The reservation of separate ownership of machinery and other equipment is one of the lesser-known institutes of the Civil Code[1] (hereinafter referred to as “CC”). This legal instrument breaks the so-called superficies principle, which states that buildings and everything that is firmly connected to the land, such as objects embedded in the ground or attached to walls, are considered part of the land.
Legal basis and definition of the machine ownership reservation
The principle of “superficies solo cedit”[2] , as one of the most important principles of the CC, provides that a thing includes everything that belongs to it by its nature and that cannot be separated from the object without devaluing it.[3] The reservation of ownership of a machine provided for in section 508 of the CC is an exception to this principle in that it sets out the circumstances in which a machine does not become part of the immovable property. Specifically, a machine does not become part of immovable property if the immovable property is registered in the land register and, with the consent of its owner, a reservation that the owner of the immovable property is not the owner of the machine is also entered in that public register. A machine which, by attaching it to immovable property, would otherwise become part of it shall, where applicable, be considered a separate object in the legal sense. The superficial principle is broken by this procedure, since a state of separate ownership of the immovable and the machine which is attached to it is created.
As indicated by the above statutory provision of the CC, the reservation of ownership of a machine cannot be made if the property on which the machine is fixed has not been registered in the land register. This condition confirms the importance of the superficial principle in Czech law, since without the registration of the reservation of ownership of the machine in the land register it would not be possible to separate the ownership of the machine from the ownership of the land.
Concept of machine and other fixed equipment
A machine in the context of the institute of the reservation of ownership of a machine will be, in particular, a mechanical or electromechanical device used to convert one kind of energy into another kind of energy (e.g. a motor or solar panels) or to use energy to perform work (e.g. a production machine or a mining machine). The equipment will then be referred to in particular in the case of other technological apparatus or a system of machines (e.g. air conditioning and other air handling or production line);[4] for the purposes of this article, the machine and other fixed equipment are hereinafter collectively referred to as ‘machine‘ for clarity. Therefore, a machine is not a structure established on the land, but other equipment, distinct from a structure, which is fixed on the land and used in conjunction with the land or with a structure that is part of the land. A machine may be structurally incorporated into the land, but its very nature is not structural, so it is not, for example, a well which is a structural component of the land.
The attachment of the machine to the land or building does not necessarily have to be permanent, it can also be a loose connection, e.g. by means of screws. However, in the case of a releasable attachment, it is essential that the machine so attached is placed on the land for a long period of time and is strictly necessary for the use of the land or building in question.
The current legislation lacks the definition of precise criteria for determining when a machine is built into a property in such a way that its dismantling would lead to the devaluation of the property, which is, however, somewhat understandable given the wide variety of construction and technical solutions that can be used when installing a machine into a property. The case-law on the necessary definition therefore comes to the fore. In view of the scope and focus of this article, it is not its ambition to provide an extensive overview of the court case law and its development in this matter, however, at this point it is possible to mention at least the judgment of the Supreme Court of the Czech Republic of 1 September 2016, Case No. 20 Cdo 2736/2016, in which the court established two basic criteria to be followed in determining whether a machine is part of real estate, namely the criterion of mutual belonging of the things (subjective level) and the degree of their separability (objective level).
Entry of a note in the land register
The registration of the reservation of ownership of the machine in the land register is made by a note, not by an entry. The statutory provision governing the registration of the relevant note is contained in the Cadastral Act[5] and is further specified in the Cadastral Ordinance (hereinafter referred to as the “KatV”).[6] The two legal provisions together regulate the elements of the application for registration of a note on the reservation that a fixed machine or other fixed equipment is not part of the immovable property. The application must be accompanied by a joint declaration by the owner of the machine and the owner of the property containing:
(i) identification of the person who owns the property,
(ii) identification of the person who retains ownership of the machine,
(iii) marking of the mounted machine,
(iv) a declaration that the machine is the property of the person who retains ownership,
(v) a statement as to whether or not the machine was already connected to the property at the time of the application,
(vi) a statement as to whether or not it is replacing a machine that is part of the property, and
(vii) consent of the property owner to the entry of the note.[7]
The competent cadastral office will verify the authenticity of the signatures on the joint declaration as a private document. Typically, therefore, such a joint declaration should bear the officially authenticated signatures of the persons acting.
In the case of an encumbrance by a right in rem which may be curtailed by the registration of a reservation (typically in the case of a mortgagee in whose favour the lien encumbering the subject property is vested), the application for registration of the remark must also be accompanied by a declaration by the person entitled to the right in rem that he does not oppose the registration if the machine was already connected to the property at the time of filing the application or if the machine which was part of the property is being replaced by a new machine. This is a manifestation of the protection of the rights of third parties (typically for situations where the registration of the reservation of ownership of the machine would, for example, lead to the devaluation of the real estate as collateral).
The owner of the machine shall have the right to invoke his right relating to the machine as a separate thing in the legal sense. The entry of a reservation that the machine is not part of the immovable property may be made both before the machine is attached to the immovable property and after the machine has been attached to the immovable property.[8]
In the event that during the duration of the connection of the real estate and the machine, in respect of which a reservation is registered in the land register that it is not part of the real estate, the owner of such machine changes, the land register will register the change on the basis of the submission of a document proving the transfer or transfer of ownership of the machine (e.g. a purchase contract or a resolution on the acquisition of inheritance). However, if such a document does not contain all the information necessary for the registration of the change of note, the cadastral office will need to be presented with a declaration of consent from the previous owner of the machine and its new owner.[9]
The reservation of ownership of the machine can be subsequently deleted from the land register, both in the event that the owner of the property has also become the owner of the machine, in which case the machine subsequently becomes part of the immovable property and loses its ability to be an independent subject of legal relations. Similarly, the reservation of ownership of the machine will be deleted from the land register if the connection of the machine with the immovable property ceases (e.g. if the machine is removed). The cadastral office will delete the note on the basis of a document evidencing the above-described facts (e.g. a purchase contract or a court decision whereby the owner of the property becomes the owner of the machine, or a confirmation by the owner of the machine that the machine no longer exists).
Meaning of the machine ownership reservation entry
The main purpose of the institute of reservation of ownership of the machine and the related entry of the relevant note in the land register is to ensure that the machine, which would normally become part of the land by attaching it to the property, retains the status of a separate thing with a different legal regime. In practice, the reservation of ownership of the machine may be used, for example, in situations where the owner of the machine uses another owner’s real estate on the basis of a contract (e.g. lease or tenancy) and intends to attach his own machine to the used real estate in a way that would normally cause the legal merger of the machine with the real estate of another owner. This institute therefore prevents a potentially undesirable legal merger of the machine with the foreign property to which it is attached and thus protects the property right of the owner of the machine. The owner of the machine can continue to dispose of the machine as a separate asset, in particular to sell or pawn the machine, and can eventually separate it from the real estate again.[10]
At the same time, a clear determination of the legal regime of the fixed machine also reduces the risk of future legal disputes and doubts, for example in case of sale of the property or in case of bankruptcy of the property owner, with the associated risk of undesired inclusion of the machine in the property owner’s estate as an insolvent debtor. Moreover, the entry of a note on the reservation of ownership of the machine in the land register as a public list ensures the legal publicity of the entered data and thus the legal protection of the owner of the machine against third parties who are thus informed about the real owner of the machine and its legal regime.
Note on the right of construction
At this point, it should be noted that the reservation of ownership of the machine pursuant to Section 508 CC must be distinguished from another legal institute of the CC with a similar purpose, which is the right of construction.[11] The reservation of ownership of the machine is similar to the right of construction in that, inter alia, both institutes are exceptions to the above-mentioned principle of superficies solo cedit and both require registration in the land register, but their nature differs in important respects.
The right of construction is a legal institute that allows a building (typically a building) constructed on someone else’s land to be temporarily in the separate ownership of a person other than the landowner, who thus temporarily relinquishes ownership of the building (existing or future) on his or her land. The duration of the right to build is limited by law to 99 years[12] (whereas the duration of the reservation of ownership of a machine is not logically so limited by law).
The fundamental difference lies in the fact that the right to build is essentially dual in nature. It is a right in rem, i.e. as a set of rights of the builder to use the land, to build a building on it, to use the built building as its owner and, if necessary, to modify or remove the building. At the same time, however, the building right is a separate immovable property from the point of view of the CC.[13] The building itself, on the other hand, is not an independent thing in the legal sense.[14] Last but not least, it can also be noted that the reservation of ownership of machinery only applies to machinery or other equipment attached to the real estate. In contrast, the right to build refers to cases where a building is or is to be built on someone else’s land in the general sense of a concrete, tangible, compact and separable from the surroundings result of a human construction activity which has its own economic purpose.[15]
Conclusion
It can be summarized that the reservation of ownership of the machine and the related entry of the relevant note in the land register is a relatively effective and practical legal instrument, especially in relationships where the owner of the machine and the owner of the real estate are different persons, to prevent an undesirable merger of the ownership of the machine with the foreign real estate to which it is attached. At the same time, the necessary registration of the reservation of ownership of the machine in the land register provides the necessary legal publicity to the legal regime of the fixed machine and therefore also the protection of the owner of the machine against third parties in particular, and ultimately also serves to prevent any future legal disputes and doubts regarding the ownership of the machine.
Considering the fact that in the case of machinery, it can easily be a significant investment, any failure to address the legal regime of the machine being attached to someone else’s property can have significant negative legal and financial consequences for those involved, and especially for the owner of the machine. If you are in doubt about placing your own machine or other equipment on someone else’s property, we therefore strongly recommend that you consult a specialist beforehand.
Should you have any questions on this topic, please do not hesitate to contact us.
[1] Act No. 89/2012 Coll., Civil Code, as amended.
[2] Translated, „the surface gives way to the soil.“
[3] See Sec. 505 CC.
[4] For a definition of the terms machine and equipment in the meaning of Sec. 508 CC, see also PETROV, Jan, et al. Civil Code. Prague: C. H. Beck, 2023.
[5] Sec. 23(1)(p) of Act No. 256/2013 Coll., on the Land Register, as amended.
[6] Sec. 72 (4) of Decree No. 357/2013 Coll., on the Land Register, as amended.
[7] Ibid.
[8] The logical possibility of a later entry of a note follows already from Sec. 72(4) on the Land Register in the wording effective from 1 April 2017, which is also confirmed by the current practice of individual cadastral offices.
[9] The procedure according to the amendment to Sec. 72(5) of the CAT with effect from 1 January 2023 (Decree No. 346/2022 Coll.).
[10] Therefore, the reservation of ownership of the machine represents a potentially suitable institute for the treatment of legal relations in the construction and operation of a photovoltaic power plant on the land of another owner, as mentioned in one of our previous articles “Legal aspects of the implementation and operation of a photovoltaic power plant“.
[11] Regulated in Sec. 1240 et seq. of the CC.
[12] Sec. 1244 (1) CC.
[13] This logically defines also the possibilities of transfer or encumbrance of the building right and also its registration in the land register.
[14] For example, the object of sale can only be the right of construction as such, not the construction itself. The eventual termination of the building according to the same principle generally does not affect the duration of the right of construction.
[15] For more details on the right of construction, see Sec. 1240 et seq. of the CC and related interpretative literature (e.g. PETROV, Jan, et al. Civil Code. Prague: C. H. Beck, 2023).
JUDr. Miloš Kulda, Ph.D., attorney-at-law – kulda@plegal.cz
Mgr. Eliška Vítková, junior lawyer – vitkova@plegal.cz
15. 8. 2024