Did you sell a house with an illegal construction? You will pay for the damage, not the buyer

The Regional Court in České Budějovice recently upheld a decision that fundamentally reminds all property sellers of one crucial thing: concealing legal defects doesn't pay off. The case, which dragged on for several years, ended with the seller being ordered to pay over 2.6 million Czech crowns in damages. What exactly happened, and what lesson can you learn from it?

A Roof Without a Permit and Silence as a Strategy

In 2007, the owner of an apartment building in Tábor added an extension to the roof. The problem? A building permit was never obtained. The building authority initiated proceedings to remove the unauthorized construction, but the owner delayed the situation for years – requesting suspension of proceedings and extensions of deadlines, but never submitting the necessary documents. Consent from neighbors for the roof overhangs onto their properties was also missing.

In 2018, the owner decided to resolve the problem elegantly: he sold the property. In the purchase agreement, he explicitly declared that there were no legal defects encumbering the property. Not a word about the ongoing proceedings to remove the illegal construction.

The new owner wanted to continue with the renovation. During discussions with the building authority in 2020, she learned the shocking truth – the roof had never been permitted, and proceedings for its removal were still ongoing. She tried to obtain a retrospective building permit, but in vain. The obstacle was the disagreement of neighbors, whose homes would be excessively shaded and dazzled by the extension. Ultimately, she had to have the entire extension demolished and a new roof built to its original dimensions.

The costs? Over 166,000 Czech crowns for legal and project services related to the building permit process, and another almost 2.5 million Czech crowns for the construction work itself. Plus 10,000 Czech crowns as a contractual penalty for the false declaration in the purchase agreement.

Why it's not about a defect in the item, but about compensation for damages

The seller defended himself by arguing that it was a matter of liability for defects, not compensation for damages, and that the buyer had not reported the defects in time. However, courts of both instances rejected this defense. They explained that rights arising from liability for defects serve to compensate for harm consisting of the defectiveness of the item itself. Compensation for damages, on the other hand, covers harm that arose as a consequence of the defect – in this case, the costs of rectifying the unlawful state.

The courts referred to the established case law of the Supreme Court: costs incurred for the removal of an illegal construction constitute actual damage, which must be compensated by the party who breached a legal obligation. This obligation included both the construction of the building without a permit, and the provision of the purchased item with a defect and a false statement in the purchase agreement.

The seller also argued that the buyer could have legalized the roof if she had continued with the proceedings. However, the court stated that not even the seller himself had obtained the permit for several years – and this was due to objective reasons that would not have disappeared later either. Therefore, the withdrawal of the application for subsequent legalization was not the cause of the damage.

The defense also interestingly pointed to the low purchase price compared to the usual value of the property (allegedly over 6 million CZK compared to the paid amount of less than 3.2 million). The seller claimed that the buyer had actually profited and suffered no damage. The court rejected this argument: the purchase agreement contained no warning about the defect nor any agreement on a discount for this reason. The amount of the purchase price is not relevant for assessing the costs that the buyer had to incur to rectify the unlawful situation.

The seller attempted to achieve at least a reduction in damages for reasons worthy of special consideration – citing his age, alleged pressure during contract signing, and inability to influence its text. However, the court did not overlook that shortly after the buyer informed him of the impending costs, the seller transferred all his valuable assets to close relatives. Furthermore, his actions showed signs of at least indirect intent – he knew about the problem and yet concealed it. This precludes any moderation of damages.

The only point on which the seller partially succeeded was the objection regarding VAT. The buyer's husband, as a VAT payer, claimed a deduction for the paid tax, and therefore this amount (less than 25 thousand CZK) did not constitute actual damage and was not awarded.

What are the key takeaways from this case? When selling real estate, it is essential to inform the buyer of all legal defects, including ongoing proceedings with the building authority. Declarations in the purchase agreement regarding the absence of defects are binding – their breach can lead not only to a contractual penalty, but primarily to the obligation to compensate for all costs that the buyer must incur for rectification. And transfers of assets to relatives in response to a threatened lawsuit are certainly not viewed favorably by the courts.

Source: Regional Court in České Budějovice, 74 Co 57/2025-237