Settlement of claims and debts on dissolution of co-ownership under Czech law

Co-ownership may be dissolved and settled either by agreement of the parties or by a court decision.1 When a Czech court settles co-ownership, it must follow the methods of settlement laid down by law. Under Section 1144 of the Civil Code, the court should primarily decide to divide the common thing if this is reasonably possible, having regard in particular to preserving the value of the thing and the costs that division would require. If division is not reasonably possible, i.e. there is a risk of a substantial reduction in value or the costs of division would be disproportionately high, the court will, under Section 1147 of the Civil Code, allocate the thing to one or more co-owners for reasonable compensation, or order its sale at a public auction.
The settlement of co-ownership can be divided into settlement in the narrower sense and in the broader sense. Settlement in the narrower sense applies where the claimant seeks settlement of co-ownership of a specific thing or several things, whether or not they are related. If, however, the settlement of co-ownership is also to resolve all disputed and undisputed issues related to co-ownership, this is settlement in the broader sense.2 For the court to decide on settlement of co-ownership in the broader sense, such settlement must be proposed by one of the parties or be the subject of a counter-petition, and the court then decides on the (counter-)petition for payment of a certain amount on account of the broader settlement in a separate operative part of the judgment. If the court decided on broader settlement without a proper petition, this would constitute a procedural defect.3
Thus, if the parties do not ask the court by proper petition to proceed with broader settlement of co-ownership, a court that dissolves and settles the parties' co-ownership by allocating the common thing to one of the co-owners for reasonable compensation should determine that compensation from the usual price of the whole thing and with regard to the size of the co-owners' shares, and the amount of compensation should not be modified by the parties' mutual claims or set-off objections. It is irrelevant whether this concerns the settlement of the parties' investments in the common thing or the settlement of the parties' common debt incurred in connection with acquiring the thing, because in these cases it would be settlement of co-ownership in the broader sense, which can only take place on the basis of a proper petition by the parties.4
Under Section 1148 of the Civil Code, when co-ownership is dissolved, the co-owners also settle claims and debts related to co-ownership or to the common thing. These claims and debts include co-owners' claims relating to costs incurred on the common thing (for example claims for reimbursement of costs incurred to save the common thing or investments in it), joint obligations of the co-owners towards third parties directly related to the common thing (for example obligations under a loan agreement if the funds were used to buy or use the common thing) and, last but not least, claims directly related to the exercise of co-ownership rights (e.g. distribution of fruits and benefits of the common thing).5 According to the Czech Supreme Court, however, claims and debts settled under Section 1148 do not include "costs incurred by one co-owner on a thing in the sole ownership of the other, even if the proceeds from the sale of that thing were later spent on the thing that is now the subject of settlement."6
Case law has already dealt with the timing and possible limitation of the right to claim from the other co-owners the costs of investments in the common thing. For example, in its decision of 30 November 2011, file no. 22 Cdo 3766/2011, the Supreme Court concluded that if the other co-owners agree to costs incurred on the common thing by another co-owner, whether for necessary repair or maintenance or for other than necessary repair or maintenance, this is an agreement on the management of the common thing, and the co-owner who invested the costs is entitled to reimbursement from the other co-owners. If, however, the co-owners have not agreed how they will share these costs and investments, the size of their co-ownership shares will be decisive. For investments of any kind made by one co-owner in the common thing with the consent of the others, the part corresponding to the other co-owners' shares becomes due while co-ownership still exists, so there is no need to wait for the settlement of co-ownership. Conversely, for investments made by one co-owner without prior agreement with the others, the investing co-owner is entitled to the return of the unjust enrichment that arose for the other co-owners. If these were costs of necessary repair or maintenance, the other co-owners' obligation to return the unjust enrichment arises while co-ownership still exists. If they were not investments in necessary repair or maintenance, the obligation to return the unjust enrichment arises only when co-ownership ends.7
This can be illustrated by a specific example. If, in the case of unmarried partners living together, one partner uses his own separate funds as an investment in a common thing (e.g. a building) even before that common thing (building) comes into existence, and the other partner agrees because the partners have concluded an implied agreement that they will co-own the building they are constructing, and no other agreement on settling these obligations has been made, then these investments become due vis-à-vis the other partner as soon as co-ownership arises, and it is neither necessary nor desirable to wait for the settlement of co-ownership, as these claims risk becoming time-barred within the three-year limitation period.8

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1 Section 1143 of the Civil Code.
2 KRÁLÍK, Michal. § 1148 [Vypořádání spoluvlastnictví v širším smyslu]. In: SPÁČIL, Jiří et al. Občanský zákoník III. Věcná práva (§ 976–1474). 1st edition. Prague: C. H. Beck, 2013, p. 624.
3 Judgment of the Supreme Court of 5 September 2005, file no. 22 Cdo 1644/2005.
4 Judgment of the Supreme Court of 14 December 2010, file no. 22 Cdo 4193/2008.
5 KRÁLÍK, Michal. § 1148 [Vypořádání spoluvlastnictví v širším smyslu]. In: SPÁČIL, Jiří et al. Občanský zákoník III. Věcná práva (§ 976–1474). 1st edition. Prague: C. H. Beck, 2013, p. 624.
6 Judgment of the Supreme Court of 30 November 2016, file no. 22 Cdo 2354/2016.
7 Judgment of the Supreme Court of 30 November 2011, file no. 22 Cdo 3766/2011.
8 Resolution of the Supreme Court of 18 September 2018, file no. 22 Cdo 726/2018.

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