Selling flats in a bank-financed project: the pledge, releasing units and deletion

A development project financed by a bank loan rests on two interests that meet when the flats are sold. The bank wants the loan secured until it is repaid, and therefore takes a pledge over the land and the building. The buyer wants, for the purchase price, a flat free of third-party encumbrances, and its mortgage bank wants its own first-ranking pledge over the flat. If the developer’s loan and security documentation does not resolve that clash, the sale of each unit depends on an individual negotiation with the bank.

The pledge travels with the flat

A pledge may also be created over a flat that the pledgor will acquire in the future or that is yet to come into existence (Section 151d(4) of the Civil Code); such a pledge arises when the pledgor acquires title and is recorded in the Land Register as of that date (Section 151f(2) and (3)). A pledge over flats and real property arises upon entry in the Land Register (Section 151e(2)). On a transfer of a flat the following applies:

Where the pledged asset is transferred or passes to another person, the pledge takes effect against the acquirer of the pledged asset, unless the pledge agreement provides that the pledgor may transfer the pledged asset or part of it free of the pledge, or unless this Act or special legislation provides otherwise.

— Section 151h(1) of Act No. 40/1964 Coll. (unofficial English translation)

A buyer against whom the pledge takes effect must tolerate its enforcement (Section 151h(2)). Nor can the developer rely on the exception for a transfer of the pledged asset in the ordinary course of business within the scope of its business activity (Section 151h(3)). That exception does not extend to a pledge arising by registration in a special register (Section 151h(4)), and the Act counts entry of a pledge in the Land Register among such registrations (Section 151e(4)).

Three routes to a flat free of encumbrances

Release directly in the pledge agreement. The pledge agreement may provide that the pledgor may transfer part of the pledged asset free of the pledge; the pledge then lapses on transfer (Section 151md(1)(g)). For the sale of flats this is the most predictable solution, provided the agreement defines the conditions precisely: what part of the purchase price is to be paid to the bank, to which account, and what happens if the buyer pays partly by mortgage.

Waiver of the pledge over a unit. A pledge also lapses if the pledgee waives it (Section 151md(1)(c)). The bank may thus release an individual flat together with the corresponding share in the common parts and the land. Without a contractual undertaking, however, this depends on its decision in each individual case, which with dozens of flats feeds through into the sales schedule.

Repayment of the loan. A pledge also lapses on extinction of the secured claim (Section 151md(1)(a)). In a project that repays the loan gradually out of sales, this route only comes into play at the end.

Once the pledge has lapsed, it is deleted. The pledgee must file the application for deletion without undue delay, and the pledgor may also file it if it encloses an instrument from the pledgee evidencing that the pledge has lapsed (Section 151md(3)). The buyer acquires title to the flat as well as the co-ownership shares in the common parts and the land by entry in the Land Register (Section 5(4) of Act No. 182/1993 Coll.), so the release must cover that whole package, not merely the flat.

What to agree in the loan documentation

The release mechanism is easiest to negotiate before the term sheet and the loan agreement are signed. We recommend agreeing in particular:

• the amount the bank requires for the release of a unit, and how it is determined for flats, parking spaces and cellars,
• the bank’s undertaking to issue the instrument needed for deletion within a set period after the amount is credited, and its content suitable for the Land Register,
• the procedure for a buyer paying from a mortgage, including the order of entries and cooperation with its bank,
• release of the shares in the land and the common parts that pass together with the flat,
• the relationship with the project’s other creditors, for example holders of bonds secured over the same property.

What to reflect in the sale contracts

The purchase contracts and the contracts for a future purchase contract should be aligned with the loan documentation. The buyer should know that part of the price goes directly to the developer’s bank and that deletion will follow a predetermined procedure; the developer should be certain that the bank will adhere to that procedure. The perspective of a buyer purchasing a flat subject to the seller’s mortgage is examined in the article buying a property subject to the seller’s mortgage.

We prepare and negotiate the loan and security documentation, including the mechanism for releasing units, through the service financing development projects. We dovetail the sale contracts with it through the service selling flats in a development project.

How this will work under the new Civil Code

On 1 October 2026, the National Council of the Slovak Republic approved the new Slovak Civil Code, which will take effect on 1 July 2027. The mechanism described in this article remains in it. The pledge will be effective against the buyer of a flat, and the exception for the ordinary course of business will still not apply to a pledge registered in the Land Register. Release of the collateral by agreement, waiver of the pledge and repayment of the loan will all remain grounds for its extinction. It will also be possible to create a pledge over future flats.

Two new features are material for the loan documentation:

• Priority of the owners’ pledge. The statutory pledge of the other flat owners will always rank first, even without registration in the Land Register. It will take precedence over the buyers’ mortgages as well as over the bank’s pledge on flats that the developer has not yet sold. The new code does not repeal Act No. 182/1993 Coll., and for flats that came into existence before 1 July 2027 it is not certain whether the priority will apply.
• Encumbrances created after the bank’s pledge. Enforcement of the pledge should extinguish later pre-emption rights, real burdens and servitudes consisting in the use of the property, for example the buyers’ contractually created right to use parking spaces on the project land. The exceptions are rights that arose by operation of law or with the bank’s written consent. How this will be reconciled with the Voluntary Auctions Act, under which easements are not extinguished by an auction, is not yet certain.

Pledges created by 30 June 2027 will be assessed under the existing legislation until they cease to exist. The new rules will apply to security created later, for example on refinancing of the project.

If the project’s loan documentation extends beyond 1 July 2027, agree in it the bank’s written consent to the servitudes, real burdens and pre-emption rights that the developer will create on sale. For unsold flats, allow in the financing for the preferential satisfaction of the other flat owners’ claims; for existing flats and older pledges, however, no conclusion can be reached on this without assessing the transitional regime.

Status as of 22 October 2026: the act has been approved and was signed by the President on 20 October 2026, but has not yet been promulgated in the Collection of Laws. Until 30 June 2027, the rules described above in this article apply.