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At present, the holding of any auctions, including all auctions related to real estate, is regulated by Act No. 26/2000 Coll., on Public Auctions, as amended, and is subject to relatively strict conditions primarily intended to ensure that such auctions are transparent. Auctions are basically divided into voluntary and non-voluntary auctions. Voluntary auctions generally take place at the proposal of the property owner but may also take place at the proposal of the insolvency administrator in the context of insolvency proceedings. Involuntary auctions are those that take place at the proposal of a pledgee within the exercise of a pledge on real estate.
As regards real estate, in practice we have encountered mainly voluntary auctions held at the proposal of the insolvency administrator. These will be discussed in more detail in this article.
According to the Act on Public Auctions, real estate auctions may only be carried out by an auction house that has a concession to do so, i.e. a trade licence to which the strictest regulations apply according to the Trade Licensing Act.
Based on the insolvency administrator's proposal, the auction house issues an auction notice in advance, in which it describes the rules of the auction, including how the auction will be conducted. At present, in most cases these are electronic auctions held within a specified period, e.g. 24 hours. Once the first bid is made, the auction process itself begins, ending with the submission of the last bid. This can happen within a few minutes.
For the vast majority of auctions, the auction house requires an auction security within the auction notice, i.e. the payment of a sum that is a kind of confirmation for registration in a specific auction and is then deducted from the purchase price or returned if the registered person did not submit the highest bid. The auction notice will also stipulate the lowest bid for the auction, taking into account the expert estimate, for which it will be possible to auction the property within the auction, and the minimum bid possible within the auction. The auction notice also stipulates the possibility of inspecting the property at a specific date.
The auction is then a public proceeding at which the auctioneer (a natural person acting on behalf of the auction house) addresses a predetermined circle of persons present in the public data network at a specified address (in the case of an electronic auction) with a call to submit bids. The purpose of submitting these bids is to transfer title of the subject of the auction. Ownership of the subject of the auction passes to the person who makes the highest bid when the auctioneer strikes the gavel (not by concluding a purchase contract, which is not concluded in the case of an auction, nor by paying the purchase price, or by registration in the Land Register). However, this person (the successful bidder) must pay the price achieved by the auction within the set time limit. The auction house will prepare a report on the auction.
The auction house will issue to the successful bidder a written confirmation of the acquisition of title to the subject of the auction (only) after payment of the price achieved by the auction. The written confirmation will indicate the subject of the auction, the former owner, the auction house and the successful bidder. The certificate of acquisition of title must be accompanied by a document specifying the date and method of payment of the price achieved by the auction. The auctioneer's signature on the certificate of acquisition of title to the real estate must be officially verified. The auction house will hand over the price achieved by the auction after its payment (to the auction house) to the proposer of the auction (e.g. the insolvency administrator), unless the auction house and the proposer agree otherwise.
The former owner of the property will then hand over the subject of the auction to the auction house without undue delay upon presentation of a confirmation of acquisition of title. The auction house is obliged to draw up a report on the handover of the subject of the auction on the spot.
Based on a written confirmation of acquisition of title to the subject of the auction (confirmation will be issued by the auction house upon payment of the price achieved by the auction), a registration procedure is conducted at the relevant cadastral authority, the acquisition of title taking place on the date the gavel is struck within the auction, not on the date a proposal for the registration of the ownership right is filed in the Land Register, as is the case with the transfer of real estate based on a contract.
As part of the registration procedure, the relevant cadastral authority will examine inter alia whether the proposed registration follows up on existing entries in the Land Register.
The acquisition of real estate in a public auction is certainly an intriguing opportunity to acquire ownership. However, it presupposes a detailed examination of the subject of the auction, as the right of ownership and the obligation to pay the purchase price pass directly to the successful bidder upon the auctioneer's strike of the gavel. The successful bidder will receive confirmation of the acquisition of title to the subject of the auction only upon payment of the purchase price. No contract is concluded.
authors: Eva Purgerová and Kateřina Lehečková
Attorney at Law