Building law and regulation in the Czech Republic during Covid-19

In the Czech Republic, there is no COVID-19 law or regulation specifically designated for the construction industry. However, pursuant to a generally applicable governmental resolution, it is obligatory for everyone to wear a face mask or other protective equipment covering nose and mouth when outside his/her home. This applies also to construction workers on a construction site. Under another general rule, people should keep 2 metres distance one from another, where possible. However, it has been recognised that keeping the distance will typically not be possible on construction sites due to technological processes, and so the restriction will often not apply.

Currently, there are no specific subsidies or other government support for the construction industry. There are certain general government subventions for employers and entrepreneurs available:

1. Loans – Guarantee program for large companies with over 250 employees to be provided by the Export Guarantee and Insurance Company for payment of loans is being prepared and negotiated. 
2. Job Maintenance Promotion – A new project has been introduced to promote the maintenance of jobs. The employer whose economic activity has been jeopardized by the spread of COVID-19 will be entitled to request from the state certain compensation for wages paid to the employees, provided that the employment relationships have not been terminated. New rules for sick leave compensation and care leave compensation have been introduced.
3. Corporate Income Tax – If the obligation to file income tax returns and pay the income tax for 2019 is fulfilled by 1 July 2020 at the latest, all penalties for late filings of the respective tax returns and default interest for late payment of the respective income tax will be pardoned. 
4. VAT – The deadlines for filing VAT returns and payment of VAT can be postponed upon substantiated request of the taxpayer.
5. Bankruptcy – Amendment to the Insolvency Act prolonging the statutory deadlines for a mandatory bankruptcy petition has been approved by the government and will be discussed in the Parliament.

Under statutory law, the force majeure provision is triggered if the defaulting party proves that it was temporarily or permanently prevented from fulfilling its contractual obligation due to an extraordinary, unforeseeable and insurmountable obstacle, which occurred independently of its will. The force majeure provision will however not be triggered if the breach arises from personal circumstances of the defaulting party, if the default had already existed before the obstacle occurred, or if the liable party was contractually required to overcome the obstacle. It will therefore have to be examined in each individual case whether the epidemic could trigger the force majeure provision. 

If the force majeure provision under the statutory law is triggered, the defaulting party is released from its obligation to compensate damage resulting from its breach. It is however not released from its obligation to pay contractual penalties. Other rights and obligations of the parties arising from the breach or the rest of the contract are also not affected, and there are no price and time consequences. 

Please note that the contract for work can contain a different force majeure definition and consequences than the statutory law. Therefore, the contract for work should always be reviewed in order to assess each individual case.  

Under the statutory law – generally not. The Czech law does recognise situations when performance becomes impossible, the contract becomes frustrated and terminates automatically. However, the practical applicability of this provision in the given situation is questionable. A contract does not become frustrated if the affected party is able to fulfil its obligation later, which will likely be the case of the current epidemic.

Under another statutory law provision, if an unforeseen change in circumstances establishes a gross disproportion in the rights and obligations of the parties, the affected party is entitled to seek renegotiation of the existing contract or its cancellation. However, application of this statutory provision is often excluded in contracts for works.

For completeness, force majeure does not affect the non-defaulting party’s right to terminate the contract for the defaulting party’s breach under the statutory law.

Please note that the contract for work can contain a different termination provisions than the statutory law. Therefore, the contract for work should always be reviewed in order to assess each individual case.

As of now, there are no construction-specific COVID-19 regulations and the limitations arising from the general COVID-19 regulations have minimum direct impact on performance of construction works. As such, we do not consider such regulations to amount to change in law for purposes of the construction industry.

Foreigners, including potential construction workers, are currently generally forbidden from entering the Czech Republic. We are not aware of any additional issues. Nevertheless, the situation develops rapidly and the government adopts new measures on a daily basis. However, we do not expect any significant tightening of measures in the construction industry as the epidemic situation in the Czech Republic is starting to improve.