Land registries still far from perfect

The Slovak Spectator ran an interesting story about the fight for a bottling plant, and the land it sits on. Here it is in brief: Company A was annulled, a town outside Trenčín claimed it should be made owner, a claim the local land registry eventually recognized. The town sold the land to Company B, which built a bottling factory on it. Company A’s owner then managed to have his firm reinstated in the business registry and successfully fought in court to regain ownership of the land, and the factory that was on it.

The moral of the story, which you can read in full here, is that just because you bought land from a city doesn’t mean you couldn’t still lose everything (including your investment) thanks to a title challenge. CIJ Blog asked a quartet of experts in the field for a quick reaction / analysis of the story.

Robert Danis (Wilson & Partners)

In the absence of details we are not able to comment on the arguments and facts discussed in the article. However, as in other countries of the CEE region the lists of titles in Slovakia do not provide conclusive proof of a good title to the property, and we have seen similar cases where title transfers have not been properly done in the past and have later been declared void later on.

We usually check acquisition titles of the previous owners over the last 10 years  in order to ascertain whether the current owner can claim acquisition of asset by adverse possession should there be some defect in acquisition titles in more remote history of the property. The investor could have of course also sought title insurance in order to shift its title risks to insurance company and recover part of its losses more efficiently, which has probably not the case.’

Olga Humlova (Salans)

Without knowing the facts of the discussed case, it is true that both in the Czech and Slovak Republics the legal system does not provide protection for persons who are registered as the owner in the cadastral register. The registration of title has to be changed if the factual situation differs from the registration and if someone can prove that the registration is not correct.

That is why it is of utmost importance to pay attention to proper due diligence on the real estate title history during the last ten years, at least. An owner who acquired real estate in good faith and holds it in good faith that he is the owner can acquire the ownership title through prescription. The ten-year period includes the holding, in good faith, of legal predecessors to the current owner. The burden of proof that the current registered owner is not the real owner lies with the person claiming the ownership title.

As to the costs for investment, the original/new owner has to reimburse the last/registered owner for such costs as it would represent unjustified enrichment on his side.

Zdenek Valka (Stewart Title)

This case is not a surprise for us as title insurer and should be not a surprise for any lawyer either. Ownership rights are unlimitedly protected according to Slovak Civil Code (the same applies for Czech Republic too) and from our experience we are aware of few cases when legal successors of a historical owner won a case in front of Slovak court 60 years after expropriation took place. We believe that title insurance which covers risks on title that can not be discovered despite any thorough due diligence can be the solution.

Andrew Jackson (First Title)

This case further highlights the issue with the Land Registry systems in most CEE countries – they do not provide a state guarantee of title and hence conclusive proof of ownership to land and buildings. This leaves the Title open to a third party challenge, which we have often seen can arise from the invalidity of a historical transaction. Such historical transactions may not be easily discoverable from traditional due diligence. If the land and buildings had been protected by a title insurance policy, which is often available for a relatively low one-off premium, then the considerable costs of defending the title would have been passed from the owner’s balance sheet to the Title Insurer with the added peace of mind that if the defence proves unsuccessful the title insurer will compensate the insured for their losses. It makes sense to guarantee asset certainty and liquidity by buying a title insurance policy as part of your risk management strategy.

(we welcome other comments by email, or in the comments section)

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