Legal pitfalls of construction projects in the Czech Republic

úterý 19 prosinec 2017 - 14u40

In 2017, all the major general indicators of economic performance show the Czech Republic as the new central-European tiger economy. It has negligible unemployment, high GDP growth rates and successful inflow of foreign direct investment. And yet, experts agree that a major weak spot in the Czech economy remains its lengthy and complicated process of obtaining permissions for construction projects. It has been estimated that an average length of this process in the Czech Republic is around 250 days, placing the country amongst the most construction-hostile in the world.

The problem has become even more pressing in the past decade as the maladies of permission obtaining process began to influence large-scale infrastructure projects, hampering developments of transport infrastructure such as highway and railway projects. The lack of dense highway network and high-speed rail connection has been cited as one of the most damaging bottlenecks of the Czech economy.

The government has attempted to deal with the issue with a new bill amending the construction law no. 183/2006 coll. (the “Building Act”), which will come into effect on the 1st January 2018. This amendment intends to shorten the process of obtaining necessary changes to planning documentations of individual municipalities as well as making it easier to obtain a building permit. Several proceedings that were necessary for larger projects such as the EIA proceedings, planning permission proceedings and eventual permit proceedings have been streamlined and brought together in order to make the overall process faster and remove duplicity in the work of various government offices. The new amendment also seeks to limit the participation of various environmental protection groups which have a history of undermining construction projects in the Czech Republic on principle rather than on factual basis – often using their rights to participate on permission proceedings to lengthen them by years without any other practical effect. For this reason, the new amendment has been criticised by environmental organisations as one limiting their constitutional rights. On the other hand, the amendment has been generally hailed by developers as one bringing positive changes.

After the amendment comes into effect, it can be expected that the construction sector in the Czech Republic will catch a new breath and investment mainly into infrastructure projects will increase. However, as is usually the case with new legislation, individual regulators and government offices will require time to get used to new measures and it can be expected that courts will have to have the final say on controversial matters. Since the EIA process is regulated mostly on the basis of European law while the planning and building permissions are granted within the framework of the Building Act, large scale projects, projects with international dimension as well as projects requiring the EIA will require professional legal backing by firms capable of navigating both Czech and European law. It is therefore necessary for both the investors and the developers to make sure that their construction proposals are backed by sufficiently experienced legal teams with the requisite know-how. The construction business will be a good investment opportunity next year in the Czech Republic, but while the process of obtaining the building permit will be streamlined and faster in general, it will also be difficult to navigate legal pitfalls of new legislation. As is the case in many other sectors, a capable legal support can make or break any investment opportunity.

Author: Martin Šenkýř