A Bargain as a Warning Sign? The Good Faith of a Real Estate Acquirer in Light of a Supreme Court Ruling

The institute of acquisition from a non-authorized person under Section 984(1) of Act No. 89/2012 Coll., the Civil Code (hereinafter the "Civil Code"), represents a key manifestation of the principle of material publicity. This principle establishes that anyone may rely on the accuracy of entries in the Cadastre of Real Estate. However, the protection of a person acting in reliance on such entries is not boundless; its limits have long been shaped by the case law of the Supreme Court. A significant recent development is the judgment of the Supreme Court, Case No. 22 Cdo 817/2024, dated March 31, 2025, which provided a clear resolution on whether a strikingly low purchase price is, in itself, an objective circumstance capable of questioning the acquirer's good faith establishing an obligation to conduct further inquiries specifically into whether the registered state corresponds to the actual legal state of the property.

Factual Background

In the case at hand, the real estate was initially transferred from the original owner to a business entity (a non-bank lender). This transfer was later deemed invalid. However, the company had already been registered as the owner in the Cadastre of Real Estate.

Several years later, the company transferred the property to the defendant for a purchase price approximately equal to half of the usual (market) value. The plaintiff (the original owner) subsequently sought a declaratory judgment on ownership, claiming that the defendant did not acquire the title under Section 984(1) of the Civil Code because they were not in good faith.

The court of first instance and the court of appeal both concluded that the defendant lacked good faith, primarily because the purchase price was significantly lower than the market price and because the defendant failed to conduct further inquiries that might have clarified the circumstances of the previous transfer.

The Supreme Court's Ruling

The Supreme Court rejected the conclusions of the lower courts. It emphasized that in civil law, pursuant to Section 7 of the Civil Code, good faith is presumed. Consequently, the burden of proof lies with the party asserting that the acquirer acted in bad faith.

The Supreme Court further concluded that ordinary prudence when acquiring a right in rem to real estate does not generally include an obligation to actively verify the actual legal status beyond the data contained in the public register. The very purpose of material publicity is to protect reliance on registered data. An obligation to investigate further arises only if there are objective circumstances capable of raising reasonable doubts as to whether the registered state corresponds to the actual legal state.

The Supreme Court explicitly disagreed with the appellate court's conclusion that a purchase price roughly half the market value automatically triggers an acquirer's duty to investigate the transferor's title. The Court stated that a low purchase price can have various reasons and, on its own, does not constitute an objective circumstance capable of questioning the accuracy of the public register. Therefore, a lack of good faith or a duty to verify the transferor’s acquisition title cannot be inferred solely from this fact.

According to the Court, a conclusion regarding a lack of good faith cannot be based on the mere reasoning that a "good deal" should have alerted the acquirer to potential issues with the transferor's ownership.

The Supreme Court also pointed out that findings regarding a lack of good faith must be based on specific factual evidence regarding what information was available to the acquirer and what circumstances were known to them at the time the contract was concluded. Considerations about what the acquirer might have learned had they taken further steps (e.g., a physical inspection of the property) cannot, without a specific factual basis, suffice to rebut the presumption of good faith.

Ultimately, the Supreme Court rejected the appellate court's construct that "undervaluation" is an objective circumstance that, by itself, refutes the presumption of good faith under Section 7 of the Civil Code and obliges the buyer to "investigatively" verify the legitimacy of the transferor's ownership. The Supreme Court vacated the lower courts' judgments and remanded the case for further proceedings.

Conclusion

While the Supreme Court's judgment in Case No. 22 Cdo 817/2024 serves as a victory for legal certainty based on the principle of material publicity, one cannot ignore the reality that ownership disputes are typically complex in terms of evidence and burdensome in terms of time and cost.

Although current case law maintains a strong standard of protection for good faith, it is not advisable to rely solely on this legal presumption when purchasing real estate. In practice, we recommend conducting appropriate legal due diligence before any acquisition, particularly in transactions involving significant assets.

This text was translated by AI