relationship with another party whereas the business relationship does not relate to the (weaker) party’s own business (e.g. a company buying a laptop from an e-shop for its employee) but it may also include situations when adhesion contracts (standard contracts with no possibility of any negotiation whatsoever) are concluded. A clause in such a contract which refers outside of the contract text (website etc.), may only be valid if the weaker party was acquainted with the clause and its meaning by the provider or the party must have known the meaning of such a clause. It is quite often that personal data processing matters are excluded from any limitation of liability.
If we focus on the specifics of Cloud, the key factors to consider include
These areas have an effect deep within the factual and contractual characteristics internally and externally towards respective suppliers. Organizations should also consider any specific regulations having effect on their business. Such legislation may include data protection regulation (GDPR and local laws – in the Czech Republic, there is Act on Personal Data Processing), cybersecurity laws (Act on Cybersecurity, implementing the Directive (EU) 2016/1148 of the European parliament and of the Council of 6 July 2016 concerning measures for a high common level of security of network and information systems across the Union but be aware, there’s more in the Act on Cybersecurity than in the directive) or perhaps financial sector regulations.
Anything extra required from the supplier may affect the service price. That’s why organizations should consider very well the scope of services they need to avoid paying for a cool feature that no one in the organization uses.
The market has gone through a vast development in recent years. There are many more providers who believe a subscription-based Software as a Service solution is the key to success. Therefore, before contracting with any new provider and giving it your valuable data for processing, the provider should be checked to avoid any unwanted effects on the organization’s business.
Providers usually tend to push their own template documentation. This is quite understandable since it keeps the legal costs per contract at minimum. But organizations should review these documents thoroughly as they often miss some key assuring points.
To describe a common practice, usually an NDA (with a penalty for its breach) is signed before the provider is allowed anywhere near any internal information of an organization. We may often see a provider assessment process is initiated before or after signing the NDA. When personal data is in question, the providers usually tend to accept clients’ own data processing agreement (DPA) particularly in cases if organizations are high profile with regard to data processing (such as in the e-commerce sector).
A liability always has been and still is a big topic. Providers tend to limit their liability as much as possible and organisations tend to avoid it which creates certain level of friction. But in general the limitation of liability is a standard. GDPR, however, made a big change and higher liability of the provider is required, it is often unlimited.
Each level of the cloud stack requires a specific approach. With regard to the hardware part of Cloud (data centre), the main concerns are maintenance and physical security (access to data centre etc.) but this doesn’t always have to be the case particularly if your contractual party offers you a service without anything related to a specific data centre.
The connectivity layer (networking, firewalls, security) usually require regular updates to the security infrastructure (software, firmware) and organizations should carefully assess necessary reaction times and require the provider to perform proactive monitoring of risks and their mitigating tools.
With regard to servers, storage, virtualisation and operating systems as well as development and analytic tools as well as databases, a proper licence structure should be established and managed to allow future changes with no unnecessary risks. A provider should advise with the proper licence model and guarantee that such a model was duly assessed. The main topic regarding storage is a backup. Reaction times and fix times are often the main parts of any service level agreement (SLA) since they affect the organizations ability avoid major data losses. Organizations should specifically agree on who’s responsible for backups as this is not a typical part of the service.
The main part visible to regular users, hosted applications and data, should have a proper licence acquired. Also, do not forget to add a technical specification of the applications (or a service, as often described in contracts) to the contract to be able to enforce the application quality at any time. Organizations should make sure that their data is encrypted, accessible at any time (including their backup) and always (or at least some time before the contract expires) ready for a migration.
Despite this being rather a general rather then cloud-specific matter, organizations should care about the governing law and setting up courts’ jurisdiction since SaaS or other digital services are very often cross-border services and thus the governing law is often an important point for negotiations. If parties cannot agree, it is often recommended to settle with a neutral legal system which is close to both systems. For the Czech Republic, this is typically Germany or Netherlands. Organizations should also push the provider to implement certain contractual penalties for breach of the most important obligations in the contract.
It is probably not surprising that even in the environment of Czech law the typical points of contention in contract discussions include
The area of liability for damage and the possibility of its limitation has undergone fundamental development in Czech law over the last 10 years. While 10 years ago under Czech law the exclusion of the right to compensation for damage and even its limitation was, to the surprise of foreign suppliers, considered inadmissible and therefore invalid, the situation is completely different today.
Czech law allows validly negotiating not only on a limitation on the amount of compensation for damage, but also its complete exclusion (while respecting statutory restrictions that do not allow regretting the right to compensation for damage, for example in cases of an intentional breach of an obligation or interference with natural human rights).
In this legislative situation, suppliers in the Czech Republic usually try to limit the compensation for actual damage and to exclude any other types of damage. At the same time, suppliers often exclude in their model documentation any indirect, consequential and similar types of damage that Czech law does not even explicitly recognise.
On the other hand, clients (especially those in the public sector) are often reluctant to accept any restrictions on the right to compensation for damage, despite this being a common standard abroad. The first step in discussions that should be taken in the environment of Czech law is to think about the wording of the clause on limitation of compensation for damage from the viewpoint of Czech law and revise the wording of contractual documentation, which was often created under the influence of foreign law and contains references to various indirect or consequential damage, which is not clearly defined in Czech law.
Either the parties will remove these ‘monuments’ of foreign model contracts or, on the contrary, they will define them more clearly, thus removing the first stumbling block. In further discussions, it is appropriate to attempt to agree on the limitation of compensation for actual damage and the amount of lost profit by a specific amount (usually through the amount of the agreed price or a percentage thereof).
Clients in the Czech environment will finally agree to such a limitation if there are exclusions from the agreed limit that address the most pressing risks for clients. Such exclusions typically include possible penalties for breaches of personal data protection, or other penalties by the regulator (for example, the Czech National Bank in the case of clients falling under its supervision).
In our opinion, in Czech practice an agreement constructed in this way, which is a compromise between the interests and objectives of the client and of the supplier, can be reached. And contracting authorities are gradually becoming more willing to do so when preparing tender documents for a public contract as well, when they realize (it is explained to them by advisers) that unlimited liability may only discourage responsible suppliers and support those who are not serious enough.
The second typical area in which discussions arise in the Czech Republic is the definition and scope of the client’s cooperation during the delivery. Unfortunately, it is a standard (and negative) practice in the Czech Republic that the client’s cooperation is not clearly defined and its entire arrangement is summarized in one sentence saying that the client shall provide all necessary cooperation.
It is clear that such a reflection in the contract leads to the supplier and the client having diametrically opposed ideas about the extent to which the client and its employees should be involved in the entire delivery process. Therefore, in the Czech Republic, disputes concerning the delivery of IT solutions mostly end in disputes over whether or not the client has provided the agreed cooperation.
In practice, when addressing this problem, we have found greater interconnection between the lawyers preparing the contracts and the IT staff, and consistency on the part of the lawyers in defining the requirements for cooperation and obtaining the necessary information from factual sponsors to be useful. The solution then differs depending on whether the delivery is executed through the traditional Waterfall model or through the Agile or even DevOps model. In any case, however, it is necessary to define the capacities and roles that the client will provide, which is something that is still not standard on the Czech market.
Another area in which discussions often arise is the licensing arrangement and/or regulation of intellectual property rights. In the Czech Republic, from our experience, clients, whether from the public or private sector, often cling to the fact that they will have an exclusive licence to the delivered solution. This is, of course, something that is problematic for suppliers, and if it is accepted, it leads to an increase in the delivery price.
However, this requirement is deeply rooted in the heads of Czech clients, despite it not often being preceded by any in-depth consideration. In practice, we have found it worth opening this business question with clients and encouraging them to explain why they actually insist on an exclusive licence.
Often, the client is able, with a quiet heart, to easily accept a non-exclusive licence and request an exclusive licence only for those parts of the delivery that are custom-made and, at the same time, the exclusive licence makes sense in relation to them. Sometimes in practice, the solution for the client is to bind the supplier with a specific non-compete clause and confidentiality agreement and at the same time acquire only a non-exclusive licence. In addition to the issue of licence exclusivity, it is worth noting that there is still a debate in Czech law as to whether or not a SaaS solution contract should also include a licencing arrangement. For the avoidance of doubt, most lawyers in the market are inclined to include the licencing arrangement in the SaaS contracts for prudential reasons.
The last of the main areas we would like to mention is data rights (both personal and non-personal data). Here, in our experience, disputes between the client and the supplier do not necessarily arise during negotiations, but, surprisingly, the parties often do not pay enough attention to this area. They often just prepare a general NDA or data processing agreement without a deeper analysis of business needs, which, however, do not correspond to the actual setting of the business case.
Despite cybersecurity in general is a topic, particularly in the COVID-19 era, cybersecurity laws do not affect most organizations at all. The cybersecurity laws affect only a minor group of companies within the private sector (typically telecommunication providers) and thus all measures are usually implemented due to other requirements (personal data protection laws, compliance programs, company group rules etc.).
Cybersecurity may, however, affect organizations when they provide services to the public sector. In such a case, they may be identified as an obliged entity under the cybersecurity laws. Even in such a case, the requirements more or less correspond to obtaining an ISO certification (ISO/IEC 27000 family).
Luckily, the GDPR brought at least some uniformity to what limits a local legislation may impose on data processing. On the other hand, Czech laws did not include any unpleasant rules such as localisation requirements even before 2018 and, interestingly, have been treating both paper and electronic document equally (the only practical issue, not relevant to electronic data, is readiness of documents – producing paper evidence upon request of authorities may delay the whole process if kept in another country, for instance).
We experienced some tendency of governmental agencies to include provisions requiring storage of personal data within the Czech territory, but this has never become an official strategy due to being clearly against the EU law.
But even without explicit localisation requirements the recent CJEU’s decision in the Schrems II case revealed how fragile the business cooperation concerning processing of personal data outside of the EU could be. The only functional and flexible measure remains the using of Standard Contractual Clauses (SCC), although having its own caveats.
First, everyone wishing to use the SCCs, must reinforce those clauses when exporting personal data to a country where the SCCs themselves do not suffice, but it remains unclear how the private company should assess such risks and what the reinforcement should look like – we are still waiting for an official guidance at the EU level since the Czech Data Protection Authority does not seem to develop its own recommendation beyond what has been just mentioned above.
Second, not all scenarios are covered by the approved SCCs – for example, processor located in the EU may not use sub-processor outside the EU without making a formal arrangement with the controller. And finally, customers started to perceive any extra-EU processing as a sign of risk, thus the requirement to localise data at least within the EU is more frequent from the businesses themselves than legislators already.
In our experience, the problem of transition from the traditional Waterfall model through Agile (continuous improvement) to DevOps (continuous delivery) is mainly in the heads of lawyers and managers and not in the legislation.
First of all, it is therefore necessary to change the reasoning of lawyers and managers in order to move away from the automatic requirements to define a fixed price for a specific predefined performance in each contract. This approach is incompatible with moving to Agile or DevOps.
In Czech practice, clients are either not willing to agree with the change of this paradigm or, on the contrary, they approach it nihilistically, not providing for Agile and DevOps formally in contracts at all, and operating only on the basis of orders and payments for the use of the supplier’s staff’s capacity without further contractual arrangement. Obviously, neither approach is correct and even deliveries executed through the Agile or DevOps model deserve proper providing for in contracts.
One specific area is the use of Agile and DevOps in the public sector, where the situation is more complicated than in the private sector due to public procurement law. Even here, however, in our opinion, in the environment of Czech law, it is possible to award a contract to a supplier for deliveries executed through Agile or DevOps.
In order to use such a supplier, it is only necessary to go into the depth of the public procurement rules and not automatically announce a tender procedure only for services (the supplier’s capacity), as is happening in the Czech Republic today. As for the market practice, however, we have unfortunately not yet come across a tender procedure for awarding a contract for delivery through the Agile or DevOps model.
We are dealing with the common understanding that every organisation should shape up to the new reality which was present even prior to COVID. The pandemic speeded up the processes and drive to adopt digital solutions. I believe that almost each organisation is now somehow facing the dilemma how to digitise and transform itself to be more effective, efficient and at the same time relevant on the market.
It is very fortunate to see that the biggest organisations do not hesitate to pay top-tier advisors to help with their digital transformation projects and share the relevant information throughout the market (including the impact on end customers and negative steps within the project). Further, the knowledge base and technical preparedness of the organisations’ advisers has increased tremendously in the past years. Therefore, we experience rather detailed and well-built digitisation plans based on automatization, robotization, access management and overall hardening of the environment to be safe and sound without limitation of user’s comfort.
Without doubts, the best (and most necessary) practice of digital transformation is switching from on-premise solutions to cloud to provide organisations, their workers, and clients more flexibility.
An effective transformation should benefit from cross-functional co-operation of executive directors with CIOs and other senior managers of the organisation by connecting approaches focused on business with fast development models (agile and DevOps). E.g. all major Czech banks switched to agile method of organisation in the past years giving an example to other sectors with the aim to align transformation goals with business goals.
Despite technologies represent a necessary essence of digital transformation and are already present, we perceive a new standard in development of digital competencies of employees and other workers within organisations and sharing of a defined strategy. The digital transformation requires change of thinking, new competencies, discipline, and personal courage to be implemented in everyday life. This approach is vital but has been neglected in the past. Defining a compelling communication strategy and vision to sell the transformation story to the organisation can thus also be perceived as a best practice in digital transformation in the Czech Republic.
It is the unprecedented growth of the ecosystem of IT solutions providers and emergence of new players. We have worked on digital transformation projects with large multinational IT companies as well as medium companies both local and from around the work and start-ups. Customers’ options have multiplied. Digital transformation is transforming not only the corporate world but also the IT sector in the Czech Republic potentially delivering greater value to customers for their money and flexibility thus addressing some of the issues carried by the “old” IT world.
Advising on digital transformation requires a new approach to defining legal solutions for clients that reflect clients’ practical requirements and demand multi-disciplinary, multi-faceted perspective. We have reorganized our teams across our commercial, IT and regulatory practices to provide fresh understanding of what digital transformation means for our clients and how we can best contribute to clients’ digitalisation efforts. It is exciting to be drafting new legislation enabling digitalisation on one day, the next day discussing with a progressive IT provider how best to tap the newly emerging market around BankID and the day after helping a major corporates to adopt paperless processes involving an integration of a digital signature solution into a SaaS-based DMS.
Clients have a major challenge of managing digital transformation that is not only technically sound but also contributes to the success of their business. It is crucial that besides technical legal excellence we help to find the best business partners, weigh the benefits of digitalisation against the costs and possible business disruptions, provide markets insights and approach a project with open mind to mitigate risks and achieve key goals.
The team of the most successful and largest Czech-Slovak law firm HAVEL & PARTNERS, led by partner Václav Audes, advised Premium Design Group on the acquisition of a 100% share of the Javorina cooperative. The investment group Premium Design Group, a benchmark setter in the field of premium interior design, thus gained full control of Javorina, a Slovak manufacturer of wooden furniture with over 70 years of tradition.
The legal team advising the Premium Design Group was made up of experienced experts specialising in corporate law and M&A, headed by the firm’s partner Václav Audes and senior associate Juraj Petro.
Established in 1947 in the foothills of the Slovak Tatra mountains, the Javorina manufacturing plant focuses on the production of wooden furniture with a character and reference to traditions, but also with cutting-edge contemporary design. Its corporate values include respect for nature, renewability, durability, and the timelessness of its products – concepts that are highly topical today and make the company successful at winning customers not just in Slovakia.
By acquiring Javorina, the new owner of Premium Design Group wants to help the company fulfil its potential and by 2025 expand its current largely diverse export portfolio beyond its deliveries to Austria, Belgium, Germany and Dubai, building a franchise network in CEE countries within two to three years.
The parties decided not to publish the value of the transaction.
Authors: Ondřej Florián, Eliška Dittrichová
A fundamental change brought about with effect from 1 January 2021 by a major amendment to the Commercial Corporations Act was the long-awaited new setting of the monistic system of the joint stock company’s internal structure. We have dedicated part three of our Guide to the Corporate World post-amendment to the monistic system of the joint-stock company, which you can find HERE. We now bring you an overview of the most significant changes and practical complications that arise in current practice.
The monistic arrangement of joint stock companies has finally become true to its name, when the compulsorily established elected body of the company is only one body, and that is the administrative board. The amendment to the Commercial Corporations Act has thus abolished the position of statutory director.
The position of statutory director has been taken over by the administrative board, which newly accumulates the supervision and management powers; it is therefore not only a supervision body that is in charge of supervising the company’s activities, but also a statutory body that is in charge of the company’s business management.
The members of the administrative board thus have new powers as well as duties in connection with performing the function of the statutory body. Among other things, their powers include the business management and focus of the company, their new duties, in addition to representing the company vis-à-vis third parties, also include drawing up financial statements, convening general meetings, etc.
The Act assumes that the administrative board has three members, but the articles of association may deviate in this respect. Monistic joint stock companies will thus continue to have the opportunity to establish a one-member administrative board.
You can read in more detail in part three of our Guide about what has changed for monistic companies as of the effective date of the amendment to the Commercial Corporations Act.
As of the effective date of the amendment, the manner of acting and representation vis-à-vis third parties has changed for all monistic joint stock companies – as of 1 January 2021, all statutory directors were automatically deleted from the companies’ commercial registers and their powers were transferred to the companies’ administrative boards in accordance with the Act.
This has the following implications for monistic joint stock companies:
Now it is really no longer possible to find a statutory director in the Commercial Register. As this deletion was not clearly notified by the Commercial Register (no matter how it was foreseen by the Act), we would like to draw your attention to some practical facts that are related to the deletion itself.
In the first place, it should be noted that the expiry of the position of statutory director must be notified to the relevant entities, including the Czech Social Security Administration and health insurance companies. We recommend that you always check with a specific company which notification obligations also result from the contractual obligations that the companies have entered into (for example, this may be a notification to banking institutions).
As the position of statutory director has not existed since 1 January 2021, it is not possible for him/her to continue to bind the company from the position of statutory director. All steps shall be taken by the administrative board from the above date.
The last significant practical implication related to the deletion (or termination of the position) of statutory director is the invalidation of access to the company’s data box. As the position of statutory director does not exist, the Ministry of Interior has invalidated the login details of all statutory directors. We recommend that you verify that the company can log in to its data box.
Although the duties of statutory directors have been automatically transferred to the administrative board by virtue of law, this does not mean that monistic companies do not have to do anything else in this matter. In addition to informing employees, business partners, authorities and banks, monistic companies are facing other formal steps related to this change than just the printing of new business cards.
Like the board of directors of a joint stock company with a dualistic system, the administrative board is a collective body. It is therefore necessary to amend the company’s articles of association accordingly and subsequently enter in the Commercial Register a new manner of acting and representing the company vis-à-vis third parties. Unless otherwise provided for in the articles of association, each member of the administrative board shall act on behalf of the monistic company individually.
We would also like to add that if the chairman of the administrative board was also a statutory director, the position of statutory director shall not pass only to the chairman of the administrative board, but again to all its members – the above applies.
The recommended step is also the conclusion of a new contract for the performance of the function of members of the administrative board, or its revision so that it corresponds to their new position. The contract on performance of function must always be in writing and approved by the general meeting. Without approval, the contract shall not become effective.
Please note that with regard to the transitional provisions to the amendment, monistic companies are obliged to enter the manner of acting of the administrative board members in the Commercial Register no later than 1 July 2021, or at the next election of new members of the administrative board or change in their number. If the company fails to do so within this time limit, the registry court may request a remedy, or if it does not comply even after a repeated request, the registry court shall decide on the dissolution of the company and order its liquidation.
Increased prudence in representing a monistic company should also be exercised by a single member of the administrative board who was also the company’s statutory director before the amendment entered into force. As mentioned above, it is not possible for him/her to bind the company to anything from the no longer existing position of statutory director. When signing on behalf of the company, it is thus necessary to correctly state the person’s authorisation to represent the company, i.e. that he/she signs as a member of the administrative board. The correct signature can prevent possible disputes with business partners (objection to the relative invalidity of a legal act) or unexpected findings of legal due diligence prior to the transfer of the company.
Finally, although access details to the data box for statutory directors have been invalidated, new access details to the data boxes of companies should already have been sent to the administrative board members as new members of the statutory body. Access details are always sent to the addresses of the administrative board members as entered in the Commercial Register. If an administrative board member is not a Czech resident, we recommend checking whether the details can be delivered in a given country to the recipient’s own hands. Countries where it is not delivered in this way include, among others, Germany, Poland, the Netherlands and the United Kingdom.
Alternatively, access details to the data box can also be requested in person at Czech POINTs or at the embassy of the Czech Republic abroad, they will then be sent to the email address.
In view of the above, we recommend all joint stock companies with a monistic arrangement of the internal structure gradually start to familiarise themselves with the wording of the amendment and prepare to take the necessary steps that will need to be taken in this regard.
It will be necessary to revise the articles of association of these companies and make such changes that their new wording corresponds to the amended wording of the Commercial Corporations Act, at least to the extent stipulated by its mandatory provisions. We recommend making this change as soon as possible, but no later than within 1 year from the effective date of the amendment, or within 6 months from the entry of the manner of acting of the administrative board.
Our corporate team is always ready to help you properly prepare for the planned changes.
Authors: Jan Šturm, Adam Forst, Klára Vitovská
On 1 January 2021, the new Act No. 254/2019 Sb., on Experts, Expert Offices and Expert Institutes (the Act on Experts), entered into force, replacing Act No. 36/1967 Sb., on Experts and Interpreters. This is undoubtedly the most significant change in this area in the last 30 years.
Below is a selection of the most important changes:
As before, expert activities may be performed by experts or expert institutes. However, the expert institutes category is now reserved only for entities such as universities, public research institutions, etc., which perform scientific research activities. The “expert offices” category is newly introduced for business corporations performing (commercial) expert activities.
In contrast to the current legislation, the formal and content requirements of expert opinions are set out in more detail. Under the Ministry of Justice implementing Decree No. 503/2020 Sb., on the Performance of Expert Activities, the expert opinion must contain, inter alia, a specific professional question assigned by the client, a description of the expert’s procedure in data collection, a list of selected sources, etc.
Regarding the formal requirements of expert opinions, among other things, the requirements of the title page (e.g. indication of the client and of the subject of the opinion) and the last page of the opinion (e.g. information on remuneration) are determined. These requirements must be met by all expert opinions issued after 31 December 2020.
The new Act partially amends the existing regulation of offences for violations of the Act on Experts. Under the new legislation, persons performing expert activities may be liable for approximately 15 types of offences – for example, non-compliance with record-keeping obligations, non-compliance with the content requirements of the expert opinion, incorrect billing of remuneration, etc. Regarding financial penalties, these are divided into three groups according to severity: up to CZK 75,000, up to CZK 250,000, and up to CZK 500,000.
All entities performing expert activities (except for organizational units of the State) are obliged to take out liability insurance for the performance of such activities. The minimum limit of insurance benefit is CZK 1 million for experts and CZK 5 million for expert institutes and expert offices. Confirmation of this insurance must be submitted to the Ministry of Justice.
In contrast to the current legislation, the applicant for an entry in the list of experts has legal entitlement to be entered in the list. As soon as the applicant meets all the statutory conditions, the Ministry of Justice is obliged to enter it in the list.
The applicant for an expert licence is obliged to pass an entrance examination, which consists of a general part and a special part. The general part of the examination takes place in the form of a written test, in which the applicant’s knowledge in the field of legislation regulating expert activities is tested. The special part takes the form of an oral interview before the examining board, during which the applicant defends a test expert opinion in the selected field and sector.
Entities performing expert activities are obliged to state data on expert opinions in the electronic records of expert opinions kept by the Ministry of Justice. All data must be recorded within 5 business days of the decisive fact. The content of the records should be accessible only to the Ministry of Justice; however, upon reasoned request, these data may be made available to other public authorities.
The new Act on Experts introduces a new list of experts maintained by the Ministry of Justice. This is divided into a public part and a non-public part. In the public part, not only data on the name, field, sector and specialisation of the entity performing expert activities will be available, but also, for example, data on committed offences or suspension of activities.
Under the Ministry of Justice implementing Decree No. 504/2020 Sb., remuneration for expert activities is newly set at CZK 300 up to CZK 450 per hour of reasonably spent work. Compared to the previous legislation, the given amount is uniform for experts, expert offices and expert institutes. Entities performing expert activities shall now be entitled to compensation for the loss of time when traveling to the place of performance of an act or while waiting for its performance.
Entities that have performed expert activities under the existing legislation shall have 5 years from the entry into force of the new Act to obtain a licence to perform expert activities in accordance with the new Act. If they fail to do so, their licence will expire upon the end of this time period.
In addition, in the case of expert institutes and expert offices (or the expert institutes referred to in Section I), they are also obliged to prove, within one year from the entry into force of the new Act, that they perform expert activities through at least one expert (or two experts if it relates to expert offices) authorised to perform expert activities in the relevant field and sector.
HAVEL & PARTNERS, the largest Czech and Slovak law firm, has promoted a total of 14 lawyers with the start of the New Year. Ondřej Majer and Jan Šturm have become equity partners with effect from 1 January 2021. Josef Adam has moved from the position of counsel to partner. In addition, another 11 lawyers at three other senior levels have been promoted.
“This year, the firm will celebrate its 20th anniversary, experiencing continuous growth in terms of turnover, quality and the scope of services as well as in terms of staff. It was in these difficult times when this extraordinary success proved to be based on the enormous commitment, the ability to adapt as well as the team cooperation and loyalty of our colleagues. The rule in our office is that the growth of the firm means career growth for our personnel. This is how we pursue our long-term strategy to create the best conditions possible for fast professional growth at all seniority levels,” says Jaroslav Havel, the firm’s managing partner.
Ondřej Majer (42) specialises in commercial and contractual law, company law, mergers and acquisitions, real estate law, litigation and insolvency law in the Czech Republic and Slovakia. As an equity partner, Ondřej will be responsible, jointly with the managing partner Jaroslav Havel and other partners, for the development of the firm’s office in Bratislava, in the management of which Ondřej has participated since 2017. With his professional experience and long-term cooperation with French clients, Ondřej jointly with Václav Audes will head a team providing comprehensive legal services to French clients. He will also focus on the growth of the legal team specialising in the tourism, hotel, entertainment and catering industries. Before joining HAVEL & PARTNERS in 2016, Ondřej worked for nearly 15 years at PETERKA & PARTNERS.
Jan Šturm (39) has 17 years of practice at the top of the legal profession, mainly of resolving complicated and complex disputes before civil courts and arbitration tribunals. He has participated in successful dispute resolution for leading Czech and multinational companies, with an aggregate value amounting to several billions of Czech crowns. Jan is also an arbitrator in the Czech Republic and at arbitration tribunals in Vienna and London. As an equity partner, Jan will be responsible, jointly with the managing partner Jaroslav Havel and partners Marek Vojáček and Dušan Sedláček, for the development of a practice group specialising in complex dispute resolution. He will continue to deal with and develop the provision of such services mainly to banks and other financial institutions and in respect of disputes relating to technology law, competition and unfair competition, intellectual property, new media, healthcare and pharmaceutics. Before joining HAVEL & PARTNERS, Jan worked for more than 10 years at the leading international law firm Weil.
Josef Adam (40) has been counsel for nearly two years and has now moved to the managerial position of partner. He has many years of experience as a manager: before joining the firm in 2019, Josef was a member of the Board of Directors of Český Aeroholding and Czech Airlines for 9 years, managing the legal department as well as the finance, HR and IT departments. With the large scope of his legal specialisation, Josef will continue to specialise in real estate, mergers and acquisitions, corporate restructuring, corporate governance and compliance, employment law and HR law.
HAVEL & PARTNERS has promoted other lawyers as well. Ondrej Čurilla has moved from the position of managing associate to the position of counsel. Adam Forst, who was a senior associate until now, has become a managing associate. Another nine colleagues have been promoted to senior lawyers – to wit Tomáš Havelka, František Neuwirth, Juraj Petro, Denisa Rajdová, Ivo Skolil, Kateřina Slavíková, Miroslava Spodniaková, Pavel Zahradníček and Jakub Zámyslický.
“All promoted colleagues have worked in support of our individual practice groups for many years. I am pleased that we are successful in educating the next generation of top senior experts and managers from a pool of extraordinary legal talent. They have long provided the exceptional quality services our clients are used to and have done excellent work to support the brand and trustworthiness of our firm,” adds Jaroslav Havel.
Authors: Adéla Havlová, Josef Hlavička
One of these days, an indirect amendment to Act No. 134/2016 Sb., on Public Procurement (the “PPA”), will be promulgated in the Collection of Laws. It is incorporated in the act amending certain acts in relation to the adoption of the Act on Wastes and Act on End-of-Life Products (the waste package). This surprising amendment to the PPA effective as of 1 January 2021 places the principles of socially and environmentally responsible procurement and innovation among the basic public procurement principles pursuant to Section 6 of the PPA.
A new paragraph 4 was added to Section 6 of the PPA in the following wording: “the contracting authority is obliged, when proceeding pursuant to this Act and drafting procurement requirements, evaluating the bids and selecting the supplier, to comply with the principles of socially responsible procurement, environmentally responsible procurement and innovations within the meaning of this act, where possible given the nature and the purpose of the contract. The contracting authority is obliged to duly justify its steps.”
At the same time, Section 28 of the PPA lays down the definitions of terms. Comprehensively, this approach is standardly titled responsible public procurement (RPP) and as a significant element of public contracts it is also anchored in Directive EU 2014/24 (contracting authorities) and 2014/25 (sector-specific contracts).
The newly introduced principle of the PPA has attracted major attention across the public sector, particularly because it resulted from an initiative of the Chamber of Deputies, i.e. without broader comment procedure, and is also being introduced without (express) transitional provisions.
Just like any other principles, this new one applies to small-scale public contracts too; contrary to others, however, it must be substantiated, though the form and extent of the substantiation is not expressly laid down; the amendment leaves it up to interpretation and decision-making practice.
Hence, as of 1 January 2021, when drafting procurement requirements of newly opened procurement proceedings but also when assessing the eligibility and extremely low costs of already launched contracts, contracting authorities should apply this new principle and substantiate their steps at least in internal supporting materials of the procurement documentation. At the same time, we believe that this principle should at all times be applied in the context of other principles, including the 3E and adequacy.
In response to the amendment, the ministries concerned are drafting supporting documents and materials for the contracting authorities. The Ministry of Labour and Social Affairs (MLSA) has been intensely elaborating on this topic since 2014 and has been offering the contracting authorities a whole range of practical methodologies and training sessions under the Responsible Public Procurement Institute; it also offers the possibility to participate in the Responsible Public Procurement Platform. For more information, we recommend visiting the institut.sovz.cz website.
In response to the amendment, the ministry has published a Checklist on its website, a tool to assist the contracting authorities to go through the responsible public procurement topics in practical issues (for the Checklist, go here). Furthermore, the MLSA issued the publication Responsible Public Procurement in Brief, informing on the application of the new principles in practice and on the Checklist, a handbook of responsible public procurement in relation to the amendment to the PPA as of 1 January 2021 (here). On 15 December 2020, the MLSA also held a seminar, the legal part of which was organised by Adéla Havlová, a partner in our law firm. A recording of the seminar is available here upon simple registration.
The Ministry for Regional Development has been involved in discussions on more detailed interpretation of the new principle from the legal perspective in its Expert Group, also comprising Adéla Havlová as a representative of the Association for Infrastructure Development, in cooperation with the Association for Public Contracts, and other ministries and representatives of the Czech anti-monopoly authority. The Ministry for Regional Development (MRD) intends to issue an opinion at the turn of the year, and publish it on the portal-vz.cz/uvod website. What will be most crucial will be the interpretation of the following wording “…provided it will be possible given the nature and the meaning of the contract” and its possible conflict with the other principles as well as the significance and the form of the reasoning.
We are closely following other legislative changes in the area of public procurement that are likely to be adopted next year; for the sake of completeness, we briefly cover them here.
The big draft amendment to the PPA submitted by the government and discussed this autumn by the Legislative Council after an ordinary comment procedure and detailed discussion in the MRD’s Expert Group was approved by the government on 16 November 2020 and will be discussed by the Chamber of Deputies in the spring of 2021.
This comprehensive amendment to the PPA is presented after more than three years from the date the act came into effect. Even though the preparation of the draft amendment was triggered by an objection lodged by the European Commission regarding the document and the ongoing procurement, gradually there were a number of other topics aimed at decreasing the administrative burden on the part of the contracting authorities and suppliers, the elimination of excessive strictness of certain rules, clarification of the interpretation of certain institutes and the correction of minor legislative and technical insufficiencies. The amendment is proposed to come into effect on 1 July 2021.
The MRD, in cooperation with the Ministry of Transport, also submitted a bill on the promotion of low-emission vehicles by means of procurement of public contracts and public services in passenger transport (the Act on the Promotion of Low-Emission Vehicles) with the aim to duly transpose Directive (EU) of the European Parliament and of the Council 2019/1161 of 20 June 2019 amending Directive 2009/33/EC on the promotion of clean and energy-efficient road transport vehicles.
The act lays down a duty on the contracting authorities to achieve a minimum proportion of low-emission and zero-emission vehicles when awarding public contracts, the subject of which is procurement, lease and rental of defined vehicles and transport services listed in the annex to the PPA in above-threshold contracts (with the exception of concessions, but including transport service provision).
In the most common category of passenger vehicles (M1, M2 and N1), for instance, this share will amount to 29.7% and the contracting authorities should achieve it by 31 December 2025; in the category of road lorries (N2 and N3), the share should amount to 9% as of 31 December 2025, and subsequently 11% by 31 December 2030. The Office for the Protection of Competition should supervise the compliance with this obligation. The act is proposed to come into effect on 2 August 2021.
Shortly, the MRD is also planning to issue an opinion on the application of Government Decree No. 173/2016 Sb., on the specification of binding procurement requirements for public contracts for the purchase of road vehicles, regarding the manner of specifying the vehicle consumption and the related documentation (application of a new methodology – WLTP as opposed to NEDC).
The Ministry of Justice has presented a bill on the protection of whistle-blowers as a draft transposition regulation of Directive (EU) of the European Parliament and of the Council 2019/1937 of 23 October 2019 on the protection of persons who report breaches of Union law.
The aim of the new regulation should be to ensure protection of persons working in the public and also in the private sectors, the protection of potential whistle-blowers, and also general prevention of unlawful conduct. The duty to introduce an internal whistleblowing system should be mandatory for public contracting authorities pursuant to the PPA among others, with the exception of municipalities with less than 10,000 inhabitants (apart from municipalities with extended state administration powers) and public contracting authorities with less than 50 employees. The proposed date of effect is 17 December 2021.
Last year, the government presented a lobbying bill. The bill defines lobbying, lobbyists and lobbied persons and introduces a transparency register. It was expected to come into effect on 1 January 2021 and has been scheduled for discussion at the 75th Chamber of Deputies session, i.e. from 10 December 2020.
The Senate is discussing a government bill on the registers of beneficial owners that will continue to regulate, in a consistent and comprehensive manner, the registers of beneficial owners, public access to the registers, measures to verify whether the records are true, and sanctions for a breach of the act (pursuant to the draft amendments submitted by the Chamber of Deputies the fines have been raised to CZK 500,000).
Apart from that, on 10 December 2020, the amendment to the Act on Certain Measures Against the Legalisation of the Proceeds of Crime (the AML Act), which will also affect the Public Procurement Act and the Budgetary Rules Act, was sent to the Collection of Laws. It lays down a new duty to be recorded in the beneficial owners register as a qualification for public contracts and subsidies. With the exception of certain provisions, the AML Act comes into effect on the fifteenth day of its promulgation.
We hope that this overview of news will be useful for you and that it will help you become well prepared for the new year in 2021.
Authors: Václav Audes, Lukáš Syrový
Over the last ten years, increasing numbers of people have acquired real estate as a form of investment. As a matter of fact, immovables are a reasonable asset to invest in to protect one’s property from devaluation by inflation. This remains true now, at the time of economic crisis caused by the coronavirus pandemic; however, thorough consideration should be given to what type of immovable property to invest your money in. Our real estate market experts explain which properties continue to provide a suitable investment opportunity for protecting one’s wealth.
Attractive income can be generated not only from residential properties, but also from logistics-related immovables and investments in real estate funds.
Interest in immovables designated for housing has been confirmed by the amount of loans provided. The mortgage market is pushing historic records. In September 2020, banks provided mortgages worth more than CZK 22 billion, which is CZK 7 billion more than in September 2019. The number of provided mortgages keeps growing too – in September, there were 1,000 more than in August. Overall, Czechs contracted housing mortgages worth CZK 172 billion during the first nine months of 2020, more than for the same period in the record-breaking years 2016 and 2017, when the amount of mortgages sold eventually reached CZK 226 billion for the whole year.
This shows that Czechs are not afraid of investing in housing properties even in uncertain times. This is also due to the fact that the prices of mortgages keep going down, with interest rates around 2%. Other factors encouraging investment in housing are that the Czech National Bank has alleviated lending rules, and that the real estate acquisition tax has been abolished.
Despite the first and second waves of the coronavirus crisis, demand for high-quality residential housing in the Czech Republic remains stable. This is particularly true in Prague, where demand still exceeds supply. In the autumn of 2020, the average price per sq. m remains above CZK 100,000, 9% more than last year. We also expect that the prices of residential properties in Prague will keep growing.
Outside of Prague, the prices have not been increasing so fast, but still the real estate bubble has not popped as a result of the pandemic, and prices remain stable, particularly for high-quality properties. Thus, flats can provide an ideal opportunity for private and corporate investors alike to invest their money and secure stable revenues regardless of the currently unfavourable economic situation.
On the other hand, the coronavirus has strongly affected the rental housing market. The most dramatic decline in rent has taken place in Prague – by up to 20%. The market has been flooded by thousands of empty flats that had been offered by the owners for short-term rentals via Airbnb; this, of course, has pushed rents down in general.
We nonetheless believe that this is just a temporary phenomenon. Because increasing numbers of people will not be able to buy their own homes due to the crisis, it is reasonable to expect growing demand for medium-priced rental housing in the following months, at or around CZK 25,000 per month. Indeed, some large developers have responded to this projection and are designing residential projects for long-term rentals.
The logistics segment has been consistently growing in the Czech Republic over recent years. This year is no exception. Due to the pandemic, resellers have been quick to leave brick and mortar shops, moving to the online environment. In March, for example, the e-commerce segment grew by 40%, while similar developments can be expected with the second wave of the pandemic. Based on recent estimates, the turnovers of Czech e-shops even could exceed CZK 200 billion. These fast-growing businesses are naturally interested in whole logistic parks.
Hence, logistic facilities and industrial parks are extraordinarily attractive for investors as a result of the pandemic shock. At HAVEL & PARTNERS, we advise clients what to invest in, including specialised real estate investment funds, which are becoming more and more popular with investors.
Real estate funds, or real estate investment funds, besides offering investment opportunities in the amount of millions of Czech crowns, currently make it possible to invest thousands, or merely hundreds of crowns in immovable properties. It is nonetheless advisable to find out what type of property the fund invests in – residential or office space; this has an impact on the return on investment, and potential risks.
In addition to traditional real estate funds, real estate investment start-ups have been recently emerging. The latter primarily target young investors. Thus, some companies now enable small investors to participate in providing loans to developers for the construction of real estate projects (crowdfunding), or companies that use the deposited money to buy flats and subsequently pay out shares in rental revenues to investors.
Prudence is currently recommended when investing in real estate in the office space market, which is about to undergo certain changes in connection with the present situation. This is why many investors are now waiting. The office space vacancy rate has been around 5% for several years and is expected to somewhat increase after the pandemic. Therefore, numerous companies are very pragmatically contemplating reducing the size of the office space they are using under lease or subletting those parts they will be unable to fully use.
Consequently, we are now engaging in complex negotiations to agree on new lease terms and conditions for existing office spaces. These renegotiations relate to both the leased floorage and the rent. Despite the anticipated changes, we nonetheless believe that the construction of new office buildings will continue at a similar pace.
The retail market has been severely affected by the coronavirus wave. The transition of customers from brick and mortar shops to virtual e-shops has gained strong dynamics and this trend may further develop with the second wave of the coronavirus pandemic. In this context, it is reasonable to expect that new retail space will not be added at a fast pace, but instead that some shopping malls will be consolidated and possibly sold. Of key importance here will be the customers’ satisfaction with the brands and stores the shopping malls will be able to offer, as well as the quality of the blend of goods and services offered.
We wish you a wonderful Christmas holiday, good luck and above all excellent health in 2021, the year in which our office will celebrate 20 successful years on the market thanks to your continued support.
Authors: František Korbel, Josef Hlavička, Jiří Buryan, Jan Fikar
The new year 2021 will entail, among other things, changes in construction law. Act No. 403/2020 Sb., with effect from 1 January 2021, amends problematic institutes of construction law and brings a number of conceptual novelties that we have been expecting only since the future recodification. The amendment is primarily focused on the implementation of construction projects for key infrastructure under Act No. 416/2009 Sb. It also gives it a new abbreviated name – the Line Act. However, it also contains substantial changes to the Building Act, and also interferes with the general regulation in the Administrative Procedure Code.
The main goal of the new regulation is to enable faster and more efficient preparation of construction projects. Therefore, the regulation of binding opinions in the Administrative Procedure Code changes, and explicit deadlines for their issuance are introduced in Section 149. Newly, the authorities will have to issue binding opinions without undue delay, no later than 30 days from the submission of the application. The deadline can be extended before its expiry in complex cases, but by a maximum of another 30 days.
If, in proceedings under the Building Act, the authorities concerned do not issue a binding opinion within the statutory time limit, it shall be automatically deemed that a favourable binding opinion has been issued. This should motivate the authorities to meet the time limits.
However, it should be noted that a favourable opinion that is deemed to have been issued may be revoked by a superior authority if the statutory conditions for its issuance have not been met, within 6 months from the effective date of the decision, which was conditioned by a binding opinion.
Although this regulation is intended to contribute to the acceleration of the preparatory stage of construction projects, in our opinion, with regard to the possibility of revoking the deemed favourable binding opinion, it will also lead to legal uncertainty for the developer. We therefore recommend continuing to obtain properly issued binding opinions and not rely on this fiction. The fiction will not apply to some binding opinions, especially in the field of nature and landscape protection (e.g. to binding opinions on the environmental impact assessment of a construction project).
The Building Act will also undergo significant improvements in the area of land use planning. The amendment supplements the much-needed binding land use planning tool, which will address in detail the projects falling within the competence of the State and enable decision-making on key projects in a territory without the need for their approval in the subsequent land use planning documentation of regions and municipalities. It is a nationwide territorial development plan, which will be linked to the territorial development policy.
The territorial development plan will be issued by the Ministry of Regional Development in the form of a measure of a general nature and will be binding for the preparation and issuance of territorial development principles, land use plans, regulatory plans and, newly, for decision-making in a territory.
In practice, the territorial development plan will define areas and corridors, especially of the transport and technical infrastructure of international or national importance, or those that overlap the territory of one region. The follow-up regional territorial development principles and the land use plans of municipalities will have to respect the areas and corridors defined in the territorial development plan.
It will be possible to use the territorial development plan – in contrast to the current territorial development policy – for the direct permitting of projects in the territory, and thus more effectively to promote, in particular, line and other essential projects of national importance. This should significantly speed up the permitting of these large-scale constructions, which can no longer be blocked by the reluctance or inability of regions and municipalities to include them in their subsequent land use planning documentation. This should also reduce the administrative complexity and financial cost of their preparation.
The partial amendments to the Line Act include the possibility for an eligible investor to combine the application for the issuance of a decision under the Building Act for the construction of calculated transport infrastructure (construction of motorways or 1st class roads, construction of a national railway or related construction) and the application for the issuance of an interim decision in expropriation proceedings by which the rights necessary for the implementation of the permitted project are expropriated or limited.
The decision of the building authority will thus contain at least two operative parts, where with one operative part the building authority will place or permit a construction and with the other operative part will expropriate or limit the necessary rights for the implementation of the project.
The existing regulation of the Line Act shall apply accordingly to the operative part of an interim decision. The interim decision cannot be appealed; the court shall decide on an action against the interim decision within 60 days. Thus, eligible investors do not have to conduct proceedings pursuant to the Building Act and the Expropriation Act separately. Instead they will conduct them in one joint proceeding before one authority with a single decision.
Changes in construction law from 1 January 2021 can be perceived positively, although it is not certain to what extent the experiment with the fiction of binding opinions will succeed. In our opinion, the problems with binding opinions will not disappear until they are conceptually overcome and repealed by the new Building Act. If fictions of binding opinions begin and occur after 1 January in practice, it can be not only an acceleration, but also another blow to the legal certainty of all actors in the permitting process, for which the developer will potentially suffer most. On the contrary, we can perceive positively the new territorial development plan, which would otherwise be envisaged only in the new Building Act, as well as the possibility of joining the permitting and expropriation proceedings.
Let us hope that these changes in the permitting of construction projects will contribute to the economic growth of the Czech Republic and the support of the construction sector. Even more significant positive changes are expected from the new Building Act, which was approved this November in the first reading by the Chamber of Deputies (print 1008). Until its adoption, however, it is necessary to appreciate any partial change aimed at improving the current regulation of construction law.
We will discuss the impacts of the amendment to and the draft of the new Building Act in more detail at a seminar organised by HAVEL & PARTNERS ACADEMY on 5 February 2021, to which we cordially invite you.
Author: Robert Neruda
What should an ideal legal order look like? It should be a set of legal rules and principles that is logical, comprehensible and proportionate.Law needs to respond to the real problems of society and not create new ones. Only such law is accepted by society, only such law works. And does the reality reflect this?
People will comply with laws spontaneously if they understand and identify with them. What I do not know and what I do not understand, I cannot consciously observe.
Contemporary Czech law has too many rules that do not match up and in which it is difficult to orientate. The problem is excessive regulation and little effort to explain why a specific Act is necessary. There are simply too many rules, and no one keeps track of what is applicable.
The reason for this situation is not only the need to regulate life situations and actions that have not existed so far – such as the operation of autonomous vehicles, but also preferring case law (efforts to regulate each specific case) to general legislation. Fearing that the general rule should be left to the discretion of the courts, the legislator tries to think about and “regulate” all the situations that may happen.
Of course, something is always forgotten, some situations are insufficiently or incorrectly described, which in turn leads to the need for further amendments. One amendment is followed by another, a new Act is often amended before it enters into force. It is almost impossible to know which wording is valid. This closes the vicious circle of confusing Czech legislation.
There is a lot of regulation, without explaining why it is needed, what it will be used for and whether there is a less burdensome (non-legislative) way to achieve the goal. The need for new legislation should be explained not only by lawmakers, but also by the authorities in charge of applying legal rules. The State and its bodies should try to translate complex legislation into simpler language, explain principles on specific life situations, publish manuals, use infographics, etc. Just do everything so that people understand the law.
People and corporations will spontaneously comply with any regulation, especially if they understand and identify with it. The more regulation, the more case law legislation, the less likely it is that individuals will become familiar with the rules and identify with them. If lawyers and judges find it difficult to orientate themselves in the sea of legislation, it is unrealistic to expect this from citizens and business corporations. What I do not know and what I do not understand, I cannot consciously observe.
There is much regulation, it is complex, contradictory and sometimes even against common sense. Nevertheless, there are many individuals and companies that want to comply with their legal obligations and restrictions. The State should appreciate such an effort even if it fails. Unfortunately, this is not happening. Example? Many clients invest large sums in ensuring so-called legal compliance. And although criminal law views situations where the company does its utmost to comply with an obligation as a mitigating circumstance or even a circumstance ensuring impunity, in practice the conditions are set so strictly that this essentially precludes their practical application. A similar situation prevails in competition law. I consider this a missed opportunity to increase the general level of compliance with regulation.
I believe that the wider legal profession is also playing a significant role in the current bad situation. Attorneys-at-law, academics, lawyers working for professional, non-profit and other organizations whose status allows them should engage in a public debate, offer their experience, draw attention to the inappropriateness of regulation, demand explanations, and present alternatives. Law-making and regulation need to be the subject of greater public debate.
Let’s change that.
