Real Estate 2024 Comparisons

The foundations of the general protection of real estate rights are provided by the Fundamental Law of Hungary, according to which every person has the right to property. The main source of Hungarian real estate law is Act V of 2013 on the Civil Code.

Real properties are registered in the centrally organised land registry, which is regulated by Act CXLI of 1997 on Real Estate Registration and FVM Decree 109/1999 (XII. 29) on the Implementation of Act CXLI of 1997 on Real Estate Registration. Other legislation relating to real properties includes laws on agricultural land, leases of residential properties, construction of buildings, monument protection, condominiums and taxation.

The commercial transactional real estate market slowed substantially after the start of the war in Ukraine in 2022, and activity has not returned since then (similar to other CEE countries). The reasons are multiple (country risk, limited exit possibilities from assets, high interest rates, etc), but the most important is the lack of price adjustment compared to Western European markets. It is difficult to determine yields due to the limited number of transparent transactions.

Construction activity reduced substantially after the start of the war in Ukraine due to high prices for raw material and energy, the lack of new state projects in the absence of EU sources and the uncertainties of the commercial transactional real estate market. The war and the corresponding market changes have had a considerable impact on the supply of raw materials (such as steel or petroleum-based materials), transportation and energy, and significantly increased operational costs for construction companies, which started to revise bids and contracts to include escalation or force majeure clauses in order to address the risk of fuel surcharges, labour impacts and supply chain disruptions.

Greenfield investments in industrial properties/new developments remain active due to the entering of Chinese, Korean and Japanese manufacturers in relation to the EV manufacturing/related battery industry. Substantial state subsidies are available to attract such investments.

The office market is still waiting to see how the home office/physical office balance will end up, but managements of tenants are making efforts to drive back their workforce, and the general expectation is that the home office trend has reached a steady level and will not drastically alter office occupation ratios going forward. Office vacancy rates have been increasing; new office stock has come to the market in 2023/24, but there will be a gap due to the limited number of ongoing constructions. ESG requirements are becoming more important for both investors and tenants. New developments obtain the appropriate green certificates, and it remains to be seen how existing office stock owners will address this.

The logistics market has seen substantial growth during and after the COVID years, but speculative land acquisitions and developments only take place if there are committed new tenants.

Although the ratio of home ownership in Hungary is one of the highest (close to 95%), institutional housing properties might become a new asset class because of the so-called “golden visa” programme (a special investment visa requiring investment into real estate funds that also have a residential portfolio). Housing property prices have been increasing intensely but the buying power of locals has not kept pace, so a wider spread of renting is expected, thereby raising the opportunity for investors to invest in larger residential projects.

The increase in interest rates made bank financing expensive, but banks have not stopped financing (although they are more cautious) and still face the risk of the devaluation of their financed real estate portfolios. To mitigate risks, banks are turning towards alternative projects, such as mixed-use developments (office, retail, hotel, residential within the same building complex) and renewable energy projects (primarily solar parks).

The most significant reform for real estate is the ongoing renewal of the land registry system. The framework of legislation has been published, and the preparation of the supporting procedural rules and IT background is at an advanced stage. The new land registry system and procedure is expected to be launched in October 2024. The introduction of the new “E-Land Registry System” is expected to create a safer, more transparent and faster system, which will allow automatic decision-making processes in certain cases.

A new Construction Act will become effective in October 2024.

There is a housing development programme in place to promote the renewal of neglected urban rust areas by encouraging development in these areas. Rust projects are classed as “priority investments in the public interest”, which speeds up and simplifies the process of obtaining the necessary permits. The Hungarian government continuously determines rust areas, which are mostly (but not exclusively) located in Budapest. In February 2024, a new change of control rule was introduced. Accordingly, if there is a change in the direct or indirect majority ownership of a real property qualifying as a rust area after it was designated as such, then the property in question shall lose its rust area status, which may result in severe fines for the owners.

The Hungarian act regulating ESG requirements came into force on 1 January 2024, setting out ESG reporting obligations for so-called “public interest entities” and certain large companies registered in Hungary; fines for non-compliance with such obligations shall only be due as of 2026.

The “Golden Visa” will be introduced on 1 July 2024, meaning that non-EU and non-EC citizens and their family members may acquire a “guest investor visa” in Hungary for ten years by investing (among others) in bonds issued by certain real estate funds in the amount of EUR250,000 or purchase residential real property in the amount of at least EUR500,000.

Property rights range from full ownership to contractual usage rights. Most property rights can be registered in the land registry. Some rights, such as ownership, are established by registration, whereas others – such as pre-emption rights or options – are valid irrespective thereof.

The rules for the transfer of title are contained in the Hungarian Civil Code, the Act on Real Estate Registration (Act CXLI of 1997) and the law on the implementation of the Act on Real Estate Registration (Act 109 of 1999). Specific rules exist for the transfer of agricultural and forestry lands (Act CXXII of 2013 and Act CCXII of 2013).

Title may be transferred by virtue of law (eg, inheritance), by an agreement (eg, sale and purchase agreement) or by court judgment (eg, litigation by adverse possession).

Owing to the stability of the Hungarian land registry system and the limited opportunities to challenge ownership, purchasers can effectively rely on publicly available land registry data.

Title insurance and W&I insurance products have been recognised more and more in recent years, and are typically used by institutional investors.

After COVID-19, it has become common to sign sale and purchase agreements (and other transaction documents) in front of lawyers via remote signing (Teams, Zoom, etc), without the physical presence of the contracting parties.

Real estate due diligence involves inspecting publicly available data (eg, land registry) and requesting additional documents available only to the seller (eg, lease agreements).

Due diligence in an asset deal usually covers the following main areas:

• title (including encumbrances and easements);
• permits;
• zoning;
• leasing and operating agreements;
• environmental and real estate-related litigation.

If the transaction is a share deal or if financing is involved, the areas to be reviewed are more extensive (eg, corporate, employment, financing and tax matters).

Representations and warranties depend on the business practice and strength of the parties. However, certain warranties are generally found in any contract relating to real estate, such as:

• the performance of the agreement is not restricted;
• the seller is the owner of the property;
• the property is free of encumbrance or litigation;
• there are no environmental issues; and
• there are no hidden defects.

In commercial real estate transactions, it is customary for the seller’s representations and warranties to expire after a certain period. Fundamental warranties (eg, relating to ownership title) are granted for at least 60 months, while others are usually limited to 24 to 36 months. Sellers usually provide tax-related warranties up to 84 months, including the reviewed tax year.

It is also customary to limit the seller’s maximum exposure to warranty liabilities to the amount of the purchase price for fundamental warranties. For other warranties, a cap of 10–30% of the purchase price is usually applied.

In the case of misrepresentation, the buyer may allege a breach of the contract and the Civil Code, and claim damages. Please see 2.3 Effecting Lawful and Proper Transfer of Title regarding the use of title and W&I insurance.

The most important areas of law for investors are property law, construction law, local zoning laws, tax laws and environmental laws. For restrictions on foreign investors, please see 2.11 Legal Restrictions on Foreign Investors.

In accordance with the “polluter pays” principle, the person causing the environmental damage is liable for such damage. However, the current owner of the property may also be considered responsible for the environmental damage, alongside the person who actually causes the pollution. The owner may excuse itself by naming the person (eg, previous owner, tenant) who actually caused the pollution, but this is difficult to prove.

In order to avoid difficulties of proof, appropriate warranties are necessary, under which the seller declares that, to its knowledge, there are no toxic materials or environmentally hazardous substances, explosives or similar materials on or under the surface of the property. The buyer of the property typically seeks to exclude its liability for pollution that occurred prior to the acquisition.

Local building regulations, including zoning plans, are publicly available from the ordinances of local municipalities. Potential purchasers are expected to check such databases to ensure compatibility with their development plans.

The law allows investors to enter into a town settlement agreement with municipalities, in which the latter can even undertake to change the local building regulation to fit the needs of the project. Such agreements are considered private law/commercial matters and cannot predetermine public law matters such as the approval of building permits, which must comply with construction norms in all cases.

Ownership of real estate may be acquired by the state or the local municipality – or by a third party – if it acts in the public interest for the purposes specified by law in exceptional circumstances for public use, against immediate, full and unconditional compensation.

Transfer Tax

Generally, the sale and purchase of real estate is subject to transfer tax, payable by the purchaser. The general tax rate is 4% on up to HUF1 billion of the market value of the real estate and 2% on the excess. However, the total payable transfer tax is capped at HUF200 million per real estate.

Similarly, transfer tax should be payable by the purchaser of shares in a real estate holding company if said purchaser’s ownership ratio reaches 75% of the company’s total shares. This threshold includes the shares of related parties and close relatives. The amount of transfer tax should be calculated separately in relation to each real estate asset held by the company. A “real estate holding company” is a company whose total assets in the balance sheet are made up of 75% or more of Hungarian real estate or an entity that owns more than a 75% participation, directly or indirectly, in a company fulfilling such condition.

The cost related to transfer tax is typically not shared between the purchaser and the seller in a transaction, but it is always considered by the parties when the acquisition structure is being set up.

In addition, the transfer of real estate that has been rezoned as incorporated land and the transfer of the shares of a company holding such land are subject to transfer tax, payable by the seller. The rate of transfer tax is 90%, which is levied on the following:

• the difference between the market value of the real estate being sold, at the time of acquisition by the seller, and the market value established for the time of transfer; or
• in the sale of shares of a company holding real estate that has been rezoned as incorporated land, the difference established according to the foregoing in proportion to the ratio in which the shares are sold compared to all shares.

The transfer tax is applicable if the rezoning took place within ten years of the sale (taking into account the predecessor’s period of tenure of ownership in certain cases). However, no transfer tax is payable if the real estate was rezoned in the sixth year after the seller’s acquisition, nor if it was acquired by inheritance.

A preferential transfer tax rate (flat rate of 2%) can be applied to acquisitions by real estate funds, credit institutions, real estate traders or REITs. However, the HUF200 million cap cannot be applied in these cases.

In a special procedure, the paid transfer tax can be reclaimed from the tax authority in relation to the renovation of a historical building if the National Trust of Monuments for Hungary certifies that the renovation has begun within one year of filing the notice of the title change with the tax authority that imposed the transfer tax and the renovation is finished within five years.

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

The acquisition of real estate by foreigners (ie, natural or legal persons outside the EU or the European Economic Area (EEA)) is subject to the approval of the competent government office, which is granted if the acquisition of the real property does not constitute harm to local government or other public interests.

Only natural persons may acquire agricultural land; the acquisition of such land by foreigners (who are not citizens of the EU or the EEA) is excluded.

The New Hungarian FDI Regime was introduced to provide “economic protection to Hungarian companies” in connection with COVID-19, focusing on the origin of the investor and the activities of the Hungarian target companies. Foreign investors are investors that are registered outside the EU, EEA or Switzerland, or that are controlled by an entity registered in a country outside of the EU, EEA or Switzerland.

The Hungarian FDI Regime is drafted in a way that covers as many transactions as it reasonably can. The applicable FDI laws are vague and often confusing, which makes it difficult in certain situations to decide whether a transaction is subject to the mandatory screening. A new rule was introduced in January 2024, entitling the Hungarian State to exercise pre-emption rights in transactions involving solar power plants.

The acquisition of commercial real estate is financed with both debt and equity. Typical debt financing instruments are bank loans. Portfolios are often financed with syndicated loans or bond issues. Intercompany loans are often provided for equity financing purposes. Usually, intercompany loans are expected to be subordinated to external creditors.

The typical security package for commercial real estate consists of:

• a registered charge over the property (prohibition on alienation and encumbrance is also usually registered and, depending on their approach to enforcement, lenders often also request a call option right in respect of the property);
• a charge over ownership rights in the property holding company;
• a charge or security assignment of significant receivables (eg, claims under acquisition agreements, lease agreements, insurance);
• full security over bank accounts (usually a bank account charge combined with a security deposit);
• a charge over assets (over specific assets or all unregistered assets of the property holding company); and
• guarantees by sponsors.

Securities and encumbrances should be registered with the appropriate Hungarian registers (eg, land register, company register or security interest register maintained by the Chamber of Hungarian Public Notaries) in order to be effective against third parties.

Lending (and taking security for loans) is a regulated activity if conducted in a “businesslike manner”. Lenders holding a licence elsewhere in the EEA can passport such licence into Hungary. As the financial regulatory authority, the Hungarian National Bank holds a public register of financial institutions licensed in – or passported into – Hungary.

No general restrictions apply for granting security over real estate to foreign entities, nor are there any specific restrictions on debt repayment to foreign lenders. However, limitations and restrictions can apply in:

• charges over certain types of land (eg, agricultural land and forests); or
• mortgages over “indispensable” assets owned by companies that are considered to be “strategic” under applicable Hungarian FDI regulations (in which case, notification to and acknowledgement by the competent minister might be required).

Notarial fees and registration charges are payable in connection with the notarisation and registration of security documents. Fees and taxes are also payable in connection with enforcement procedures.

The legal requirement to provide valid security must be considered on a case-by-case basis.

Generally, managers of an obligor must act with the diligence of a prudent businessperson and in the obligor’s best interests. The obligor’s articles of incorporation may specifically require the prior approval of the shareholders and/or directors of the obligor for taking a loan and granting valid security. Hungarian law, however, gives a significant degree of protection to lenders contracting in good faith with an obligor’s legitimate representatives.

Financial assistance restrictions are limited mainly to public companies.

Cross-collateralisation is generally permitted; see 3.9 Effects of a Borrower Becoming Insolvent.

Additional restrictions can apply to obligations undertaken or security interests granted by specific types of obligors – eg, individuals, public entities, regulated entities, real estate funds or their subsidiaries.

Sophisticated loan and security documents contain detailed procedures that apply in the event of a default.

Hungarian security can typically be enforced in the following ways.

• Out-of-court enforcement, through an out-of-court sale of the secured assets by the security holder in accordance with the security agreement and the provisions of the Hungarian Civil Code. This method of enforcement is available regardless of whether or not the security document is notarised.
• Judicial enforcement by a judicial officer or bailiff on the basis of a court enforcement order. This method is available regardless of whether or not the security document is notarised.
• Summary or “direct” enforcement by a judicial officer or bailiff on the basis of an enforcement order issued by a notary public following a summary enforcement procedure. This method of enforcement is only available if the documentation relied upon has been notarised.

Traditionally, lenders have requested that security documents be notarised in order to benefit from the direct enforcement mechanism, thereby avoiding the need to go to court but still benefiting from the involvement of a judicial enforcement officer. In theory, the notary should issue the direct enforcement order on the basis of a statement by the secured creditor that an amount has fallen due and that the obligor has been requested to pay such amount and has not done so. The enforcement order can then be enforced by a judicial enforcement officer on the same basis as a court order. In practice, however, notaries can be wary of granting such orders, and judicial enforcement officers can be wary of acting on the basis of a direct enforcement order.

The time needed to successfully enforce and realise on real property security depends on various factors, including the co-operation of the debtor, the marketability of the real property, the form of the underlying documentation, or the enforcement principles initially agreed by the parties under the security documents. Summary or “direct” enforcement may take from six months to one or two years, whereas judicial enforcement may take one to three years or more. Out-of-court sales by the security holder may take between six and 12 months.

The ranking of mortgages over real estate depends on the time of registration (principle of priority). Additional steps to give priority to a lender’s mortgage are not required.

The sale of certain property (eg, listed buildings) may be subject to pre-emption rights, including on enforcement.

A special regime was introduced in Hungary as a response to the COVID-19 pandemic, before being reintroduced as a response to the war in Ukraine. Under this regime, certain restrictions were imposed on a lender’s ability to foreclose or realise on collateral in real estate lending, including the following.

• If the lender is considered a “foreign investor” (see 2.11 Legal Restrictions on Foreign Investors) at the time of a potential future enforcement scenario involving the sale/acquisition of property-holding entities considered “strategic” within the meaning of applicable Hungarian FDI regulations, the sale/acquisition is required to be notified and acknowledged by the competent minister.
• Generally, private real estate may not be repossessed between 15 November and 30 April.

Generally, existing debt can be subordinated to newly created debt by way of an agreement between the relevant creditors and the obligor. In the case of secured debts, the relevant security register must reflect the subordination, which usually requires the co-operation of the lenders and the obligors.

Generally, the polluter is liable for contamination. If the polluter cannot be identified, there is a residual liability for the owner of the real estate.

Secured creditors holding or enforcing security over real estate cannot be held liable under environmental laws solely owing to their position as beneficiary of the security. In the unlikely event that the secured creditor caused the pollution or acquires the real estate itself in the course of enforcement proceedings, said creditor may incur liability.       

The creditor and liquidator of an insolvent company can challenge transactions concluded during “suspect periods” leading to the insolvency on the basis that they are:

• fraudulent transactions concluded fewer than five years before the start of insolvency proceedings;
• transactions at an undervalue concluded fewer than three years before the start of insolvency proceedings;
• transactions preferential to a specific creditor (or group of creditors) concluded fewer than 90 days before the start of insolvency proceedings; or
• transactions benefiting a creditor concluded fewer than three years before the start of insolvency proceedings where that creditor has failed to adequately account for any surplus of proceeds received from collateral provided to that creditor.

The liquidator is entitled to terminate contracts concluded by the insolvent company. In this case, the counterparty has 40 days from the date of such termination to register with the liquidator any claim it has against the insolvent company arising out of the termination.

Obligors can seek time-limited protection from the enforcement of security under Hungarian corporate bankruptcy laws.

With limited exceptions, secured assets remain part of the estate of the Hungarian obligor. Upon the insolvency of the Hungarian obligor, such assets will be liquidated by the liquidator as part of the liquidation proceedings (rather than by the secured creditor pursuant to the security) and the proceeds of such liquidation (minus the liquidator’s costs) will be distributed to the secured creditors by the liquidator. Any surplus proceeds will then be distributed to the unsecured creditors of the insolvent company in accordance with statutory rules.

Hungary has implemented the interest limitation rules introduced by the Anti-Tax Avoidance Directive.

Notarial fees and registration charges are payable in connection with the notarisation and registration of security documents. Fees and taxes are also payable in connection with enforcement procedures.

Strategic planning and zoning are regulated by acts of Parliament, government decrees and ordinances of the local municipalities. Government decrees and acts of Parliament provide a general framework and apply on a nationwide level, whereas local ordinances provide more specific rules that apply only to their administrative areas.

The design, appearance and method of the construction of buildings and the refurbishment of existing buildings are governed by legislation. The construction process is also regulated by several laws, including Government Decree 191/2009 (IX.15), known as the “Construction Code”.

The competent building authority is generally responsible for controlling the development process through the issuance of building permits and occupancy permits; however, the consent of several other authorities may be required. National or special agencies deal with projects that require special permitting, such as those involving mining or certain infrastructure.

As of 2022, approval/recommendation by the National Architectural Design Council is required for the architectural plans and technical specifications of the following, among others:

• the State’s high-rise construction projects;
• buildings with a total usable area exceeding 5,000 square metres; and
• newly constructed condominium residential buildings consisting of at least six apartments on a plot with a total usable area of more than 1,500 square metres.

The competent land registry is responsible for the qualification of individual parcels of land (such as the qualification of land as agricultural or exempt from agricultural cultivation).

Finally, the local municipality is responsible for determining zoning requirements and the designated use of various zones within its administrative area.

Generally, a building permit issued by the competent building authority is required in order to start development of a new project, although not all construction activities are subject to a building permit. The development of special facilities may require additional permits from other authorities. When a project is finished, an occupancy permit is required for the commercial use of the building.

Third parties affected by the project, including owners of neighbouring properties, will typically be involved by the authority in the permit process. They may submit their comments and will usually have the right to appeal against the decision issuing the permit, thus preventing the developer from starting construction or commercial use.

Simplified permitting applies to smaller residential buildings (below 300 square metres).

Agricultural land needs to be exempt from agricultural use in order to be eligible for development. The Hungarian government may facilitate investment by passing a decision listing the exact properties and qualifying them as “targeted investment areas”, or by passing a decree and qualifying the investment as strategic from the Hungarian economy’s perspective (ie, granting VIP status). Such decree focuses primarily on the investment project rather than only on the lands concerned and can define the scope of matters (eg, environmental, building permission, infrastructural) receiving VIP status, decide on shorter procedural deadlines, and designate certain authorities to be competent with regard to that particular project.

Decisions by the building authority may usually be appealed before the competent court.

It is specifically permitted by law for developers to enter into development and support agreements with the local municipality, typically providing the framework for co-operation between the parties in order to make the necessary changes to local town planning instruments.

Such agreements must be approved by the general assembly of the municipality.

Similar agreements may also be concluded with utility suppliers, especially in order to reach a certain capacity.

The competent building authority supervises all construction activities and enforces rules pertaining to construction. Several other authorities may also be involved, including the heritage protection authority and the environmental authority. Authorities may apply a wide range of measures against unlawful construction, including issuing a notice to comply; if the notice is ignored, they may impose a fine or even suspend the construction until the breach is remedied. Restrictions on designated use may also be enforced by the locally competent land registry, through similar measures.

All types of entities are available to investors to hold real estate. The most commonly used entities are limited liability companies (korlátolt felelősségű társaság, or Kft.), private limited companies (zártkörűen működő részvénytársaság, or Zrt.), regulated real estate investment companies (szabályozott ingatlanbefektetési társaságok, or SZIT) and real estate investment funds.

Limited Liability Company

The liability of members extends only to the provision of their initial contributions (the amount of each contribution may not be less than HUF100,000). Members shall bear liability for the company’s obligations only in very limited cases. The company can be established by a sole member.

Public and Private Limited Company

The shareholders of a public limited company may not be held liable for the company’s obligations (with some exceptions). Their obligation to the company extends to the provision of funds covering the nominal value or the accounting par value of shares. Limited companies with shares listed on a stock exchange are called public limited companies, while those with shares not listed on any stock exchange are called private limited companies.

Investment Funds

An investment fund is either an Alternative Investment Fund (AIF) (alternatív befektetési alap, or ABA) or UCITS (Undertakings for the Collective Investment in Transferable Securities) fund (átruházható értékpapírokkal foglalkozó kollektív befektetési vállalkozásokra, or ÁÉKBV), in accordance with the relevant EU directives and with Act XVI of 2014 on Collective Investment Trusts and Their Managers and on the Amendment of Financial Regulations. An investment fund manager must have initial capital of at least EUR125,000 (or at least EUR300,000 in the case of real estate funds).

Generally, investment funds are exempt from corporate income tax and local business tax.

REITs are available in Hungary, but are not commonly used as a high percentage of the shares shall be owned by small investors. Only a public form exists. Exemptions from corporate income tax and local business tax are available.

The initial capital of limited liability companies may not be less than HUF3 million, while the share capital of private limited companies may not be less than HUF5 million, and the share capital of public limited companies (nyilvánosan működő részvénytársaság, or Nyrt.) may not be less than HUF20 million.

An investment fund manager must have initial capital of at least EUR300,000 in the case of real estate funds.

Limited Liability Company

The supreme body of a limited liability company is the members’ meeting. The management of a company is provided for by one or more managing directors. If a company has more than one managing director, said directors may handle management issues as a board or independently, provided that they may raise an objection against the planned or executed actions of any other managing director. Members or founders may provide for the establishment of a supervisory board comprising three natural or legal persons, tasked with supervising management to protect company interests. A supervisory board must be established if the annual average number of full-time employees employed by the company exceeds 200 and the works council did not relinquish employee participation in the supervisory board. In certain cases (depending on the number of employees and net sales of the company), a statutory auditor responsible for carrying out the audits of accounting documents must be appointed.

Public and Private Limited Company

The supreme body of a limited company is the general meeting. Different rules apply to public and private limited companies regarding the convening of and participation in the general meeting. Public limited companies are managed by the board of directors, which comprise at least three natural persons. The board of directors act as an independent body and prepare a report on the management, the financial situation and the business policy of the company at least once every year for the general meeting and at least once every three months for the supervisory board (if any). Public limited companies are required to set up audit committees, and all limited companies must employ an auditor.

Investment Funds

The collective portfolio management activity of investment fund managers is subject to prior authorisation from the National Bank of Hungary. Investment fund managers must have a head office in Hungary and be managed by at least two natural persons under an employment contract.

Annual entity maintenance and accounting compliance costs are different for each company. Companies are obliged to prepare financial statements for every accounting period, which must be approved by the general meeting and filed with the Registrar of Companies.

Public limited companies and companies keeping double-entry book-keeping are obliged to elect an auditor. However, in the case of private limited companies, the shareholders shall elect an auditor if:

• the average annual net sales of the company exceed HUF300 million; and
• the number of employees is more than 50 on average in the two business years preceding the subject business year.

The most common form of use of real estate for a limited period is a lease or a leasehold. In a lease, the tenant is entitled to use the leased premises, whereas in a leasehold the tenant is also entitled to collect the benefits of the property. Further arrangements include right of use, right of use of a land, right of use for public purposes and usufruct.

There are specific rules for the leasing of residential buildings and premises (with specific rules on properties owned by municipalities). However, the same legislation generally applies to the lease of different types of premises – for example, office spaces, commercial premises, residential buildings or logistics parks.

As of August 2023, if the Hungarian State has a majority stake in a company, the company will require prior approval from the Minister of Public Administration and Development to enter into a lease for any property located in Hungary if the annual gross rent exceeds HUF20 million.

The general rules for leases are contained in the Hungarian Civil Code. However, these are not mandatory rules and may be deviated from in the lease, including rent and term.

During COVID-19, specific regulations were enacted – for example, a moratorium restricting the termination of non-residential premises in certain sectors (such as tourism, catering and entertainment). In addition, landlords were not entitled to increase the rent, even if the given lease agreement would have otherwise allowed. However, these regulations and governmental actions ceased to apply from 1 July 2022.

The market reacted to COVID-19 and landlords provided some rent-free periods to tenants that were active in specific sectors significantly affected by COVID-19.

A lease may be concluded for a definite or an indefinite period. Commercial leases are typically concluded for a definite period, with a term of between five and 15 years. Extension rights are also common – usually for an additional five years. In some cases, a break option is provided, allowing the tenant to unilaterally exit the lease by paying a certain agreed termination fee.

The landlord is usually obliged to maintain and repair the building, its structure and the common areas, while the tenant must maintain and repair the facilities within the leased premises. Rent is usually paid monthly or quarterly in advance.

Hungarian law does not regulate “force majeure”, but epidemics are recognised in Hungarian jurisprudence and are generally considered force majeure events. A force majeure event may have the effect of a so-called “frustration” under the Hungarian Civil Code, provided that it renders the performance of an agreement impossible.

Before COVID-19, leases contained general force majeure rules. Since COVID-19, the parties usually acknowledge that COVID-19 cannot be considered a force majeure event, as they were already aware of its existence during negotiations.

Generally, rent will remain the same throughout the term of the lease (unless so-called step rent is agreed). However, indexation is a common practice, allowing landlords to increase rent annually. The most commonly used indices are the Harmonised Indexes of Consumer Prices (HICP) published by Eurostat and the Monetary Union Index of Consumer Prices (MUICP). If rent is determined in HUF, the parties generally use the index published by the Central Statistics Office. A decrease in rent based on indexation is usually excluded.

Landlords often give a three- to six-month rent discount, which in practice means that the tenant is only required to pay 50% (or a certain decreased percentage) of the monthly rent during the discount period. A tenant may no longer be eligible for a rent discount if they are in breach of a material obligation under the lease (for example, if they are in arrears with payment). For retail, turnover rent is common besides or instead of a fixed rent, whereby an agreed base rent is usually topped up with an agreed percentage of the tenant's net turnover.

Except for indexation, rent can only be changed by the mutual amendment of the lease.

As the main rule, rent for real estate is exempt from VAT, although lessors can opt to apply VAT taxation to the renting of real estate or non-residential real estate in general. The general VAT rate is 27%.

VAT exemption cannot be applied to the renting of places for accommodation purposes or for parking purposes, among others.

At the start of the lease, tenants are often obliged to provide security to secure performance of the lease, in the form of a cash deposit, bank guarantee or corporate guarantee. If the costs of fit-out works are to be borne by the tenant (full or partially), the tenant must pay this amount to the landlord in advance, or cover the costs of the fit-out (refurbishment) directly. Tenants are usually requested to take out and maintain throughout the term an all-risk property insurance and liability insurance. Tenants may be requested to provide the landlord with an eviction declaration to be incorporated into a notarial deed at the tenant’s cost.

The costs of repair and maintenance of the building, common areas and the leased premises are usually paid by the landlord, but are borne by tenants in the form of service charges. Leases usually include a non-exhaustive list of costs that are to be borne exclusively by the landlord or covered by the service charges.

Generally, tenants pay the costs of utilities of the leased premises, either directly to utility providers (on the basis of separate utility agreements) or to the landlord who re-invoices such costs to the tenant. Telecommunication costs and the costs of cleaning the leased premises are borne directly by the tenant.

Generally, tenants should take out all-risk property insurance, for the duration of the lease, against damages and loss in relation to items brought into the leased premises by the tenant, for an amount equivalent to the replacement value of such items. Tenants must take out liability insurance for personal injury, property damage and economic loss in the amount that is standard for their business. Landlords must maintain all-risk property insurance covering the building and the landlord’s property, in addition to maintaining liability insurance.

The permitted use of the leased premises is usually agreed in the lease and is subject to the respective zoning, as well as the construction and occupancy permit of the building. Any change to the permitted use is usually subject to the landlord’s prior written consent. If the tenant uses the leased premises in a manner contrary to the permitted use, the landlord is usually entitled to terminate the lease.

Hungarian law protects neighbours against disturbances caused by, for example, activities resulting in excessive noise, smell, sound effects or air pollution. In such cases, other tenants may request possession protection from the notary.

Tenants’ rights to make alterations to the leased premises will depend on the parties’ agreement. Usually, such tenant requests must be submitted to the landlord for prior approval. The landlord may grant fit-out or refurbishment-related contribution to the tenant – ie, the works are thus partially covered by the landlord. In some cases, the tenant may change decorative elements not affecting the structure.

Act 1993 of LXXVIII contains specific rules for the leasing of residential buildings and premises. In general, the same legislation applies to the lease of office spaces, commercial premises or logistics parks. The main source of provisions is the lease agreement itself.

It is common for the landlord to terminate the lease if liquidation proceedings or involuntary deregistration proceedings are ordered with binding force against the tenant or if the tenant files a request for voluntary winding-up (or even if such procedures are threatened).

Under Hungarian law, liquidators may terminate any contract concluded by the debtor (including leases), except for leases of natural persons related to residential properties. In addition, if a tenant files for bankruptcy, the landlord is prohibited from terminating the lease during the bankruptcy moratorium.

Tenants are generally required to provide landlords with a cash deposit, a bank guarantee or a parent/group company guarantee, or to ensure a suretyship. The amount of security is usually equal to three to 12 months’ (gross) rent plus service charges.

In order to satisfy claims of unpaid rent and additional costs, landlords also have statutory lien over tenants’ assets located within the leased premises.

It is also common to request a so-called eviction declaration from tenants issued in the form of a notarial deed, under which tenants may be forced to leave the leased premises without a court procedure if the lease agreement terminates for any reason.

According to the Hungarian Civil Code, if the tenant continues to use the leased premises after the expiration of the definite term and the landlord does not challenge this, the term of the lease becomes indefinite and may be terminated by ordinary termination. However, this possibility is usually excluded in commercial leases.

If the tenant does not leave the leased premises by the termination date, the landlord is entitled to a so-called usage fee in addition to general compensation claims under the Civil Code. According to the law, the usage fee equals the monthly rent. However, the parties usually stipulate two to three times the amount of the rent in commercial leases. As a final solution, landlords may enforce the eviction declaration provided to them by the tenant.

Generally, tenants may sublease or assign the use of the leased premises to a third party with the prior written consent of the landlord. A common exception in commercial leases is subletting to a company that belongs to the tenant’s group, in which case notification is sufficient.

Both tenants and landlords are entitled to terminate the lease in accordance with the general rules of the Civil Code or Act LXXVIII of 1993, or with reference to the reasons contained in the agreement. According to Act LXXVIII of 1993 on the lease and alienation of apartments and premises, the lease agreement ceases:

• if it is terminated by mutual consent;
• if the apartment is destroyed;
• if it is terminated by either party;
• if the tenant dies;
• if the tenant exchanges the apartment for another apartment;
• if the tenant is expelled from Hungary;
• if the tenancy is terminated by a court or other authority; or
• by virtue of law.

In the case of non-residential premises, the lease agreement ceases if the legal person terminates without a legal successor or if the tenant’s self-employed activity in the premises has ceased.

It is typical in commercial leases to limit tenants’ termination rights. Generally, the tenant is entitled to terminate the lease if it is obstructed or significantly restricted in the proper use of the leased premises for a longer period (45–60 days) and the landlord fails to remedy the defect in due course (30–60 days from the tenant’s notification).

Landlords’ termination rights are usually broader and can be enacted upon the breach of any material tenant obligation, such as:

• failure to pay rent, service charge or the cost of utilities;
• failure to provide security;
• use of the leased premises contrarily to the permitted use; or
• failure to obtain or maintain licences or insurances.

Hungarian law requires leases to be in writing. Leases cannot be registered with the land registry (contrary to certain other rights of use).

Tenants can be forced to leave without a court procedure if a signed eviction declaration incorporated into a notarial deed is available. In the event of default, the notary must attach an enforcement clause to the eviction declaration, on the basis of which the bailiff will force the tenant to leave the property. The enforcement procedure generally takes about six months.

According to the Act on Bankruptcy Proceedings and Liquidation Proceedings (Act XLIX of 1991), the liquidator may terminate contracts concluded by the debtor with immediate effect, except for leases of natural persons for residential properties. According to judicial practice, damage claims or compensation due to the termination may not be asserted.

In the case of early termination due to the tenant’s breach, it is standard that the tenant must pay rent (and service charge) for the remaining term; however, in practice it is rare that landlords request or could enforce such payment for longer than 6–12 months. The actual payment request also depends on the incentives (rent-free period, fit-out contribution, etc). Landlords are interested in re-letting the property as soon as possible at least on the previous rent level, so the tenant is required to cover the period until rent income is ensured from a new tenant, which is primarily covered by the security provided by the tenant at the start of the lease.

Landlords may enforce statutory liens on assets owned by the tenant located within the leased premises, but this is often challenged by the tenant. Landlords may request the issuance of a payment order to the tenant by the notary public – ie, if the tenant fails to dispute the request within the statutory deadline, the landlord’s payment request becomes enforceable (if the tenant disputes the payment request, the process may be continued before the civil court). It is also an option to enforce claims by initiating a liquidation procedure against the tenant, but this is not a standard route, as it requires effort from the landlord and the settlement of claims is not ensured.

Please see 6.16 Forms of Security to Protect Against a Failure of the Tenant to Meet Its Obligations regarding security deposits.

Construction contracts typically set out a fixed contract price for the scope of work covered (ie, the contract price is determined before the fulfilment of the work). Unit/itemised prices are also commonly used, which means that the contractor is paid based on the effective fulfilment (ie, the contract price is determined following the fulfilment of the work.

If a separate architectural services firm is involved, such firm (designer) will usually be responsible for obtaining the building permit, while the general contractor is responsible for the construction and obtaining the occupancy permit.

Engineering, procurement and construction (EPC) agreements under which the contractor is responsible for both design and construction are also widespread. In the case of EPC agreements, the contractors undertake higher responsibility for budget, milestones/completion deadlines and quality/remedying defects.

Engineering, procurement and construction management (EPCM) agreements are also common, whereby the project manager is responsible for the co-ordination of the entire construction project (often including the design), although the main responsibilities remain with the construction contractor or other (sub)contractors.

Limitation of liability clauses, contractual warranties, various forms of insurance, liquidated damages and parent company or bank guarantees covering performance and maintenance periods are commonly used to manage construction risks. In addition to any contractual warranties/guarantees, statutory minimum warranty/guarantee periods apply to different types of built-in materials/superstructures.

The tools most commonly used to manage schedule-related risk are:

• delay penalties (or liquidated damages); and
• withholding certain amounts (from the contract price based on achieving project milestones by the deadline).

These are typically supplemented with a provision that the owner is entitled to claim damages exceeding the amount of the penalty.

Parent company guarantees and bank guarantees are commonly used to guarantee contractors’ performance. It is also typical for the contractor to replace the withheld contract price with an equivalent amount of bank guarantee.

A construction trustee regime is applicable above certain construction value thresholds, which aims to ensure due payment within all levels of the construction chain (ie, the owner shall advance the contract price for the respective phases to the trustee, to be released upon certification of due performance).

Another form of security can be a performance warranty, based on which a particular percent (usually 5% or 10%) is withheld from the amount of every contractor’s invoice. Such amounts shall be released only if certain requirements are fulfilled by the contractor (eg, the issuance of all required permits).

Contractors have a statutory lien up to the amount of the outstanding contract price and costs over the assets of the owner that are possessed by the contractor within the scope of the construction agreement. The contractor is not entitled to encumber the property – rather, only the tangible assets of the owner. The lien is removed automatically if the contractor’s claims are settled.

A structure may only be occupied if the competent authority has issued a final and binding occupancy permit verifying that such structure is suitable for safe and intended use and has been built in line with the building permit.

Generally, the sale and purchase of real estate is VAT exempt. The seller can opt to apply VAT to the sale and purchase of real estate in general or to non-residential real estate, in which case the sale and purchase would be subject to reverse charge – ie, the purchaser will be responsible for the assessment and payment of VAT.

The VAT exemption does not apply to the transfer of new real estate (ie, real estate that has not been occupied or where fewer than two years have passed since its occupancy or development), nor to building plots. As such, the sale and purchase of such real estate is subject to VAT at the general 27% rate, which must be paid and assessed by the seller.

A preferential 5% VAT rate can be applied to the sale of:

• new residential units in a multi-unit residential building with a total net floor space not exceeding 150 square metres; and
• single-unit residential units with a total net floor space not exceeding 300 square metres.

The preferential VAT rate is expected to be applicable until 31 December 2024. However, if the sale of the new residential unit takes place between 1 January 2025 and 31 December 2028 and the building (or similar relevant) permit has become definitive by 31 December 2024, then the preferential VAT rate can be applied to such sales as well.

The preferential VAT rate will remain applicable with regard to the sale of new residential units in a multi-unit residential building with a total net floor space not exceeding 150 square metres if the building is located in a rust area (as described in 1.3 Proposals for Reform). Further relief is available to private individuals in the purchase of such residential units in rust areas.

The sale and purchase of a company’s shares is VAT exempt.

Structuring techniques are available to mitigate transfer tax liability, the applicability of which has been confirmed by the tax authority under specific circumstances.

Local Real Estate Taxes

Local municipalities can introduce rules for local tax on buildings and building plots in a municipality decree within the limits of the Local Taxes Act.

Real estate tax must be paid semi-annually by the person registered as owner on the first day of the calendar year in which the transaction closes. In practice, the cost of the local business tax is usually divided between the parties on a time-proportioned basis for the year of the transaction.

The maximum rates of local real estate tax in 2023 were:

• approximately EUR5.8 per square metre for buildings and approximately EUR1 per square metre for building plots; or
• 3.6% of the adjusted market value of the building or 3% of the adjusted market value of the building plot, if the local municipality opts to impose the tax in its decree on the value of the real estate instead of its base area.

Local Real Estate Tax Exemption

There are certain tax exemptions (eg, for temporary housing units, building structures used for the disposal of radioactive waste or incorporated land used for agricultural purposes), but business premises are generally subject to local real estate taxes.

Historical buildings could also be exempt from local real estate tax if they are being renovated – ie, general works and repairs are being performed on the entire historical monument or on its façade and several major structures in order to completely restore the original condition of the building in terms of aesthetic appearance (and at least the original technical fixtures). Tax exemption could be applied for three consecutive years following the date of the building permit or cultural heritage protection permit becoming final. The renovation must be completed within three years; otherwise, the local real estate tax and related interest for the past period shall be due (such amount is secured by a mortgage on the property). The tax exemption must be requested from the tax authority.

In all cases, the respective local municipality’s decree should be reviewed for tax exemption and tax rates.

Certain municipalities do not levy real estate taxes.

No withholding tax is currently applicable in Hungary on dividends, interest or royalties paid to foreign corporate entities. If tax exemption does not apply, 15% withholding tax is payable by foreign private individuals on their income from Hungarian real estate.

Foreign investors’ profit (adjusted in accordance with the provisions of the corporate income tax act) from the rental of domestic real estate is subject to 9% corporate income tax. Their revenue from the same activity is subject to 2% local business tax. In addition, the rules of global minimum tax apply for multinational enterprises with revenue above EUR750 million.

Foreign investors can also be subject to corporate income tax on their income from the transfer or withdrawal of a participation in a Hungarian real estate holding company (unless the applicable double tax treaty prohibits the application of such tax by Hungary). A real estate holding company is, generally, a company whose total assets in its balance sheet are comprised of real estate by more than 75% (including the real estate held by related companies and their Hungarian permanent establishments).

The depreciation of assets is generally available for corporate income tax purposes. However, no depreciation may be accounted for in relation to the original cost of land, plots of land (other than those used for mining or the disposal of hazardous waste) or forests, or of the assets that were not activated.

Special tax allowances are available from corporate income tax with regard to the maintenance and renovations of historical buildings, subject to the following further conditions.

• Costs and expenses of the maintenance of historical buildings in the tax year are deductible from the taxable base of corporate income tax (in addition to their counting as expense or cost) up to 50% of the pre-tax profit of a company. Such tax allowance shall not exceed the HUF equivalent of EUR50 million.
• Twice the amount of the costs of the acquired tangible assets relating to the historical buildings and the costs of investment and renovation is deductible from the taxable base of corporate income tax. Such allowance can be applied – regardless of whether the investment/renovation was put into use – from the tax year of the acquisition or the starting year of the investment until the fifth tax year following the completion of such investment. Such tax allowance shall not exceed the HUF equivalent of EUR100 million per investment project.