January 25, 2021

Volume XI, Number 25

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January 22, 2021

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Construction law reform in the Czech Republic?

On 5 November 2020, the first reading of the bill of the new Construction Act took place in the Chamber of Deputies of the Czech Parliament. It was assigned to committees with a hundred-day deadline to provide views on the new bill. The original draft was prepared in cooperation with the Czech Chamber of Commerce and in the autumn of 2019 was sent out for a general consultation. The new revised proposal from the Ministry was presented in May 2020 and is a fundamentally different document that was only slightly modified after discussion with the Legislative Council of the Government before it was submitted to the Parliament. The basic aim is to speed up and streamline permitting processes as the Czech Republic currently stands on the 157th place out of 190 countries evaluated. The new Construction Act is scheduled to take effect on 1 July 2023, with the exception of some provisions that are to take effect earlier.

In my opinion, if the current bill of the new Construction Act is passed, it will lead to a temporary deterioration in the situation of the permitting of new constructions in the Czech Republic, and I am not sure whether it will bring the acceleration and efficiency that is so necessary, at least in the long term. The building permits process is now really a long-distance run with many obstacles (years of obtaining the necessary stamps). The new law had the ambition to introduce the principle of “one authority, one procedure, one stamp”. Unfortunately, this is not fully reflected in the current wording. The building administration is to be fragmented, the integration of the bodies concerned is incomplete and contains a number of ambiguities, including a vague procedure for resolving disputes among the opinions of concerned bodies.

I took part in a discussion webinar on the bill of the Construction Act, which was organized for the members of the Association for Real Estate Market Development. In this lively discussion all the panelists, and also those attendees who spoke, shared their concerns over the current wording of the bill. I hope that the current wording is therefore not to be the final wording to come into effect.

It is certainly necessary to speed up the construction permitting procedure in the Czech Republic, but the current proposal does not seem to be the best means. The transfer of proceedings to a superior level, in cases where the authority of the first instance does not decide within the set statutory deadline, would not speed up the proceedings, but would just overwhelm and overload the superior authorities. It is necessary to incorporate an effective means of intervening against the inactive building authorities of the first instance and also a simplification of the process and better guidance for employees of building authorities. In my view, emphasis should be placed on the motivation, education and professionalism of building authority staff, so that it leads not only to the speeding up but also to the enhanced quality of decision-making in the first instance.

The original draft of the new Construction Act provided for the transfer of building authorities under the state administration, but the current one introduces a new system of state building administration next to the current first instance authorities. Thus in the area of state administration, instead of the originally intended simplification and separation from self-government, the system of administrative bodies is only supplemented by new bodies, and the agenda of individual bodies is further fragmented. The advantage of state permitting authorities would be the opportunity of launching several approval procedures at the same time and also improving the ability of the authorities to allocate their workforce more efficiently to cover more demanding permitting processes in some regions or absences due to leave and illness. Unfortunately, such an intervention in the structure of the authorities will lead to less clarity, to jurisdiction conflicts, and above all to a further slowdown in the process of issuing building permits.

Under the bill authorization to issue permits shall remain within the jurisdiction of the same authorities, which have made the Czech Republic globally one of the least effective states in this area. If the aim is to avoid unnecessary delays in the process, then a solution that is applied only after unnecessary delays cannot be considered as achieving the goal of an effective permitting process. I assume that if the current form of the bill is approved, any efficiency of this system would depend on whether the municipality and the region are under the supervision of the same political party.

Nor does the proposed legislation appear to improve the current problem of staffing shortages or facilitate the management of the application process. The bill of the Construction Act envisages a fundamental change in the role of building authorities that are now also expected to take on the management and coordination necessary opinions for permitting procedure, which has so far been managed by builders and investors. However, the new regulation does not address the issue of existing office understaffing and does not at all provide a practical means for relevant officials to be able to deal with matters faster and better in order to reduce the time needed to issue decisions and handle the number of defective decisions.

There is also the problem of an insufficient connection between permitting proceedings and the administrative judiciary. In practice, a lot of decisions issued under the Construction Act are challenged by an administrative action. The lawsuit proceedings last for several years, which means several years of legal uncertainty for the investor with a possible risk of needing to remove the construction, and in case that suspensive effect was granted to the administrative action, even the complete impossibility of executing the construction. The conditions for granting suspensive effect by a court are ambiguous and if the court does so, I believe that the case should be dealt with as a matter of priority. However, the new bill of Construction Act does not address these issues.

This is also linked to the problem of the fiction of the consent of the bodies concerned if no opinion is issued within the statutory deadline. The point is that such a fictitious positive opinion will result in an insufficient expert assessment of the construction project in question. And as such, it shall be found to be impracticable in proceedings before the administrative court, because the building permit is revoked as unreviewable due to insufficient professional assessment.

On the other hand, I am positive about the bill on the issues of digitization and implementation of the appellation principle for the procedure in the matter of building permits. In the appeal proceedings the authority shall change incorrect decisions and shall not be allowed to cancel them and return for the new proceedings and decisions of the authority of the first instance.

Although the current bill fails to meet the originally declared goals, the government has chosen the right priority. Without the reform of the building regulations, the crisis in building permitting would deepen, ultimately threatening the performance of the construction industry and the economy as a whole. It is undisputable, and clearly demonstrated by the development of recent years, that non-systemic partial solutions of construction legislation has not increased the competitiveness of the Czech Republic.

There are initiatives, in particular those of the St. Martin’s Call of the Czech Chamber of Commerce, the Association of Entrepreneurs in Construction of the Czech Republic, the Confederation of Industry and Transport of the Czech Republic, the Association for Real Estate Market Development and the Association of Developers of the Czech Republic, that require approval of a comprehensive amendment for the current bill. They are of the opinion that the model of clean state administration in the area of permitting, stable spatial planning for that predictability of application of building regulations, effective enforcement of deadlines in permitting proceedings and maximum integration of all agendas and procedures is a desirable and correct path, but that the current bill does not fully reflect it.

On 18 November 2020 the Committee on Economic Affairs of the Chamber of Deputies discussed the bill and set out the timetable for its detailed scrutiny in this committee. It expects to review it in connection with the comprehensive amendment for the current bill that is to be prepared and submitted to it by the Ministry of Regional Development.

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© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume X, Number 328
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About this Author

Markéta Topinková's Senior Associate real estate, corporate finance, corporate law, public procurement
Senior Associate

Markéta Topinková's primary focus is in the areas of real estate, corporate finance, corporate law and public procurement. She joined Squire Patton Boggs in 2008 after working at a major Prague-based law firm for three years.

During her legal career, she has also gained experience in litigation and arbitration. As the Czech Republic Life Sciences coordinator for the firm, Markéta helps clients with her knowledge and experience in providing legal services to companies in this sector, including, in particular, advising in connection with clinical trials. Markéta advises both Czech...

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