Land-use agreements as a solution for both the Czech municipalities and developers

The new Building Act introduces new concepts which have remained outside the limelight – among them the institution of the land-use agreement, which may be expected to play a crucial role for the outcome of future projects …

Monday, 24 August 2020 saw the cabinet approval of the bill for a new Building Act. If everything goes according to the Ministry of Regional Development’s plans, the bill ought to be written into law by spring 2021, though individual parts will come into force on a staggered schedule until mid-2023. For the time being, public debate of the new Building Act has been centering on the joint permitting procedure, the tightening of certain statutory deadlines, the legal fiction of approval by concerned authorities, or the restructured chain of instances along which building offices are organized. But the Building Act introduces also new concepts which have remained outside the limelight – among them the institution of the land-use agreement, which may be expected to play a crucial role for the outcome of future projects …

Land-use agreements will be concluded between a municipality and an owner-builder, and represent some sort of public memorandum of cooperation with respect to a specific development project. Agreements of this kind already exist, but to date lacked any kind of statutory framework provided by the lawmaker.

This should raise our attention! Case in point: the current discussion in Prague as to whether and how developers should make payments into the coffers of various city districts when the value of their land increases due to changes to the zoning plan. Developers on the one hand complain about the obstacles put in their way by municipalities when they seek permission of their building projects; town halls on the other hand bemoan the fact that taxes on newly constructed properties benefit the national treasury while municipalities and their public infrastructure must cope with the additional burden imposed by such projects. The desired solution might be found in the above-mentioned land-use agreements.

In such an agreement, the municipality may agree to cooperate with the investor – e.g. by taking all necessary steps towards issuing the zoning documentation, or, conversely, by agreeing not to issue new zoning plans or changing existing zoning plans for a certain time period. Alternatively, the municipality may agree not to bring objections or appeals during permission proceedings which would run counter to the provisions of the land-use agreement. On the whole, these are rather substantial commitments available to the municipality, which clearly benefit the owner-builder.

However, let’s not forget the role and duties of municipalities under the Act on Municipalities, according to which municipalities shall not only see to the development within their borders but also care for the needs of (all) its inhabitants, and must promote and defend public interest and the interests of its citizens. These superior interests must not be neglected when negotiating a land-use agreement with a specific investor, whose own interests cannot override the public interest which the municipality is obliged to protect. On the other hand, the investor may agree in the land-use agreement to participate in developing public infrastructure, such as schools, parks, roads and ways, etc. – a fairly common commitment by developers even today – or to make a financial donation to the municipality.

The purpose of the land-use agreement is to enshrine the understanding reached between the owner-builder and the municipality (and possibly also other participants in the permitting proceedings). Newly, other stakeholders may also be parties to the land-use agreement, such as citizens’ associations, the owners of adjacent land, etc. In this way, the land-use agreement may ultimately be a manifestation of the consensus reached by everyone who holds interest in, or is affected by, the building projects in the target area.

Having said all that, one should keep in mind when deploying this particular legal institution that the investor will usually want to develop its own land by erecting a building which conforms to the existing zoning plan; the land-use agreement should not be abused to become yet another prerequisite for building, aside from the official permit, or lead to additional local taxation of building projects.

Land-use agreements must always be approved by the municipal council. In this respect, one final word of advice: In accordance with Supreme Court case law, it may happen that a building project which would otherwise have been approved by the municipal building office must ultimately be processed by a different building office because the council members who entered into the land-use agreement must be considered prejudiced in the matter.

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