Hungary: Real Estate

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This country-specific Q&A provides an overview to real estate laws and regulations that may occur in the Hungary.

It will cover the most pertinent issues including ownership structures, restrictions, transfers, taxes and environmental contamination.

This Q&A is part of the global guide to Real Estate. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/real-estate

 

  1. Overview

    The real estate regime of Hungary is primarily based on civil law (the Civil Code), legislation relating to the land registry and construction, as well as relevant court decisions. In the past 30 years, the legal regime has been changed and consolidated several times in an attempt to accommodate the needs of modern business practices. Relatively few pieces of EU legislation apply to real estate in Hungary.

  2. How is ownership of real estate proved?

    All real properties located in Hungary are registered in the centrally organized land registry system, which is supervised by the Ministry of Agriculture. The land registry system is composed of district land registry offices, which separately maintain local land registers for each village, town, and for the Budapest districts.

    The land registry is responsible for registering, maintaining and updating the physical and legal data of all Hungarian real properties, including their basic physical characteristics, their cadastral maps, the rights and obligations as well as the relevant legal facts relating to the properties. All real properties are given a so-called “topographical lot number", by which they are registered in the land registry system.

    Important principles of the land registry include that it is open to the public (i.e. “public access”) and that it authentically proves the accuracy of the registered information / rights / facts (i.e. “public credibility”), and as a result, it protects the rights of a good faith party, obtaining rights over a real property based on the information registered in the land registry. Based on the principle of “public access”, the main data kept by the land registry on the so called “property sheets” for all real properties, is accessible for anyone on a paper-based or digital format. Hungarian-language property sheets and maps can be obtained electronically via the land registry’s internet page, however, a subscription agreement must be in place for the use of such electronic database services. The property sheets comprises of three sections as follows: (i) basic physical data of the real property, such as address, area, function, classification of use; (ii) data on (past and present) owners, including the date and legal title of acquiring ownership and (iii) data of (past and present) encumbrances registered onto the real property. In addition, the cadastral map of the real properties can also be requested in a paper or digital form.

    Under the principle of public credibility, all rights and facts registered in the land registry shall be deemed to validly exist, unless proven to the contrary (i.e. the registration is definitive proof, but it is possible to overrule the rights registered in the land registry). In case of acquisition of ownership outside the land registry (e.g. by way of succession, marital common property, building on extraneous land, etc.) the ownership title of those who acquired ownership on a “quid pro quo” basis and in good faith are protected against the ownership claims of those who acquired ownership outside the land registry. If an underlying transaction (e.g. sale and purchase agreement) is deemed invalid by the court, the ownership title based on the invalid registration is deleted from the land registry and the original ownership title is reinstated.

  3. Are there any restrictions on who can own real estate?

    1. Restriction of ownership of foreign entities and individuals

    In general, the following parties may acquire real property without restrictions:

    - citizens of the EU / EEA, legal entities, organisations without legal personality registered in the EU / EEA;

    - individuals with dual citizenship (one of them being Hungarian citizenship), and citizens of Switzerland;

    - individuals acquiring ownership by way of succession, regardless of citizenship;

    - Hungarian branch offices of foreign enterprises registered outside the EU / EEA in case there is reciprocity between Hungary and such foreign country.

    Acquisition of real property by other parties is subject to the approval of the territorially competent government bureau. The approval is granted if the acquisition of the real property does not constitute harm to local government or other public interests, or in case the foreign person wishes to live permanently and to pursue economic activity in Hungary, for which economic activity the acquisition of real property is required, and the acquisition of real property does not constitute an injury to public interests. Even if these conditions are met, the approval may be refused if the state of which the foreign person is a national does not provide equal treatment to Hungarian nationals under an international convention or reciprocity, except if the purpose of acquisition is to cease common ownership, or the foreign person has verifiably been residing and living in Hungary for a period of no less than five years, out of which the foreign person was employed for at least three years.

    The above approval procedure does not apply to Hungarian companies established by foreign investors. Foreign persons may also opt for leasing real estate, which is not subject to the approval procedure.

    2. Restriction of ownership of agricultural land

    In general, only private individuals with Hungarian or other EU citizenship may acquire real properties qualifying as agricultural land. Furthermore, private individuals who do not qualify as farmers, may acquire agricultural land up to maximum one hectare. The acquisition limit of private individuals qualifying as farmers is 300 hectares. Notwithstanding the above, it is accepted by court practice for a legal entity to enter into a preliminary sale and purchase agreement with the seller promising to sell and the buyer promising to buy a real property once it is exempted from agricultural cultivation.

    Agricultural land may be reclassified to an “exempted area” (i.e. area exempted from agricultural cultivation), in an administrative procedure by providing adequate justification for the reclassification. During the procedure a one-time land protection fee is required to be paid, the amount of which depends on the area in question, as well as on the quality of the agricultural land to be reclassified. Following reclassification industrial or commercial activity can be performed on the real property and the restrictions on the transfer of ownership no longer apply, i.e. the ownership of such land can be transferred to a legal entity.

  4. What types of proprietary interests in real estate can be created?

    1. Rights that may be registered in the land registry

    The following rights may be registered in the land registry (thereby creating in rem protection):

    a) ownership title (in respect of the entire real property or a specific ownership ratio, thereby creating joint ownership);

    b) asset management right in respect of state-owned or local municipality-owned real property (in respect of the entire real property, or a specific ratio, or specific area thereof) ;

    c) permanent right of use for members of housing cooperatives (in respect of the entire apartment) ;

    d) land use right on the basis of agreement or court decision (in respect of the entire real property, or a specific area thereof) ;

    e) usufruct (in respect of the entire real property, or a specific ratio or specific area thereof) ;
    f) right of use (in respect of the entire real property, or specific area thereof) ;

    g) easement rights (in respect of the entire real property, or specific area thereof) ;

    h) public interest usage rights, e.g. cable rights, right of use for the placement of power supply equipment, water drainage and mining easement rights (in respect of the entire real property, or a specific area thereof) ;

    i) right of first refusal and right of repurchase, option to buy and the right to sell (in respect of the entire real property or a specific ownership ratio, may be established for a definite period of time) ;

    j) right of support and life annuity (in respect of the entire real property or a specific ownership ratio) ;

    k) mortgage, independent lien, including converted independent liens (in respect of the entire real property or a specific ownership ratio) ;

    l) enforcement right (in respect of the entire real property or a specific ownership ratio).

    There are other rights and proprietary interests that may be created with respect to a real restate (such as the right to lease), but those cannot be registered in the land registry.

    2. Facts that may be recorded in the land registry

    Only the following property-related facts may be recorded in the real estate register:

    a) an indication that the right-holder is a minor, placed under conservatorship;

    b) an indication that the right-holder is undergoing liquidation, dissolution;

    c) removal of a branch or representative office of a foreign-registered company from the register of companies;

    d) commencement of expropriation proceedings;

    e) commencement of parcel reconfiguration proceedings;

    f) commencement of land survey and mapping procedures, or procedures for correcting errors in area calculations;

    g) commencement of land classification procedures;

    h) filing of an appeal, prosecutor’s intervention, prosecutorial action, supervisory action against a resolution of the land registry office;

    i) a petition filed for judicial review of a court decision or an application for revision, serving as basis for or related to registration, recording or data update;

    j) the legal character of the real property;

    k) dismissal of an application or request for registration, recording or data update;

    l) construction or demolition of a superstructure;

    m) suspension of land registry proceedings;

    n) the extent and nature of permanent environmental damage established by definitive administrative decision or final court ruling;

    o) restriction of ownership title based on a court decision;

    p) ban on parcel reconfiguration and construction, and other construction-related restrictions imposed on the basis of court or regulatory decision, any mandatory construction order provided for in the Act on the Formation and Protection of the Built Environment, and obligations relating to zoning on the basis of decisions adopted within local jurisdiction or under administrative agreement;

    q) on the basis of contract or testamentary disposition, or on the basis of court or regulatory decision: restraint on alienation and encumbrance, restraint on alienation, other restrictions relating to the right of disposition;

    r) commencement of lawsuits or criminal proceedings specified in the Land Registry Act;

    s) scheduling of an auction or public offering;

    t) attachment, sequestration, and the freezing of assets in connection with the implementation of restrictive measures imposed by the EU and the UN Security Council relating to liquid assets and other financial interests;

    u) sale with retention of title;

    v) prior ranking arrangement for mortgage (independent lien);

    w) waiver of the right of disposition of prior ranking arrangement for mortgage;

    x) alteration of ranking;

    y) the approval or amendment of the bylaws subject to the affirmative vote by the majority of all unit owners representing at least two-thirds of the entire ownership share concerning the transfer of common property under the Condominium Act, including the time when adopted or amended;

    z) the opening of probate proceedings, if reiterated according to the Land Registry Act;

    aa) land use rights exercised under contract;

    bb) ownership rights on assets managed under fiduciary asset management contract;
    cc) submission of a contract for the transfer of ownership of land;

    dd) financial leasing arrangements;

    ee) national monument;

    ff) historical monument;

    gg) debt consolidation procedures opened in respect of right-holder natural persons;

    hh) termination of proceedings.

    Failure to register the facts described in points a)-n) and ee)-hh) above shall have no bearing on the legal effect of such facts. In the event of failure to register the facts described in points o)-dd) above, the right-holder of record may not enforce them against a bona fide third party making the acquisition for consideration.

  5. Is ownership of real estate and the buildings on it separate?

    As a general rule, ownership of a superstructure belongs to the owner of the underlying land. Nonetheless, the developer of the superstructure and the land owner may conclude a written agreement in order to establish the developer’s separate ownership right over the superstructure. In this agreement, it is recommended to regulate the land use right of the owner of the superstructure.

    In addition, at the discretion of the real property owner, the superstructure and the land on which it stands may be entered in the real estate register as separate properties.

  6. What are common ownership structures for ownership of commercial real estate?

    Commercial real estate in Hungary is typically owned by Hungarian registered limited liability companies (Kft.) and private or public companies limited by shares (Zrt., Nyrt.). These business forms are primarily chosen from a legal perspective (due to their liability being limited in general).

    From a tax perspective, there is no difference between the said entities. However, special vehicles, such as real estate investment trusts and real estate funds benefit from corporate income tax exemption and lower real estate transfer tax rate.

  7. What is the usual legal due diligence process that is undertaken when acquiring commercial real estate?

    • the form of due diligence that is undertaken e.g. is there a market standard form of reporting that is used?
    • who is responsible for the legal due diligence e.g. is it counsel acting for the purchaser and/or does a notary carry out any of the legal due diligence?
    • what types of searches (if any) are undertaken and what do they reveal, are there material costs associated with these searches and how long do they typically take to obtain?
    • are there standard forms of enquiries that are usually raised by a purchaser of a seller?
    • is it usual for a seller of real estate in your jurisdiction to provide any warranty cover in relation to legal title of the seller to the real estate that it is selling?

    For sales of commercial real estate usually the buyer’s lawyer will perform a legal due diligence, however it is not uncommon, especially if real estate portfolios are considered to be sold, that the seller performs a preliminary vendor due diligence to eliminate those items which can uphold the acquisition process (e.g. correction of not up-to-date registration details etc.). The seller’s due diligence, if preformed, is a preparatory step and does not substitute the buyer’s legal due diligence process.

    There is no standard form of due diligence or reporting, but the buyer’s lawyer usually provides a seller with an information request list on the information/documents that needs to be reviewed. The areas of review in case of an asset deal usually covers the following main areas: title (including encumbrances and easements), permits (that the respective buildings have all the necessary building and occupancy permits), zoning, leasing and operating agreements, environmental and real estate related litigation. If the deal is performed through a share deal or financing is involved, the areas are to be reviewed are more extensive (including but not limited corporate, employment, financing and tax matters). Within the scope of the legal due diligence, the buyer’s lawyer will perform separate title check by reviewing the land registry sheets and land registry maps (which can be obtained online from the land registry system for nominal costs); the rest of the documentation, such as the former property sale and purchase agreements use agreements shall be provided by the seller and reviewed in the due diligence process, as these documents are not publicly available.

    The legal due diligence is usually performed in parallel with technical and financial due diligence and the necessary time very much depends on the volume of the documentation and the structuring and compilation of the data room.

    The seller provides warranty for legal title in case of sale of real estate and the land registry data is publicly available and can be relied on (please also see answer to Q2).

  8. What legal issues (if any) cannot be covered by usual legal due diligence?

    The actual size and exact location of the real estate shall be verified a surveyor (i.e. whether registered data is in line with actual status).

    Rights that are not registered with the land registry are requested in course of the due diligence and warranties shall is also be given that the provided information is true and complete. Environmental and regulatory matters are typically limited to the knowledge of the seller and technical matters fall rather within the scope of technical due diligence.

  9. What is the usual process for transfer of commercial real estate?

    Transaction Steps

    Seller

    Buyer

    Comments

    Head of Terms (“HoT”) or Letter of intent (“LoI”)

    ·         Preparation of a teaser on the property

    ·         Preparation and negotiation of HoT (or LoI)

    ·         preparation and negotiation of HoT (or LoI)

    ·         preliminary searches and site visits, if possible under the teaser

    ·         HoT (or LoI) is not binding save for exclusivity and confidentiality clauses

    ·         by signing the HoT, access to the data room (usually virtual data room) is granted

    Preparation of the sale and purchase agreement and ancillary documents

    ·         preparation and negotiation of draft sale and purchase agreement (if separate transfer deed is used, the transfer deed);

    ·         preparation of ancillary documents (escrow agreement, especially if signing-closing separates, transfer of service agreements)

    ·         carrying out legal due diligence;

    ·         carrying out technical, financial due diligence and land/technical surveys, site visits, if applicable,

    ·         negotiation of the sale and purchase agreement and ancillary documents

    ·         No prescribed form of agreement;

    ·         in case of asset sale, the property sale and purchase agreement or transfer deed shall be submitted to the land registry, therefore certain formal requirements (Hungarian language, lawyers countersignature) shall be met

    Signing to Closing

    ·         At signing placing into escrow registration consents (if applicable)

    ·         Satisfaction of any conditions to closing

    ·         agreement with existing lender on the release of securities (if applicable)

    ·         Competition Authority’s approval (if applicable)

    ·         obtaining zero certificates from the tax authorities that there is no outstanding tax or public duty payments

    ·         payment of deposit to the seller or to an escrow account (if applicable)

    ·         Arrangement on purchase price funding (including third party debt) (if applicable)

    ·         Satisfaction of any conditions to closing

    ·         A deposit of up to 10% of the purchase price is typically paid on signing, which will be forfeited if the buyer fails to complete sale and if it works as an earnest money, the double shall be paid back by the seller if failure to close is attributable to the seller

    Closing

    ·         Repayment of any existing debt and discharge of mortgage (if applicable)

    ·         Releasing or instructing the escrow agent to release the registration consents (if applicable)

    ·         Execution of transfer deed

    ·         Payment of purchase price

    ·         Instruction of the escrow agent to release the deposit to the seller (if applicable)

    ·         The releases of existing mortgages may need to be submitted on or prior to Closing

    Post-closing

    ·         Transfer of tenants’ security deposits to the buyer (if applicable)

    ·         Co-operation on informing the tenants on the transfer of ownership

    ·         Termination of remaining service agreements, not transferred to the buyer;

    ·         Reconciliation with paid rents and service charges with the buyer

    ·         Payment of stamp duty land tax

    ·         Registration of transfer at land registry

    ·         Reconciliation with paid rents and service charges with the seller

    ·         Maximum Land Registry registration fee £910

    ·         For stamp duty, please see answer to Q14

  10. Is it common for commercial real estate transfers to be effected by way of share transfer as well as asset transfer?

    Real estates are commonly held through entities specially formed for this purpose and there could be advantages of transferring the interests in those entities, rather than the underlying real estate (for example, pre-emption right connected solely to the sale of real estate can be avoided; there could be operating agreements that shall not be transferred separately; or there could be loss carry forward in the property holding company that could be used up by the future owner), but there can be also risks linked to historical liabilities (for example tax risk), therefore applying a share or asset deal must be decided on a case by case basis. Please note that in general, the payment of property transfer tax cannot be avoided with the transfer of the property holding company instead of a direct asset sale).

  11. On the sale of interests in land does the benefit of any occupational leases and income automatically transfer?

    Yes, no formalities are required beyond the registration of the ownership change, but the tenants needs to be informed on the ownership change.

  12. What common rights, interests and burdens can be created or attach over real estate and how are these protected?

    There are a wide variety of rights, interest and burdens can be created or attached to the real estate. The main categories of these common rights, interests and burdens are:

    • rights, interest and burdens existing by a virtue of law (and usually, but not always registered with the land registry), such as rights/burdens relating to cultural heritage or archaeological protection;
    • right, interests burdens that can be and are registered in the land register: easements (for example line easements, right to trespass the property), mortgages, option rights, restrictions to sell or encumber the property, litigations affecting the property (please also see answer to Q4);
    • right, interests burdens that cannot be registered with the land registry but transferred together with the transfer of the real estate, such as leases which are typical example that fall in this category.

    If a right, interest or burden can be registered at the land registry the registration is required in order to be protected, however, as mentioned in the answer to Q8 above, the non-registered rights may be relevant and leases are non-registerable, therefore requesting full disclosure with respect to these matters is inevitable in the course of a due diligence process.

    In respect of rights that may be registered and facts that may be recorded in the land register, please refer to our answer to Q4.

  13. Are split legal and beneficial ownership of real estate (i.e. trust structures) recognised

    • are legal and beneficial interests capable of registration; and
    • is a third party able to deal with just the registered legal owner of real estate without having to enquire about any beneficial ownership?

    Under Hungarian law the split of legal and beneficial ownership of a real estate (i.e. these types of trust structures) is not recognised.

    The law recognises acquisition of a real property outside the framework of land registry, e.g. by way of succession, marital common property, building on extraneous land, etc. In such cases, the ownership title is created not as a result of the registration into the land registry, but by the underlying event (e.g. succession, construction). Such parties may claim that their ownership title be registered in the land registry. Acquisition under the legal title of sale and purchase may only be created by way of registration, within the framework of land registry.

    The ownership title of those who acquired ownership on a “quid pro quo” basis and in good faith (trusting the authenticity of the land registry, the rights registered and facts recorded therein) enjoy in rem protection against the ownership claims of those who acquired ownership outside the land registry.

  14. What are the main taxes associated with commercial real estate ownership and transfer of commercial real estate?

    Transfer tax

    As a general rule, the buyer of the real estate shall pay transfer tax on the acquisition of real estate for consideration. The general tax rate is 4% up to HUF 1 billion (EUR approx. 3.1 million) of the market value of the real estate and 2% on the excess, however, the total payable transfer tax shall not exceed HUF 200 million (approx. EUR 625,000) per real estate (i.e. per topographical plot number).

    Transfer tax shall also be payable for the acquisition of shares in a real estate holding company if the ownership ratio of the buyer reaches 75% of the company’s total shares. Shares of related parties and close relatives shall also be calculated for this threshold. The amount of transfer tax liability shall be calculated in respect of each real estate held by the company separately under the above rules. Real estate holding company is a company (i) in the balance sheet of which Hungarian real estate make up more than 75% of the value of total assets; or (ii) which owns more than 75% participation, directly or indirectly, in a company fulfilling the condition under (i).

    Discounted transfer tax rate (flat 2%) may be applied for acquisition of real estate by real estate funds, credit institutions, real estate traders or REITs. The HUF 200 million cap of transfer tax liability does not apply in these cases.

    Various exemptions from transfer tax are also available; for example, no transfer tax is payable if the transfer takes place between related parties, or by a preferred transformation, exchange of shares or transfer of business; in all cases subject to further conditions.

    VAT

    In general, the sale of real estate is exempt from VAT under the Hungarian VAT Act. However, the seller can opt for taxation, where such sales will be subject to reverse charge, i.e. the buyer shall assess and pay the VAT to the tax authority, the general VAT rate being 27%.
    New real property (i.e. which has not been occupied or less than 2 years have been passed since its occupancy or development) and building plot is excluded from this exemption and the reverse charge regime, therefore their sale is subject to VAT at the rate of 27% which shall be charged by the seller to the buyer.

    A preferential 5% VAT rate shall be applied until 31 December 2019 for the sale of (i) residential units in a multi-unit residential building having a total net floor space not exceeding 150 square meters and (ii) single-unit residential units having a total net floor space not exceeding 300 square meters. The preferential VAT rate is prolonged until 31 December 2023 provided that building permit had been obtained until 1 November 2018.

    Personal income tax

    If a private individual sells real estate, his/her income (the revenue less deductible costs, e.g. acquisition costs) is taxable at 15% personal income tax rate. The taxable income is gradually decreasing by each year from the acquisition, becoming tax exempt by the fifth year. If the private individual sells the real estate in the scope of its business activities, the tax liability shall be assessed under different rules, depending on the form in which the private individual pursues its business activity.

    Local real property taxes

    Real property tax on buildings and building plots can be imposed by the local municipalities within the confines of the act on local taxes. The tax is payable on a semi-annual basis by the person registered as owner on the first day of the tax year.

    The maximum rates local municipalities can impose in 2018 are (i) in case of buildings, HUF 1,854 (approx. EUR 6) per sqm or 3.6% of the adjusted market value of the building and (ii) in case of building plots, HUF 337 (approx. EUR 1) per sqm or 3% of the adjusted market value of the building plot.

  15. What are common terms of commercial leases and are there regulatory controls on the terms of leases?

    • whether the form of leases is prescribed or codified in any way
    • rent: the most common basis for rent e.g. fixed rent or turnover rent; how increases in rent are usually determined e.g. fixed increases or market rental increases; any restrictions on the level of rent that can be charged or on increases in rent
    • transfers and sub-letting: are tenants commonly allowed to transfer or sub-let their interests?
    • renewal and termination rights
    • are tenants commonly responsible for all costs of the leased property ("FRI" – full repairing and insuring leases) or are there some costs which cannot be passed down by a landlord to its tenant?

    Under Hungarian law the lease agreements for real property shall be in written form. Hungarian language is not a requirement for such agreements, however, for practical reasons most commercial lease agreements are in in English/German-Hungarian bilingual format. The law does not prescribe any registration of commercial leases in the Land Registry. Apart from the mandatory legal regulation on the written form, the principle of freedom of contract is generally applicable to commercial leases.

    The rent is usually determined as fixed rent, with the exception of the lease of retail units, in which case the combined use of a base rent and a turnover rent is general. The rent is typically determined and calculated in EUR, while its payment might be made in EUR or in HUF, depending on the parties’ agreement. The rent is universally indexed annually either based on the yearly HICP euro zone index (MUICP) or the yearly HICP EU 28 index.
    Indexation by a fixed rate annually, or restrictions on the level of indexations, although not unseen in the market, are rare. A rent discount is often awarded to the tenant as a commercial incentive.

    Tenants are generally responsible for all costs (covering from 1-12 months, depending of the type of the leased premises and the lengths of the lease term) incurred in connection with the upkeep and operation of the leased property. This shall not be applicable, however, to proportionate costs of any vacant premises within the leased property or to any services which serve exclusively a limited number of tenants. Capital expenditure items are also excluded from the costs paid by the tenants.

    Lease agreements generally require the provision of security by the tenant, ranging from a 3 to 6-month amount of rent and service charges, depending on the real property’s function and the parties’ agreement. The security is generally provided in the form of cash deposit, bank guarantee or mother company / third party guarantee undertaking.

    Lease agreements are either concluded for a definite or an indefinite period of time. Commercial leases are typically to fixed term. Unless otherwise agreed, lease agreements with a definite term can only be terminated prior to the expiry of such term for good reason. Termination rights of the tenant are typically limited: in general, the tenant is entitled to terminate the lease if the leased premises is unfit for proper use for a longer period of time (45-60 days) and the landlord fails to remedy the defect (30-60 days from the tenant’s notification). In contrast, the landlord’s termination rights are much broader: usually the breach of a major obligation of the tenant serves as termination cause (e.g. breaching obligations concerning payment, provision / supplementation of security, taking out the prescribed insurance, or damaging the leased property), but it is generally prescribed that the landlord is obliged to provide an opportunity for the tenant to remedy the breach before terminating the lease.

    Hungarian law prescribes that if the tenant keeps using the leased property after the expiration of the definite lease term and the landlord does not object to such use, then the lease continues as an indefinite lease relationship. The application of this legal regulation is often excluded in definite-term commercial lease contracts.

    Lease agreements with an indefinite term can be terminated by notifying the other party in advance, in accordance with the relevant notice period specified in the given lease agreement.

    Lease agreements do not terminate automatically if the ownership of the real property subject to the lease is transferred. In such case the buyer automatically becomes the landlord of the lease under the same conditions as set forth in the lease agreement, and may not terminate such agreement, except if the tenant provided false information to the buyer in respect of the existence or the material terms of the lease (please see answer to Q11).

    Lease agreements can be renewed unilaterally only in case it is explicitly agreed in the lease agreement. Tenants may require such unilateral extension right, typically for 3-5 year terms. If the lease agreement is extended, the prevailing terms (at the time of the original term expiry) are applicable.

    Transfer of the lease agreement or sub-letting the leased premises are typically subject to the landlord’s prior written consent. A common exception is transferring / sub-letting to a company belonging to the tenant’s company group, with a simultaneous notification to the landlord. Commercial leases show a variety of definitions of ‘company group’ and might include safeguards and controls for the landlord ensuring that within the company group, the agreement is transferred to a company which is well-funded.

  16. How are use, planning and zoning restrictions on real estate regulated?

    The general sources of law in this regard are the Construction Act (Act LXXVIII of 1997) and Government Decree No. 253/1997 on the National Settlement and Building Requirements (in Hungarian: OTÉK). These primary sources of zoning laws apply throughout the entire country.

    Based on these primary sources, local governments / municipalities must adopt their own structural plans, zoning maps and local building and townscape codes applicable to the area of the given municipality. Consequently, the specific building regulations and zoning plans are passed on the local level.

    The framework of the zoning and building regulation is set forth in the Building Act (Act LXXVIII of 1997), and Government Decree 253/1997 (XII. 20) on Zoning and Construction Requirements. In addition, local municipalities are entitled to regulate and further specify their zoning and building provisions within the framework of and in compliance with the national regulation.

    General rules on the protection of environment are set forth in Act LVIII of 1995 on the Protection of Environment. Vertical environmental rules are also stipulated in several other acts and decrees.

    Hungarian law provides for six types of permits relating to construction works. The applications must be filed with the competent construction authority.

    - A demolition permit is required for demolishing any superstructures. The permit is valid for two years.

    - The provisional building permit provides a preliminary review of the planned construction for the applicants. It is generally used in cases of bigger constructional projects that might have an irreversible effect on the area or if the project is not completely in line with applicable zoning provisions. The provisional building permit is valid for a one year period which may be extended once.

    - Construction works may be commenced based on a building permit. The building permit is valid for two years. It contains all special authority approvals in addition to the binding building and environmental provisions related to the construction works. The building permit may be extended for additional one year periods, provided that the construction and zoning plans were not substantially amended.

    - An occupancy permit must be obtained after the completion of the construction works. The permit is issued if the building is appropriate for use and was constructed in accordance with the building permit. The construction authorities conduct an on-site examination in the course of issuing the occupancy permit.

    - There are also permit for function change and the retroactive building permit.

  17. Who can be liable for environmental contamination on real estate?

    Parties who own and/or hold a real property, upon occurrence of environmental damage / environmental hazards, are jointly liable for such damage or hazards, unless proven otherwise.

    The owner may be exempted from joint and several liability if he identifies the actual user of the real property and proves beyond doubt that he/she/it is not liable.

    Notwithstanding the above, the parties are free to regulate in a contract their relative liability towards each other and liability for acts of third parties. A buyer of a real property would typically seek to exclude its liability and claim compensation / indemnification for pollution that occurred prior to the completion of the transaction.

  18. Is expropriation of real estate possible?

    Expropriation of real estate is possible subject to, inter alia, the following conditions:

    1. the expropriation shall serve a specific public policy purpose specified under law (e.g. urban development, energy supply, mining);
    2. the owner of the real estate shall receive full and immediate indemnification;
    3. it was not possible to acquire the real estate through sale and purchase or swap.
      The expropriation may be initiated by (1) the state, (2) the local municipality or (3) a third party tasked with carrying out the relevant public policy purpose or mandated by law to carry out expropriation.
  19. Is it possible to create mortgages over real estate and how are these protected and enforced?

    • whether it is possible to create mortgages over real estate in your jurisdiction
    • how mortgages are created and protected
    • whether enforcement of mortgages is straightforward or potentially cumbersome and the basic procedure for enforcement

    Real estate mortgages can be created with a mortgage agreement and registration of the mortgage with the Land Registry. Registration requires that the owner of the real estate consents to the mortgage.

    Such registration procedures fall under the authority of the Land Registry Office that checks and verifies any document submitted for registration, providing adequate protection for both the mortgagor and the mortgagee. Land Registry entries in Hungary are public, easy to access and are deemed as authentic proof of registered rights, such as mortgages.

    There are two main types of enforcement of mortgages: (i) judicial enforcement and (ii) out-of-court enforcement procedures.

    A judicial enforcement procedure comprises two phases: (i) a commencement phase and (ii) a court bailiff phase.

    During the first phase, the mortgagee needs to obtain an enforceable document. In typical cases, enforceable documents could be (i) final and binding court decisions (creditors / security holders usually try to avoid this procedure, as it could require several years to obtain a final and binding court decisions) or (ii) a notarized agreements which are stamped by the notary as directly enforceable.

    Once the enforceable document is obtained, the second phase may start, being led by the court bailiff, who typically arranges a public auction where the sale of the real estate may take place.

    Out of court enforcement procedures can be conducted by the mortgagee and do not require the involvement of court officials. These can be: (i) sale of the real estate and use the proceeds to satisfy the claims of the mortgagee or (ii) acquisition of the real estate by the mortgagee.

  20. Are there material costs associated with the creation of mortgages over real estate?

    There are a variety of fees and expenses payable in relation to the creation and registration of mortgages over real estate, including the fees of notarization, registration fees with the Land Registry, translation costs etc.

    In typical cases the most relevant costs associated with the creation of real estate mortgages are the notary fees. Real estate mortgage agreements are in typical cases concluded in notarized form, which allows the secured creditor to avoid lengthy court procedures in the case of enforcement (see answer to Q19 above). The fees of the notary are defined by law and is calculated generally on the basis of the claim secured by the mortgage. Notarial fees typically amount to approx. EUR 3,000-5,000. However, it is expected that the notary fees will increase as from 1 January 2019 due to new legislation.

    The registration costs of a real estate mortgage with the Land Registry are not significant (approx. EUR 40).

  21. Is it possible to create a trust structure for mortgage security over real estate?

    The Hungarian law does not recognise trust structures for mortgages, but implements the concept of “security agents” (in Hungarian: “zálogjogosulti bizományos”), which is generally the Hungarian law equivalent of the English law security trustee. If there are multiple security beneficiaries, it is customary for the security beneficiary to appoint a security agent. The appointment is typically made in one of the main finance documents such as the facility agreement.

    The security agent may act in its own name but on behalf of the security beneficiaries and therefore, it is also entitled to sign the mortgage agreement and enforce the mortgage on behalf of the security beneficiaries. Security beneficiaries (other than the security agent) are not required to be registered with the Land Registry.

  22. What is the main legislation relating to commercial real estate ownership?

    The following main statutes apply to commercial real ownership in Hungary:

    - Act no. 5 of 2013 on the Civil Code which sets out the most fundamental rules of property law (including land the principles of land registry law),

    - Act No. 141 of 1997 on Land Registration and Decree of the Agricultural Ministry No. 109/1999. (XII.29.) on Implementation of the Land Registry Act which set out the detailed rules of the land registry procedure, specifying, among others the rights that may be registered and the facts that may be recorded in the land registry,

    - Act No. 78 of 1993 on Lease and Alienation of Apartments and Premises, which mainly regulates lease of apartments and business premises in general, but also regulates the alienation of apartments and premises owned by the state or the local municipality.