Legal audit of a rental building: what problems can stop the conversion
Published 30 October 2026
A legal audit of a rental building verifies whether the building can be divided into individual units and sold. It examines mortgages, joint ownership shares, enforcement actions and insolvency, lease agreements, and the alignment of the building's actual condition with the Czech Land Registry (Katastr nemovitostí). The result is a foundation on which the owner decides whether to proceed or first resolve obstacles.
Summary
- Legal audit is the project's first gate: without a clean legal status, you cannot progress to the next phases.
- The most common obstacles: mortgages, unclear joint ownership shares, enforcement actions or insolvency, and discrepancies with the Czech Land Registry (Katastr nemovitostí).
- The audit is not a tick-box exercise but a calculation: some problems will delay or increase costs, others will prevent the conversion entirely.
- Based on the audit, the owner decides whether to proceed or to resolve problems first.
- The audit and plan deliver results within 6 weeks, followed by an assessment of the building's potential.
Why legal audit is the first gate to conversion
Conversion of a rental building means that instead of selling the whole building, the owner creates individual units and sells them separately. The typical difference in value between selling the whole building and selling unit by unit is +20–40 %, but the exact figure will only be determined by feasibility. However, this potential can only be realised if the building is legally clean.
That is why legal due diligence is placed at the beginning. The project passes through three gates (legal, permit, sales gate) and you only progress to the next phase with confirmed figures. The process is described on the How it works page. Legal audit is part of the Audit and plan service, which delivers results within 6 weeks.
What the legal audit specifically examines
The audit is based on documents and public registers, not on verbal assurances. It typically covers:
- certificate of title and cadastral documentation — who is registered as the owner, what are the shares, what restrictions exist, and whether the register reflects reality,
- mortgages and other real charges — encumbrances on the building and land (Civil Code Act No. 89/2012 Coll., Czech Republic),
- enforcement actions and insolvency — whether proceedings are pending against the owner or co-owner under the Enforcement Code No. 120/2001 Coll., the Code of Civil Procedure No. 99/1963 Coll., or the Insolvency Act No. 182/2006 Coll.,
- lease agreements — who lives in the building, under what legal title, and on what terms,
- building and construction law status — permissions, certificates of use, and any unauthorised alterations (Building Act No. 283/2021 Coll.),
- land and access — whether the building is on land owned by the owner and how access and utilities are arranged.
Mortgages and other encumbrances
A mortgage on the building is usually one of the most significant findings. The mortgagee has a strong position against the property, and the creation of units and their subsequent sale typically cannot proceed without the mortgagee's cooperation. Units are sold either subject to the mortgage or free of it, depending on how the owner agrees with the mortgagee.
The audit therefore establishes who the mortgagee is, what debt the mortgage secures, and what the mortgage agreement says about dealings with the property. This raises a practical question: from what funds and in what order will the debt be repaid from the sale of units. It is better to know this before starting the project, not after.
Unclear shares and ownership disputes
The second common obstacle is joint ownership, especially following inheritance. Joint ownership is governed by the Civil Code Act No. 89/2012 Coll., sections 1115 onwards. When deciding on joint property, co-owners must agree, and major steps with the building cannot be taken without their consent.
The audit verifies that shares are correctly registered, that the inheritance proceedings have been finally concluded, and that there is no dispute over ownership or the extent of a share. Inherited shares may also be subject to a right of first refusal: the general right of first refusal for co-owners was abolished in 2020 and applies only for 6 months from the creation of joint ownership if the share arose through inheritance (Section 1124 of the Civil Code). The audit therefore clarifies whether this deadline still applies to you.
It should also be noted that ownership of property passes only through registration in the Czech Land Registry (Katastr nemovitostí). If a change is merely agreed but not yet registered, it cannot be relied upon in the project as a done deal.
Enforcement, insolvency and other creditor actions
Enforcement actions or insolvency proceedings against the owner or co-owner may restrict dealings with the property. In a forced sale (auction), the minimum bid is two-thirds of the final price (Section 336e of the Code of Civil Procedure No. 99/1963 Coll.; proportionately for enforcement actions). That is why the problem should not be delayed: if creditors achieve a forced sale, the owner may lose control over price and timing.
The audit therefore checks publicly available records and assesses whether and how liabilities can be settled, ideally from the sale of units. Insolvency proceedings can be found in the Insolvency Register, enforcement entries in the certificate of title or other sources. Details always depend on the specific case and are in the hands of a lawyer.
Tenants, the Land Registry and building condition
A rental building typically has tenants. The audit compiles a summary of lease agreements: who holds what lease, whether it is for a fixed or indefinite term, and what the terms are. Transfer of ownership does not terminate the lease in itself, so this summary is important for the unit sales plan and the timeline.
In addition, discrepancies between reality and the Czech Land Registry (Katastr nemovitostí) are checked — for example, floor areas, unregistered extensions, or attic conversions. To create units, the owner's declaration is registered in the Land Registry, and the supporting documents must match the actual condition of the building. The Building Act No. 283/2021 Coll. and related permissions then determine what can be legally altered. This part is addressed by the second gate (permit gate), but the initial signals come from the legal audit.
As for the registration itself: the Land Registry Office cannot decide until at least 20 days after notifying the owner (Land Registry Act No. 256/2013 Coll.), and the average registration time is roughly 22 days. These periods are included in the plan.
How to act on the audit results
The audit does not end with a list of risks but categorises findings into three groups:
- No impact — minor matters that will be resolved during the project.
- Solvable with costs or delays — for example, negotiations with the mortgagee, rectifying entries, or agreement with co-owners. These items are reflected in the budget and timeline.
- Blocking — ownership disputes or ongoing forced sales. Until these are resolved, there is no point in starting the conversion.
Only on this basis does the owner decide whether to proceed or to resolve problems first. To estimate the financial benefit in advance, you can use the building potential calculator, but binding figures will only come from the feasibility study. Further topics can be found on the blog.
Collaboration can be structured in three ways: Audit and plan, end-to-end realisation, or partnership / JV. The audit is a suitable starting point in any of them, as it reveals what needs to be done before the first euro is spent on the project.
Disclaimer: this text is general information and does not replace legal advice. For the tax implications of sale (such as the time test or use of the property for residential purposes under Act No. 586/1992 Coll.), please consult the Czech Tax Administration or a tax adviser.