A reduction in the purchase price is one of the most frequently asserted remedies for defective performance. As a general rule, however, the Civil Code does not expressly prescribe how its amount is to be calculated (apart from the special rule governing consumer sales under Section 2171 of the Civil Code). The answer has therefore been developed in case law, which in recent years has better clarified both the substantive criteria and the evidentiary requirements. In sales of real estate, that case law makes clear above all that a price reduction cannot automatically be equated with the cost of repairs. Its amount must restore the balance between the purchase price actually agreed and the value of the defective performance.
Principles for Determining a Reasonable Price Reduction
The right to a reasonable reduction in the purchase price in the event of a substantial breach of contract is governed by Section 2106(1)(c) of Act No. 89/2012 Coll., the Civil Code, as amended (the “Civil Code”), and, in the event of a non-substantial breach, by Section 2107(1) of the Civil Code. If the breach is substantial, the buyer may choose between delivery of a replacement item, repair, a price reduction and withdrawal from the contract, and must notify the seller of its choice when notifying the defect or without undue delay thereafter. If the breach is non-substantial, the buyer is entitled to have the defect remedied or to receive a reasonable price reduction; a right to withdraw may arise subsequently under the conditions set out in Section 2107(3) of the Civil Code. A price reduction is particularly relevant where the buyer wishes to retain the property notwithstanding the defect. In both cases, its amount is determined by reference to the same basic criteria.
In its judgment of 19 April 2022, Case No. 23 Cdo 2042/2020 (R 98/2022), the Czech Supreme Court defined the purpose of a price reduction as restoring the disturbed equivalence of the parties’ reciprocal performances, rather than compensating the buyer for loss suffered.[1] In return for the agreed price, the buyer is entitled to receive performance free from defects. If the performance is defective, the price reduction must offset the difference between what was agreed and what the buyer actually received; it must not place the buyer in a better position than under the contract. This conclusion has also been followed in the Court’s subsequent case law, including its judgment in Case No. 23 Cdo 201/2024.
The current approach therefore differs from the case law concerning Section 439(1) of the former Commercial Code, under which the price reduction corresponded to the simple difference between the value of an item free from defects and the value of the item delivered with defects. Section 2106 of the Civil Code contains no such rule. It is a legal provision with a relatively indeterminate hypothesis, the content of which must be determined by the court in each case by reference to all relevant circumstances.
In its judgment of 4 June 2024, Case No. 23 Cdo 1207/2023, the Czech Supreme Court identified the relevant considerations as including, in particular, the nature and extent of the defect in relation to the agreed price, the reduction in the item’s functional qualities and aesthetic value, any restrictions on or complications in its use, the impact on its useful life, and the necessary repair costs.[2] The amount of the price reduction therefore cannot simply be taken from a repair estimate, nor can it always be determined solely as the absolute difference between market values. In the case of an older property, for example, a repair may extend its useful life beyond what was originally expected. The outcome is also affected by whether the property was sold at, below or above its usual value, because the price reduction must restore the value of the performance agreed between the particular parties.
The Relative Proportional Method and Its Limits
The Czech Supreme Court formulated a more specific calculation method, in particular, in its judgment of 25 June 2025, Case No. 23 Cdo 2666/2024.[3] The relative proportional method formulated by the Court is based on the ratio between the usual values of the defective and defect-free property. The usual value of the defective property is divided by the usual value of the property free from defects. That ratio is applied to the purchase price actually agreed, and the resulting proportionate value of the defective performance is deducted from the purchase price actually agreed. The method therefore reflects not only the objective reduction in value, but also the price agreed by the parties. If the property was sold below its usual value, the price reduction will be proportionately lower; if it was sold above its usual value, the opposite will apply.
The calculation itself can be illustrated by a simple example. If a defect-free property has a usual value of CZK 10 million, the defective property has a usual value of CZK 8 million, and the agreed purchase price is CZK 9 million, the defective property represents 80% of the value of the defect-free property. The proportionate value of the agreed performance is therefore CZK 7.2 million and the price reduction is CZK 1.8 million. If the purchase price were CZK 12 million, the same ratio would result in a price reduction of CZK 2.4 million. This difference demonstrates that the method protects the equivalence of the specific contract rather than an abstract “correct” market price. This is merely an illustrative theoretical example of the calculation method and does not take into account the particular circumstances of each case, which will necessarily remain relevant when determining whether the price reduction is reasonable.
The relative proportional method is therefore the primary, but not the only possible approach. The Czech Supreme Court’s recent judgment of 30 June 2026, Case No. 23 Cdo 2428/2025, essentially confirmed this line while emphasising the importance of the factual basis.[4] The value of the property in both conditions, with and without the defect, is crucial to the relative proportional method and remains relevant even if another method is used.
A different approach may be adopted where it is justified by the circumstances of the case and it can be convincingly explained why it best restores the balance between the parties’ performances. According to the Czech Supreme Court’s order in Case No. 33 Cdo 663/2022, the price reduction may in some cases correspond solely to the cost of repairs (the case concerned insufficient masonry thickness).[5] The Czech Supreme Court also reiterated the absence of a single generally applicable rule in its orders in Cases Nos. 33 Cdo 4442/2018 and 23 Cdo 3714/2022.
A distinction must also be drawn between a price reduction and damages under Section 2913 et seq. of the Civil Code. The reduction in value inherent in the defective performance itself is addressed through the remedies for defective performance (Section 1925 of the Civil Code). Additional and separate loss caused by the breach of contract may potentially be recoverable as damages if the statutory conditions are met. If reasonably and foreseeably incurred costs of remedying the defect exceed the reasonable price reduction and the liable party has refused to remedy the defect, the difference could, in theory, constitute a separately compensable loss under the case law concerning the previous legislation (see the decision in Case No. 32 Cdo 4980/2014). Whether this is so depends on the circumstances of the particular case (see also the decision in Case No. 33 Cdo 1958/2020), although pursuing such an additional claim may involve considerable difficulty in practice. The individual claims should therefore be separated in both the factual allegations and the evidence.
Evidence and Practical Implications in Court Proceedings
An expert opinion will generally be required to establish the value of the property with and without the defect (see the decisions in Cases Nos. 23 Cdo 5234/2015 and 23 Cdo 1299/2008). The expert does not, however, determine the “reasonable price reduction” itself. Reasonableness is a question of law for the court to decide (see the decision in Case No. 33 Odo 557/2004). The expert’s role is to provide the necessary technical findings: to value the property in both conditions and, where appropriate, to quantify the cost of remedying the defect or its effect on useful life, functionality and use. The court then selects the appropriate method and determines the amount of the price reduction on the basis of those findings and the other circumstances.
As a rule, the court may determine the amount of the claim at its discretion under Section 136 of Act No. 99/1963 Coll., the Code of Civil Procedure, as amended, only where that amount cannot be established at all or can be established only with disproportionate difficulty. The court must therefore first use the available expert evidence or, where appropriate, a qualified expert estimate (see the decisions in Cases Nos. 32 Cdo 4980/2014 and 33 Cdo 514/2022). The questions put to the expert should reflect this distinction: the expert should establish the relevant economic and technical facts, not reach a legal conclusion on the final amount of the price reduction.
The importance of evidence is apparent from the first-instance stage of the proceedings. The identification of the relevant circumstances and the assessment of reasonableness are primarily matters for the lower courts. A party claiming a price reduction therefore cannot merely allege the existence of a defect and submit a repair estimate. It should plead and prove in due time the other relevant circumstances, including, in particular, the age and technical condition of the property, its expected useful life, the specific restrictions on its use, any increase in value resulting from the repair, and the relationship between the agreed price and the usual value. These factual findings enable the court to explain why it applied the relative proportional method or why it departed from that method in the particular case.
Conclusion
Determining a reasonable price reduction will inevitably involve a degree of assessment and can be a rather challenging task. It is nevertheless a positive development that recent Czech Supreme Court case law has provided a more predictable framework for determining a reasonable price reduction through the relative proportional method, which is based on the ratio between the usual values of the defective and defect-free property. The method is not a universal formula, but rather a practical guide to approaching the issue, without excluding other methods, where justified by the circumstances of the particular case. It must also be recognised that repair costs remain an important consideration, but do not, without further ado, usually determine the outcome when assessing a reasonable price reduction.
If you have any questions regarding real estate law or remedies for defective performance, we at PEYTON legal are available to assist you.
[1] Judgment of the Czech Supreme Court of 19 April 2022, Case No. 23 Cdo 2042/2020.
[2] Judgment of the Czech Supreme Court of 4 June 2024, Case No. 23 Cdo 1207/2023.
[3] Judgment of the Czech Supreme Court of 25 June 2025, Case No. 23 Cdo 2666/2024.
[4] Judgment of the Czech Supreme Court of 30 June 2026, Case No. 23 Cdo 2428/2025.
[5] Order of the Czech Supreme Court of 20 April 2022, Case No. 33 Cdo 663/2022.
JUDr. Miloš Kulda, Ph.D., attorney — kulda@plegal.cz
Natálie Grospičová, legal assistant — grospicova@plegal.cz
1. 10. 2026