Real Estate Law in Hungary

The general rules on the acquisition of assets in Hungary are set out in Act V of 2013 on the Civil Code. The acquisition of real estate is regulated by several specific laws and government decrees, depending on whether the acquirer is a foreign or domestic person, a natural or legal person, and on the type of real estate.

The most important specific laws are:

• Act CXLI of 1997 on the Real Estate Register (from 15
  January 2025: Act C of 2021 on the Real Estate
  Register);
• Decree 109/1999 (XII. 29.) FVM on the implementation
  of Act CXLI of 1997 on the Real Estate Register;
• Act CXXIX of 2007 on the protection of agricultural land;
• Act CXXII of 2013 on the transfer of agriculture and
  forestry land; and
• Government Decree No. 251/2014 (X.2.) on the acquisition of real estate by foreig

Companies can acquire real property if it is provided by an investor as an in kind contribution, or if it is purchased by the company. Companies that own real properties in Hungary are generally allowed to make unrestricted use of their real property: they can sell it, utilize it (e.g., rent it out) take out loans secured on it (e.g., mortgage it), or sell the rights associated with it.

The acquisition of real property (with the exception of land used for agricultural or forestry purposes) by foreign individuals or legal entities is subject to a permit granted by the Budapest or county government office, based on the location of the real property. No permit is needed if the acquisition occurs through inheritance/succession. Special prohibitions apply to the acquisition of agricultural lands by foreign nationals (see below).

A permit is granted by the competent government agency if the acquisition of  the real property does not constitute an injury to local government or other public interests, or if the foreign person wishes to live permanently and to pursue economic activity in Hungary for which the acquisition of real property is required, and the acquisition of real property does not constitute an injury to public interests. If the permit is denied, the decision can be appealed before the court.

Acquisition of agricultural land

The acquisition of agricultural land by foreign nationals is highly regulated and several restrictions are applicable. Hungarian private persons as well as private persons of the European Economic Area (EEA) can acquire agricultural land. However, legal persons are not allowed to own agricultural land, except for the Hungarian state, the municipalities, the church, and mortgage institutions under circumstances set by the law.

Both Hungarian and EEA private nationals are required to fulfill several strict conditions to acquire agricultural land. The owner of such property must be a registered farmer in Hungary, with a specific agricultural or forestry qualification, or have been continuously residing and performing farming, forestry, or ancillary activities in Hungary for at least three years. The acquiring person must also undertake to cultivate the land autonomously for at least five years. The area of such land is also limited.

FDI rules

During the state of emergency introduced by the Hungarian government with respect to the COVID-19 pandemic, new rules were implemented for the purpose of monitoring foreign investments in Hungarian companies (FDI Act). The FDI Act imposes a notification obligation on foreign investors as a precondition to their planned investment in certain strategic sectors in Hungary which includes real estate-related activities. The FDI Act requires foreign investors to file a notification with the ministry and to obtain an acknowledgement of such notification by the ministry as a pre-condition to their investment into a strategic company, or in certain cases, strategic assets, in Hungary. A foreign investor can be (i) a company or organization domiciled in, or a citizen of, a state outside of the European Union (EU), the EEA or Switzerland, or (ii) a company or organization whose majority owner is
domiciled in, or a citizen of, a state outside of the EU, the EEA or Switzerland.

All real properties located in Hungary are registered in the centrally organized land registry system. The land registry system separately maintains 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 related 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 the principle 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 buyer who purchased the real property based on the information registered in the land registry. The main data kept by the land registry on the so-called “property sheets” for all real properties is accessible to anyone in a paper-based or digital format.

Certain rights, including the acquisition of ownership through sale and purchase, easement rights, as well as mortgages, require registration in the land registry to become legally effective.

The new act on the land registry

On 15 June 2021, the Hungarian parliament adopted the new land registry act, which will introduce comprehensive changes in the Hungarian land registry system. Most provisions of the new land registry act are scheduled to enter into force on 15 January 2025.

The main goal of the new legislation is to upgrade the land registry to an electronic database and fully digitalize the land registration procedures. Based on the new act, the current paper-based procedure will be replaced by an
electronic/online procedure.

The public notary usually participates in transactions if the transaction is financed through bank loans. It is common practice in the market for the project financier to have the loan agreement, the mortgage agreement, and other security agreements incorporated in the notarial deed form. This ensures the enforceability of any potential claims by the financing bank.

In Hungary, the public notary might also participate in a transaction by drafting and countersigning the real estate sale and purchase agreement itself. Nevertheless, it is preferable that this task is undertaken by an attorney-at-law.

The public notary is generally involved with lease agreements by issuing eviction deeds. The eviction deed is a declaration of the tenant incorporated into the notarial deed by the public notary, in which the tenant declares that in case of the termination of the lease agreement, they will move out of the premises. As the eviction deed is in notarial form, it can be directly enforced, i.e., any potential possession protection procedures by the tenant can be avoided.

The contractual representations and warranties depend on the type of real estate to be purchased and the specific circumstances of such real estate. Common examples are as follows:

Status and authority of the seller

The seller has the authority and power to enter into an agreement and perform the arising obligations.

Status of the property

• The property is in the lawful and exclusive ownership of
  the seller, and there are no lawsuits, encumbrances,
  options, claims, or any other third party property rights
  that are unknown to the purchaser;
• There are no rights, obligations, facts, or pending
  applications for registration that are not duly recorded
  on the land registry sheet; and
• Whether the properties comply with the applicable
  regulations (including building and environmental
  permits).
  

Legal responsibility of the seller

The seller must indemnify the purchaser against any loss, liability, claim, or damage which arises from the breach of any of the seller’s representations and warranties.

It is a standard market practice that the purchaser of the property enters into a credit facility agreement with one or more creditors for the financing of a project. For the security of the loan, the purchaser may establish a mortgage (usually with a prohibition of alienation and encumbrance) on the property once the title to the property has been transferred to the purchaser.

The law prescribes the registration of mortgages in the land registry.

The project financier may, in addition to mortgaging the real estate, also pledge other rights and claims as additional security for the financing. Typical mortgages include mortgages on shares in businesses and mortgages on movable property. While a mortgage on real estate is registered in the land registry, a mortgage on a business share is registered in the Company Registry, and other liens are registered in the Registry of Credit Securities.

Apart from certain mandatory legal regulations, the principle of freedom of contract is applicable to leases of real properties, particularly if the contracting parties are business associations and the subject of the lease is other than living premises.

The lease agreements of real property must be in writing. Hungarian language is not a requirement for such agreements. The law does not prescribe the registration of leases in the land registry.

Lease agreements are concluded for a definite or an indefinite period. Unless otherwise agreed, lease agreements with a definite term can only be terminated prior to the expiry of such term for a reason set out in the laws or in the agreement. 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 generally require the provision of security by the lessee, ranging from a three- to six-month amount of rent, depending on the real property’s function and the parties’ agreement. The security is generally provided in the form of a cash deposit, bank guarantee, mother company, or a third party guarantee undertaking.

Lease agreements do not terminate automatically if the ownership of the real property subject to the lease is transferred. In such a case, the purchaser automatically becomes the lessor of the lease under the same conditions as set forth in the lease agreement and may not terminate such an agreement except if the lessee provided false information to the purchaser in respect of the existence or the material terms of the lease. 

In addition to general legal regulations, construction activity must conform to the local zoning plans of local municipalities.

Construction activity may be carried out depending on the type of building, either upon the completion of the permitting procedure by the competent construction authority, or upon the notification of the competent construction authority. Government offices serve as general construction authorities. However, other state offices also act as construction authorities with regards to real properties subject to special regulations, such as buildings under cultural protection. During the permitting procedure, other authorities such as the competent fire department as “specialized authorities” are also involved.

If a building permit is required for the construction activity, then the construction activity might be carried out only upon a final and binding building permit. The building permit is valid for four years from the date of becoming final and binding, or for six years from the start of the construction activity, provided that the building becomes suitable for occupancy permit within such six years.

Any subsequent extension or alteration of a building is subject to a building permit in general, but in certain cases specified by law, certain construction works may be carried out without a building permit.

The occupancy permit is issued if the building conforms to building regulations and to the prescriptions of the building permit and is suitable for proper and safe use. If a building does not conform to regulations and the building permit, but the defects do not impede proper and safe use, the construction authority prescribes additional work to be carried out for the given building.

Energy efficiency certificate

The owners of certain real properties are obliged to have an energy efficiency certificate prepared should they wish to sell or lease the real property. The identification number of the certificate is a mandatory part of real estate sale and purchase agreements, as well as of lease agreements in Hungary. The energy efficiency certificate is a private document that details the characteristics of the energy consumption of the property and gives recommendations to improve the energy efficiency.

ESG rules

Real estate developers or funds can issue green bonds to the market. As per the Hungarian National Bank’s (MNB) guidelines, the issuer must create its own framework with the company’s sustainability goals and KPIs. For the framework, a second-party opinion (SPO) has to be issued as assurance that the bond framework is aligned with accepted market principles (e.g., the Green Bond Principles or the Green Loan Principles) and that the proceeds of the bond or loan, as set out in the framework, are aligned with market practices and expectations from the investment community. With the company on the stock exchange– even if it is an individual or a regulated real estate investment company (local REIT)–it is obligated to do its annual sustainability report as a non-financial reporting tool.