Czech Republic

Land value capture in the Czech Republic

Land value capture is used in the Czech Republic but not systematically (Table 2.12). Local governments occasionally use developer obligations only. The main obstacles are local governments’ lack of administrative capacity and inadequate legislation.

Developer obligations

Local governments use developer obligations to cover the public infrastructure needs private development generates. The obligations consist of cash or in-kind payments. Usually, this leads to partial compensation of the public infrastructure costs, mainly public utilities and transport infrastructure within private development areas. Local governments use the obligations in four main cases.

First, developers are subject to obligations before obtaining approval for new development from local building offices. These obligations are based on the public utilities and transport infrastructure requirements of new development. Developers need to include the investment in such infrastructure in their development projects. After construction, they need to prove the required infrastructure’s existence. Private development projects may also require investment in public utilities and transport infrastructure outside the development area: for example, the sewerage system capacity needs to be increased. In that case, developers also need to prove the existence of a contract with the public infrastructure provider about the capacity extension. Usually, the provider requires developers to cover the costs of infrastructure capacity extension.

Second, developers may ask for zoning plan changes to better suit their needs. Usually, local governments change zoning plans without charging developers. Recently, some local governments have started negotiating cash obligations with developers. The negotiations’ outcome are private law contracts. Therefore, these obligations are linked to developers, not to plots. If developers transfer their land to other legal entities after the zoning plan changes or go bankrupt, they may not be liable to the obligations. Developers – mostly in large cities – sometimes also use private law contracts to pay small voluntary cash contributions to accelerate the planning approval process and increase its chances of success. In Prague (the capital city), these cash contributions amount to USD 25-100 per square metre of gross floor area.

Third, local governments have planning law contracts, an instrument that can help them finance infrastructural needs large private projects generate. In the past, planning contracts have been rarely used due to inadequate legislation. The new 2021 Building Act defined the instrument more precisely. For instance, it allows local governments to require cash or in-kind obligations for private developments that cannot proceed without zoning plan changes. However, the Act’s current wording does not allow using planning contracts for developments not requiring zoning plan changes. Local governments can, in zoning plans, condition new development by planning contracts, but the condition expires four years after zoning plans’ approval. Since planning contracts are subject to developers’ approval, developers may simply wait for the planning contracts condition to expire. They may be better off waiting four years than committing to larger obligations.

Last, local governments may charge fees in areas developed by small individual investors, typically areas with family houses where each house is built by a different individual. When such private development requires water or sewerage utilities and local governments provide them, developers may have to pay local governments a fee if their plots increase in value due to the connection to the water or sewerage system. This fee does not apply to other types of infrastructure. Local governments set it in generally binding decrees. It cannot exceed the difference in value between land with and without the possibility of connection to the water or sewerage system. The fee is based on the specific plot surface dedicated to the water or sewerage system connection, not the total gross floor area developed. Therefore, it does not take into account the increased water or sewerage system capacity that development may require.

Land readjustment

Land readjustment has been included in legislation for brownfield redevelopment and the conversion of rural to urban land.1* The 2006 Building Act regulates land readjustment until 2023, and local governments and landowners are in charge of implementation. However, they have very rarely used it. The main obstacle is that all landowners need to consent, which has proved unrealistic especially if land ownership is fragmented. The new 2021 Building Act, in force from 2023 onwards, dropped the instrument.

Under the 2006 Building Act, it is local governments that can initiate a readjustment project: they can condition an area’s development by a land readjustment agreement. If all landowners consent, they must provide a share of their plots for public infrastructure, such as roads, or must tolerate some public infrastructure on their land. There is no limit to the share of plots local governments can demand if it is necessary for public infrastructure provision. However, landowners usually agree only to the minimum amount of public infrastructure necessary for development. The amount of land that owners provide for public infrastructure is negligible.

The readjustment and reallocation of plots are based on readjustment contracts between all landowners in the readjustment area and the local government. There are no set rules for the readjustment process other than these contracts’ requirements. After readjustment, landowners can exchange reallocated plots for cash. Third party investors can buy readjusted plots.

Strategic land management

Strategic land management is not used. On the contrary, the national and local governments tend to sell publicly owned land to private entities. Public authorities only buy land from private landowners if they need to build public infrastructure.