Real Estate 2023

Last Updated May 04, 2023


Law and Practice


Lakatos, Köves & Partners is a nine-partner firm based in Budapest, with more than 55 lawyers (including tax advisers) and a predominantly international client base. It was Clifford Chance’s office in Budapest for many years, but has been independent since 2009. Lakatos, Köves & Partners has a somewhat unique position as an independent one-country firm that focuses on working for international clients and often works with international law firms. Work ranges from development projects, ongoing portfolio management activity and new acquisitions and disposals by foreign investors to real estate activity linked with the industrial sector. The firm’s finance and tax practices co-operate closely on real estate project financing and work with the corporate and M&A team on real estate-related asset and share deals. Clients include Al Habtoor, Accenture, Allianz, China Investment Cooperation, the European Parliament, Horizon Development/DVM Construction, GLP, GLL Real Estate, Indotek Group, Mars, Marriott Hotels, Mogotel, Soulbrain, Thermo Fisher Scientific, Vodafone and Wizz Air.

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 the Civil Code (Acv V of 2013 on the Civil Code).

Real properties are registered in the centrally organised land registry system, the rules of which are prescribed 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 also applies – for example, regarding agricultural land, leases of residential properties and premises, the construction of buildings, monument protection, condominiums and taxation.

There has been no sign of any dramatic price fall directly as a result of COVID-19/Ukraine–Russian war. However, the war and energy price increase made investors more cautious and decisions take much longer than usual. The different asset classes have also been affected in different ways.

Logistics assets and industrial property proved to be highly resistant to the COVID-19 crisis in Hungary, with the growth of e-commerce and the shortening of supply chains making this asset class highly lucrative. Existing logistics market players are expanding and new players are coming to the market. Industrial properties remain similarly unaffected and greenfield investments are continuing (especially from Far East countries).

The market, like the country in general, is focused on Budapest. Suitable development land in the areas surrounding Budapest is a scarce resource and reclassification thereof (from agricultural to commercial/industrial) is a time-consuming and complex process.

Assets exposed to foreign tourism (such as high-class hotels in capital cities) have been the most vulnerable to the effects of the COVID-19 pandemic. Meanwhile, internal tourism continued to keep countryside hospitality alive. International tourism began to return in 2021–22. However, the increased energy prices are forcing hotels – especially wellness hotels– to close temporarily.

Owing to their open-space nature, strip malls have become more attractive compared to traditional shopping centres.

The office market is still waiting to see how the home office/physical office balance will end up, but no serious hit has been experienced. Office vacancy rates are somewhat increasing, there is a large amount of new office stock coming to the market in 2023, and occupiers remain uncertain about the home office/physical office balance. The general expectation is that the home office trend will not drastically alter the office occupation ratios. Managements of tenants are making huge efforts to drive back their workers to their offices.

Downtown residential prices and large energy consumption family homes began to fall to some extent, while parallel the prices of low-cost panel flats started to grow. Institutional housing properties might become a new asset class, even though the ratio of home ownership in Hungary is one of the highest in the world (at more than 90%). Housing property prices in general have been increasing intensely during the past few years – as have financing costs in 2023 – but the buying power of local inhabitants has not kept pace. A wider spread of renting is thus expected, thereby raising the opportunity for investors to invest in larger residential projects.

Banks have not stopped financing, but they are more cautious and face the risk of the devaluation of their financed real estate portfolios. The increase of central bank interest rates made bank financing very expensive, which is another reason for developers to delay new developments.

The business of private health service providers is gradually increasing, owing to the continuous deterioration of public healthcare. Trade has commenced in the ownership of properties occupied by stable private health service providers.

The Russia–Ukraine war and corresponding market changes have had a considerable impact on the supply of raw materials (such as steel or petroleum-based materials), transportation and energy, as well as significantly increasing the costs of operation of the construction companies. With growing costs and inevitable slowdowns, more construction companies are revising bids and contracts to include escalation or trigger force majeure clauses in order to address the risk of fuel surcharges, labour impacts and supply chain disruptions arising from the conflict. Therefore, the respective tender documentation and construction contracts must be drafted carefully so as to exclude unjustified claims of the construction companies.

Blockchain and decentralised finance (DeFi) have not yet become widely recognised instruments on the Hungarian property market. However, new trends in “pandemic-proof” office space are emerging.

Smart buildings can be a tool for implementing social distancing, as constant space monitoring can help ensure the maintenance of the required density levels. However, in order to function, smart solutions inevitably collect a large amount of personal data. This poses a significant exposure from a privacy law point of view.

Sensitive, highly protected personal data handling is permitted only where there is a higher/justifiable interest and if such data processing is proportionate. As a main rule, these applications can only be installed with the individuals’ express consent. On the other hand, employers must provide a working environment that does not endanger life and health.

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

There is a housing development programme in place that aims to promote the renewal of neglected urban rust areas by encouraging development in these areas. Rust projects are to be classed as “priority investments in the public interest”, which will speed up and simplify the process of obtaining the necessary permits. The Hungarian government have started determining the rust areas, with the first two being located in the 13th and 9th districts of Budapest.

In order to promote transparency with regard to the employment of workers in the course of construction activities, the National Construction Supervision and Reporting System (known as the “Glass Gate” system) was established. Under this system, since 1 January 2022 construction companies involved in construction projects that have an estimated value of HUF700 million or more and fall within the scope of the Public Procurement Act must keep a record of all employees and subcontractors entering and exiting the construction site. Such record must be reported to the national tax authority and the employment supervision authority.

From a sustainability and ESG point of view, the legislative trends and objectives of the EU must be considered. By way of an example, the proposed revision of the Energy Performance of Buildings Directive and the launch of the New European Bauhaus project are expected to have an impact on Hungary’s legislative environment.

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 with the land registry, whereas others – such as pre-emption rights or options – are valid irrespective of their registration.

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 of real estate 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 the 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, where it is a global requirement.

After COVID-19, it has become common to sign sale and purchase agreements (and other transaction documents) before 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, the land registry) and requesting additional documents that are 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; and
  • environmental and real estate-related litigation.

If the transaction is performed through a share deal or if financing is involved, the areas to be reviewed are more extensive (including – but not limited to – 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 any encumbrance or litigation;
  • there are no environmental issues; and
  • there are no hidden defects.

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

It is also customary to limit the seller’s maximum exposure to warranty liabilities up to the amount of the purchase price in the case of fundamental warranties. In the case of other warranties, a cap in a range between 10%–30% of the purchase price is usually applied.

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

The most important areas of law for investors in general 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 piece of 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, in line with the aforementioned rules. 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 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. However, 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 to 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.

The acquisition of agricultural land is only possible by natural persons. Acquisition of such land by foreigners (who are not citizens of the EU or the EEA) is excluded.

The New Hungarian FDI Regime was originally 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 controlled by an entity registered in a country outside of the EU, EEA or Switzerland.

The wording of the Hungarian FDI Regimes are drafted in a way that covers as many transactions as they reasonably can. The applicable FDI laws are quite vague and often confusing, which makes it very difficult in certain situations to decide whether a transaction is subject to the mandatory screening or not.

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:

  • registered charge over the property (prohibition on alienation and encumbrance is also usually registered against the property and, depending on their approach to enforcement, lenders often also request a call option right in respect of the property);
  • charge over ownership rights in the property holding company;
  • 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);
  • 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, the land register, the company register or the 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 “business-like 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 that are licensed in – or passported into – Hungary.

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

  • charges over certain types of land (eg, agricultural land and forests); or
  • mortgages over properties owned by companies that are considered to be “strategic” within the meaning of 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 requirements of providing valid security must be considered on a case-by-case basis.

As a general rule, managers of an obligor must act with the diligence of a prudent business person 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 where there is an indirect benefit to the guarantor and the beneficiary of the collateral has provided good consideration.

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 – security over real estate can be enforced by 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 – security can be enforced by a judicial officer or bailiff on the basis of an enforcement order issued by a court. This method of enforcement is available regardless of whether or not the security document is notarised.
  • Summary or “direct” enforcement – security can be enforced 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 being relied upon has been notarised.

Traditionally, lenders have requested that security documents must 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, in particular, 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 to be a “foreign investor” (see 2.11 Legal Restrictions on Foreign Investors) at the time of a potential future enforcement scenario that involves the sale/acquisition of property-holding entities that are considered to be “strategic” within the meaning of applicable Hungarian FDI regulations, the sale/acquisition is required to be notified and acknowledged by the competent minister.
  • As a general rule, private real estate may not be repossessed between 15 November and 30 April.

In general, 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.

As a general rule, 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 up 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. If this is done, 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 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.

Most real estate finance transactions are denominated in euros or Hungarian forints. Interest rates are set by reference to EURIBOR or BUBOR. The reformed methods of calculating EURIBOR (Euro Interbank Offered Rate) and BUBOR (Budapest Interbank Offered Rate) continue to be used for transactions.

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 the administrative areas of such municipalities.

The design, appearance, and method of construction of buildings and the refurbishment of existing buildings are governed by legislation. The construction process itself is also regulated by several laws, including Government Decree 191/2009 (IX.15), which is commonly 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 in this process. National or special agencies deal with projects that require special permitting, such as those that involve mining or certain infrastructure.

As of 17 August 2022, the competence of the National Architectural Design Council (the “Design Council”) has been increased by the Government Decree No 315/2022 (VIII 16), according to which the approval/recommendation by the Design Council is a precondition of the building permit process in certain cases. As a result, approval from the Design Council is now required for the architectural plans and technical specifications of, among others:

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

The competent land registry office is generally 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 generally responsible for determining zoning requirements and the designated use of various zones within its administrative area.

In general, a building permit issued by the locally competent building authority is required in order to start development on 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 and may submit their comments and complaints to the authority. Such parties will usually have the right to appeal against the decision issuing the permit and such an appeal may prevent the developer from starting construction or commercial use.

The permit rules and the rights of affected parties are vastly simplified when it comes to the construction of smaller residential buildings (below 300 square metres).

As a preliminary step in a development project, agricultural land often needs reclassifying as non-agricultural land in order to be eligible for development. There is a statutory option in which the Hungarian government passes a decision listing the exact properties and qualifies them as “targeted investment areas” in order to facilitate the planned investment.

Another statutory option is for the government to pass a decree and qualify 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 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. In practice, obtaining VIP status for an investment project can significantly shorten the time required for completion.

Decisions by the building authority may be appealed before the competent court, as a general rule.

It is specifically permitted by law for developers to enter into development and support agreements with the local municipality to facilitate a development project. Such agreement will typically provide the framework for co-operation between the parties in order to make the necessary changes to local town planning instruments.

The relevant law provides examples for the subject matter of the agreement. However, the subject matter may be anything that supports the development goals of the project and the municipality, and the parties are free to negotiate the terms and conditions of the agreement. The municipality decides in advance whether it agrees with the investor’s development goal; however, the agreement is ultimately 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 and monitors all construction activities and enforces rules pertaining to construction. Several other authorities may also be involved in this process, including the heritage protection authority and the environmental authority. However, the building authority contacts the competent special authorities directly to ask for their official statement. Authorities may apply a wide range of measures against unlawful construction activities, including issuing a notice to comply and – if the notice is ignored – imposing a fine or even suspending the construction until the breach is remedied. Restrictions on designated use may also be enforced by the locally competent land registry office, which may apply similar measures.

There are no specific rules on what types of entities are available to hold real estate assets; all types of entities are available to investors. 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 of the company 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. It is possible for a sole member to establish such company.

Public and Private Limited Company

The shareholders of a public limited company may not be held liable for the company’s obligations (apart from in some limited cases). Their obligation to the limited company extends to the provision of funds covering the nominal value or the accounting par value of shares. A limited company whose shares are listed on a stock exchange shall be recognised as a public limited company; one whose shares are not listed on any stock exchange shall be recognised as a private limited company.

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 an initial capital of at least EUR125,000 (or at least EUR300,000 in the case of real estate funds).

The initial capital of limited liability companies may not be less than HUF3 million.

The share capital of private limited companies may not be less than HUF5 million.

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, they 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 are obliged to elect an auditor. However, in the case of private limited companies, the shareholders shall elect an auditor if:

  • the company keeps double-entry book-keeping;
  • 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 of time 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 the right of use, the right of use of a land, the right of use for public purposes and usufruct.

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

The main source of regulation for leases is the Hungarian Civil Code, which contains the general rules for lease agreements. However, these are not mandatory rules and the principle of freedom of contract is generally applicable, including with regard to rent and term.

During the COVID-19 pandemic, specific regulations were enacted – for example, the introduction of a moratorium restricting termination of non-residential premises in certain sectors (such as tourism, catering, and entertainment). In addition, the landlord was not entitled to increase the rent, even if the given lease agreement would have otherwise allowed. However, as of 1 July 2022, these regulations and governmental actions are no longer in force.

In general, 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 agreement may be concluded for a definite or an indefinite period. Commercial lease agreements are typically concluded for a definite period, with the term usually being between five and 15 years. It is also common to provide the tenant with an extension right – usually for an additional five years. In some cases, tenants are provided with a break option that allows the tenant unilaterally to exit the lease by paying a certain agreed termination fee.

If the parties agree on a definite period term but the tenant exits the lease before expiry for any reason, it is standard that landlords request rent and service charge for the entire fixed term. However, in such cases, the landlord is obliged to mitigate the damages – ie, take all necessary actions to re-let the premises – or consider a new tenant introduced by the exiting tenant. If the premises are let successfully to a new tenant for a similar or higher rent, the landlord is not entitled to request compensation (rent, service charge) for this period.

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, lease agreements 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 (Központi Statisztikai Hivata, or KSH). 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% of the monthly rent during the discount period. The allocation of the rent discount should be regulated in the lease, as it is usually defined and spread along the term to “motivate” the tenant, as the tenant may no longer be eligible to rent discount if in breach of a material obligation under the lease (for example, if the tenant in arrears with payment).

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

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 generally. The general VAT rate is 27%.

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

At the start of the lease, tenants are often obliged to provide security to secure performance of the lease agreement (in the form of a cash deposit, bank guarantee or corporate guarantee). If the costs of the fit-out works are to be borne by the tenant (full or partially), the tenant must pay this amount to the landlord in advance.

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 their service charge contributions. Leases usually include a non-exhaustive list of costs that are to be borne exclusively by the landlord or covered by the service charge payments of the tenants.

In general, tenants pay the costs of utilities of the leased premises – either directly to utility providers (on the basis of separate utility agreements between each tenant and the utility providers) or to the landlord. In the latter case, the landlord pays the cost of utilities to the service providers and re-invoices such costs to the tenant.

In general, for the duration of the lease, tenants should take out an all-risk property insurance policy 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 carry and maintain an all-risk property insurance policy covering the building and landlord’s property therein, in addition to maintaining liability insurance.

Permitted use of the leased premises is usually agreed in the lease agreement and is also subject to the respective zoning in which the building is located, 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 contract by extraordinary notice.

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 proceedings 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 be entitled to change decorative elements that do not affect the structure. However, these changes must reflect the image and quality of the leased premises.

As mentioned in 6.2 Types of Commercial Leases, the main source of regulation for leases is the Hungarian Civil Code, which contains the general rules for leases. There are specific rules for the leasing of residential buildings and premises in Act 1993 of LXXVIII. 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 agreement 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 with the Registrar of Companies (or even if such procedures are threatened).

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

Generally, tenants are 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 in order to motivate the tenant and ensure the tenant leaves and vacates the leased premises.

In general, 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 company group, in which case notification is sufficient. It is also common in commercial leases to request eviction declarations from sub-tenants as well as tenants.

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 terminated by mutual consent;
  • if the apartment is destroyed;
  • if 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 lease agreements 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 a written form. However, lease agreements 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 an eviction declaration incorporated into a notarial deed and signed by the tenant 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 with the assistance of the authorities.

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 – apart from lease agreements of natural persons for residential properties.

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 has a responsibility 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 most commonly used tools 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.

There is a so-called construction trustee regime 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).

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.

VAT on Sale and Purchase

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, should the sale of the new residential unit take 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 zone (as described in 1.4 Proposals for Reform). Further relief is available to private individuals in the purchase of such residential units in rust zones.

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 are:

  • 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.

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 by more than 75% of real estate (including the real estate held by related companies and their Hungarian permanent establishments).

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.
Lakatos, Köves & Partners

Madách Imre u 14
1075 Budapest

+36 1 429 1300

+36 1 429 1390
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Law and Practice


Lakatos, Köves & Partners is a nine-partner firm based in Budapest, with more than 55 lawyers (including tax advisers) and a predominantly international client base. It was Clifford Chance’s office in Budapest for many years, but has been independent since 2009. Lakatos, Köves & Partners has a somewhat unique position as an independent one-country firm that focuses on working for international clients and often works with international law firms. Work ranges from development projects, ongoing portfolio management activity and new acquisitions and disposals by foreign investors to real estate activity linked with the industrial sector. The firm’s finance and tax practices co-operate closely on real estate project financing and work with the corporate and M&A team on real estate-related asset and share deals. Clients include Al Habtoor, Accenture, Allianz, China Investment Cooperation, the European Parliament, Horizon Development/DVM Construction, GLP, GLL Real Estate, Indotek Group, Mars, Marriott Hotels, Mogotel, Soulbrain, Thermo Fisher Scientific, Vodafone and Wizz Air.

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