1 REAL ESTATE LAW

1.1 Please briefly describe the main laws that govern real estate in Hungary. Laws relating to leases of business premises should be listed in response to question 10.1. Those relating to zoning and environmental should be listed in response to question 11.1.

The most important laws governing real estate are: the Hungarian Civil Code (Act IV of 1959); the Agricultural Land Act (Act LV of 1994); the Condominium Act (Act CXXXIII of 2003); the Building Act (Act LXXVIII of 1997); and the Land Registry Act (Act CXLI of 1997).

1.2 What is the impact (if any) on real estate of local common law in Hungary?

As part of the continental legal system, the Hungarian legal system does not recognise binding precedents. However, lower courts are generally bound by the harmonised decisions of the Supreme Court ("Kuria") and of the interpretations issued by the Constitutional Court ("Alkotmanybirosag").

1.3 Are international laws relevant to real estate in Hungary? Please ignore EU legislation enacted locally in EU countries.

International laws do not have a significant effect on the real estate law in Hungary. However, in case of foreign individuals and entities (other than residents or entities of a European Union or European Economic Area Member State), granting the permission to acquire the ownership of a real estate may be refused if the home state of such foreign person or entity does not provide equal treatment to Hungarian citizens or legal entities or persons under an international treaty or reciprocity.

2 OWNERSHIP

2.1 Are there legal restrictions on ownership of real estate by particular classes of persons (e.g. non-resident persons)?

Under the 1994 Act LV on Arable Land, non-residents, non- Hungarian nationals, non-Hungarian legal entities, and Hungarian corporate entities are not entitled to acquire ownership of arable land. EU and EEA nationals, who are farmers in Hungary for at least three years, may acquire arable land with a maximum area of 300 hectares.

With the exception of arable land, Hungarian individuals and legal entities may acquire ownership of real estate free of any restrictions. European Union (EU) and European Economic Area (EEA) citizens and legal entities acquiring ownership of real estate have the same treatment as Hungarian individuals and legal entities. Foreign individuals and foreign and Hungarian legal entities, however, may not acquire ownership over agricultural lands and nature preservation areas. The restrictions regarding the acquisition of arable land are applicable until 30 April 2014.

Foreign individuals and entities (other than EU or EEA citizens) may only acquire real estate – other than agricultural land and natural preservation areas – with the permission of the competent administrative office. This rule does not apply to real estate inherited by foreign individuals or in case of usucapio, expropriation, etc.

3 REAL ESTATE RIGHTS

3.1 What are the types of rights over land recognised in Hungary? Are any of them purely contractual between the parties?

Legal ownership over land in Hungary is classed as freehold. Ownership may be restricted by other rights (jura in re aliena) such as use, land utilisation right, usufruct, easement right, mortgage, etc. Some of these rights relate to real estate (e.g., easement) and some of them are considered as personal rights (e.g., option and pre-emption right, use, usufruct). Ownership, asset management right, right to use the land, use, easement, and mortgage is established upon their registration in the land registry.

Certain special forms of real estate ownership are recognised under Hungarian law, e.g., condominium and superficies (see question 3.2). Condominiums are real estate where certain areas are jointly owned by all co-owners, while other areas are in the exclusive ownership of the individual owners.

3.2 Are there any scenarios where the right to a real estate diverges from the right to a building constructed thereon?

As a general principle under Hungarian law, the ownership title of a building is bound by law to the ownership title of the land on which the building is located ("aedificium solo cedit"). As an exception from this general rule, the constructor of a building may acquire ownership of the building (superficies) based on the specific agreement between the land owner and the builder. In this case, the building is registered as an independent real estate, and the owner of the building will have the right of use on the land as long as the building exists.

4 SYSTEM OF REGISTRATION

4.1 Is all land in Hungary required to be registered? What land (or rights) are unregistered?

The Hungarian land registry keeps records of all lands located in Hungary.

4.2 Is there a state guarantee of title? What does it guarantee?

There is no state guarantee of title in Hungary.

4.3 What rights in land are compulsory registrable? What (if any) is the consequence of non-registration?

Pursuant to the Hungarian Land Registry Act, the following rights can be registered: (i) ownership; (ii) asset management right; (iii) usufruct; (iv) land use right; (v) easement; (vi) mortgage; (vii) pre-emption, re-purchase and option right; (viii) right of support and life annuity; and (ix) execution/enforcement right. Most of them are established with the registration thereof ("ad validitatem"). In case of other rights, such registration has only an "ad probationem" effect vis-a-vis third parties. In addition, there are legal facts that may be registered such as: (i) liquidation or insolvency process; (ii) expropriation and land formation; and (iii) construction and demolition of a building, etc.

In general, non-registered rights may not be effective vis-a-vis third parties.

4.4 What rights in land are not required to be registered?

In addition to the rights specified in question 4.3, there are other rights which do not require registration such as: leases; and statutory pre-emption, etc.

4.5 Where there are both unregistered and registered land or rights is there a probationary period following first registration or are there perhaps different classes or qualities of title on first registration? Please give details. First registration means the occasion upon which unregistered land or rights are first registered in the registries.

Hungarian law does not provide for different classes or qualities of title or a probationary period.

4.6 On a land sale, when is title (or ownership) transferred to the buyer?

Under Hungarian law the transfer of the ownership of land requires the fulfilment of two cumulative conditions: a legal title (e.g., sale and purchase); and the registration of the ownership in the land registry. The ownership transferred upon its registration in the land registry.

4.7 Please briefly describe how some rights obtain priority over other rights. Do earlier rights defeat later rights?

One of the principles of the Hungarian land registry is the principle of ranking order and priority. Accordingly, the position of an entry of record in the real estate register, and thus the sequence of such records, is determined by the filing date of the applications for such, unless otherwise prescribed by the Land Registry Act.

5 THE REGISTRY / REGISTRIES

5.1 How many land registries operate in Hungary? If more than one please specify their differing rules and requirements.

There is only one real estate registry in Hungary. The register of real property is kept by the Land Registry offices, organised in districts. A total of 121 district land registries and second instance organs in each of the 19 counties, plus in the capital of Budapest, are currently operating in Hungary.

5.2 Does the land registry issue a physical title document to the owners of registered real estate?

Only a resolution on the registration of the ownership is issued by the Land Registry and sent to the new owner. The ownership title can be certified by a certified land registry extract, the resolution on the registration does not qualify as a title deed. Land registry excerpts duly testify the rights and facts registered into the Land Registry and the ownership title of the real estate. Land registry excerpts may be requested by any person from any land registry in Hungary.

5.3 Can any transaction relating to registered real estate be completed electronically? What documents need to be provided to the land registry for the registration of ownership right? Can information on ownership of registered real estate be accessed electronically?

Transactions cannot be completed electronically, although the Hungarian land registry is kept as an electronic database. Only certain professionals and entities (attorneys, notaries, banks, public institutions, etc.) may have access to the electronic database. As a general rule, rights may be registered and facts may be recorded into the real estate register on the basis of public deeds, private documents of full probative force, or a notarised copy of such documents, which substantiate the creation, modification or termination of the right or fact which is the subject matter of the registration process (typically a sale and purchase agreement of the real estate countersigned by a lawyer). The document shall contain a statement of authorisation for registration from the original right holder. The Land Registry Act may prescribe additional documents than the above, such as the Power of Attorney of their legal representatives, the name and address of the Hungarian delivery agent in case of non-residential parties, etc.

5.4 Can compensation be claimed from the registry/registries if it/they makes a mistake?

If the land registry fails/refuses to correct the mistake upon the request of the person interested, such person may file a claim with the competent court, requesting supervision of an erroneous registration. The court may remedy the mistake and decide also on the payment of the damages (if any can be duly testified).

5.5 Are there restrictions on public access to the register? Can a buyer obtain all the information he might reasonably need regarding encumbrances and other rights affecting real estate?

See questions 5.2 and 5.3.

6 REAL ESTATE MARKET

6.1 Which parties (in addition to the buyer and seller and the buyer's finance provider) would normally be involved in a real estate transaction in Hungary? Please briefly describe their roles and/or duties.

  1. Selling and purchasing agents (or realtors)

    Realtors are usually employed by any party to any transactions involving real estate. The services rendered by realtors or real estate agents cover inter alia investment, appraisal, consultation, and analysis.
  2. Lawyers

    The legal documents to be submitted to the land registry are to be notarised or prepared and countersigned by a Hungarian attorney.
  3. Notaries

    Once countersigned by an attorney, the legal document to be submitted to the land registry does not require notarisation. In case a foreign person wishes to sign the sale and purchase agreement overseas the authentication (legalisation) is required. Collateral documents are frequently notarised.
  4. Others - civil engineers

    Civil engineers are usually involved in large scale real estate projects. Their services cover technical issues (preparation of technical due diligence reports, consultancy, construction supervision, etc.).

6.2 How and on what basis are these persons remunerated?

The attorney's fee may be freely agreed upon by the parties. Some of the notary fees are regulated by law and calculated according to the subject value of the transaction.

6.3 How has the real estate market in Hungary recovered or reacted following the global credit crunch and worldwide recession in 2008/2010? What were the most important real estate transactions in Hungary in the past year? Please include both local and international investors in your answer.

The waves of the global credit crunch hit the country at the same time the Hungarian state budget and the general economy was in a recession. Developers must cope with very restricted availability of funding (some financing commitments were cancelled immediately before the intended conclusion of the agreement). The few courageous developers who have sufficient own equity can, however, take advantage of the under-utilisation of the construction firms and the resulting lower prices. In Hungary the volume of the investments is still significantly below the levels before the first wave of the global financial crisis. The technical highlights of the Hungarian market were typically international cross-border transactions, or transactions in connection with the restructuring of the real estate portfolio of a company. The prospects for the real estate market in Hungary remain generally linked to the macroeconomic outlook of the country. With only a few smaller transactions the market is still stagnant and the investors are waiting for an upward shift on the Hungarian economic environment.

6.4 Is there a trend in Hungary towards the investment in retirement homes / nursing homes due to the increased ageing of the population?

The health and the social care systems in Hungary provide full coverage of services for long-term care patients, such as persons in need of social care or pensioners. The health care system is managed by the National Health Insurance, while the social care system operates at local level. In addition to the public services an increasing number of long-term patients prefer retirement homes and nursing care organisations which belong to the private sector, offering additional services and higher quality standards compared to the public organisations. However, a clear trend on the Hungarian real estate market towards the investment in retirement homes or nursing homes is not recognisable.

7 LIABILITIES OF BUYERS AND SELLERS IN REAL ESTATE TRANSACTIONS

7.1 What (if any) are the minimum formalities for the sale and purchase of real estate?

The parties may freely establish the content of their agreement. According to the Hungarian Civil Code, a sale and purchase agreement must contain at least the names of the parties, the subject matter of the contract (the transfer of real estate) and the purchase price. All real estate sale and purchase contracts have to be concluded in writing. Beyond the above validity requirements, further formalities (notarisation or countersigning by an attorney) and the indication of certain personal data (e.g., tax number) are required for the document to be admitted as a basis for the land registry procedure.

7.2 Is the seller under a duty of disclosure? What matters must be disclosed?

Yes. As a general rule the seller must inform the buyer of the essential features and important requirements (in particular third party rights and encumbrances) of the real estate and provide the buyer with the relevant documents.

7.3 Can the seller be liable to the buyer for misrepresentation?

The seller is liable for misrepresentation (see question 7.4).

7.4 Do sellers usually give contractual warranties to the buyer? What would be the scope of these? What is the function of warranties (e.g. to apportion risk, to give information)? Are warranties a substitute for the buyer carrying out his own diligence?

If mutual covenants and consideration are provided under a contract, the obligor warrants that the service or object provided complies with statutory and contractual requirements. This type of liability is not subject to accountability and is generally referred to as warranty in legal documents drafted in English ("szavatossag"). Under warranty of title ("jogszavatossag") the seller warrants that the object of a sale is free from any third party rights or claims. The function of the warranty is to provide the beneficiary thereof with a tool to claim compensation in case the quality of the service received does not correspond to the purchase price.

The seller may undertake a guarantee ("jotallas") as well; in this case the seller will have the burden of proof ("onus probandi") regarding lack of defects. In certain cases (e.g., selling of residential real flats) the guarantee is mandatory.

Statutory and contractual warranties should not be regarded as substitutes for due diligence, in fact, the scope of contractual warranties is often based on due diligence findings. Conducting a purchaser due diligence is recommended; the scope of such due diligence procedure depends on the complexity and value of the project.

7.5 Does the seller warrant its ownership in any way? Please give details.

Yes, in case of purchase agreements there is a statutory warranty of title.

7.6 What (if any) are the liabilities of the buyer (in addition to paying the sale price)?

The buyer has to enter into possession, has to pay the lawful amount of transfer tax (see question 9.1), and also bears the costs of the registration of his ownership in the land register.

8 FINANCE AND BANKING

8.1 Please briefly describe any regulations concerning the lending of money to finance real estate. Are the rules different as between resident and non-resident persons and/or between individual persons and corporate entities?

There are no specific laws that regulate the loans to finance real estate. The loan agreement has to be drawn up in writing if the creditor is a bank. There are no specific characteristics for loan agreements financing the acquisition of real property. There are no different rules if the loan agreement is concluded between resident and non-resident persons and/or between individual persons and corporate entities.

8.2 What are the main methods by which a real estate lender seeks to protect itself from default by the borrower?

Mortgage over the real estate is the most common collateral for such financing arrangements. In addition there are further securities provided by the borrower to the lender such as: (i) (direct) suretyship; (ii) pledge over shares (if the borrower is a corporate entity); (iii) assignment of receivables and insurances; (iv) option right; (v) prohibition on encumbrance and alienation; and (vi) floating charge over the assets of the borrower, etc.

8.3 What are the common proceedings for realisation of mortgaged properties? Are there any options for a mortgagee to realise a mortgaged property without involving court proceedings or the contribution of the mortgagor?

Unless otherwise provided by law, satisfaction from mortgaged properties shall be carried out on the basis of a court order by way of judicial execution. However, prior to satisfaction, the parties may agree in writing on the joint sale of the mortgaged property instead of a judicial execution procedure, provided that the parties also agree: (i) on the lowest purchase price, or at least on the calculation method of the purchase price; and (ii) on the time limit for carrying out the joint sale. In case the mortgagee qualifies as a credit institution, the parties may agree under the terms and conditions as prescribed above that the mortgagee is entitled to sell the mortgaged property without judicial execution. These proceedings ensure the right of the mortgagee to realise a mortgaged property without involving court proceedings, and qualify as the most common methods for the realisation of mortgaged properties in Hungary by banks.

8.4 What minimum formalities are required for real estate lending?

Statutory requirements relating to loan agreements are quite limited. The loan agreement has to be drawn up in writing if the creditor is a bank. There are no specific characteristics for loan agreements financing the acquisition of real property. Under the standard market practice, mortgage agreements and often the loan agreements themselves are notarised to ensure direct enforcement.

8.5 How is a real estate lender protected from claims against the borrower or the real estate asset by other creditors?

In case the lender has a mortgage over the borrower's real estate and such mortgage is registered in the land registry the lender is entitled to enforce its claims before other creditors whose claim is not secured with mortgage or their mortgage is registered at a lower rank place in the land registry.

9 TAX

9.1 Are transfers of real estate subject to a transfer tax? How much? Who is liable?

The acquisition of properties in Hungary is subject to stamp duty/transfer tax. If the property is residential, the rate of the transfer tax is 2% up to HUF 4 million and 4% for the excess part of the market value. If the property is not residential, the standard stamp duty rate is 4% below the value of HUF 1 billion, while the amount in excess is subject to 2% stamp duty. However, in this case the maximum amount of the stamp duty may not exceed HUF 200 million for each real estate. A lower stamp duty rate (2%) can be applied if the acquisition qualifies as a transfer of the real property for commercial purposes pursuant to the Act XCIII of 1990 on Duties.

The acquisition of shares in a company which owns domestic real estate, or owns (directly or indirectly) at least 75% of a company which owns real estate is subject to stamp duty/transfer tax. The transfer tax payment liability applies only if the percentage of capital shares owned by the acquirer or its affiliated companies following the acquisition is at least 75% of all capital shares. In addition to the above condition, the transfer tax payment liability applies only for the acquisition of capital shares in companies whose principal business activity is one of the following: (i) development of building projects; (ii) construction of residential and non-residential buildings; (iii) renting and operating of own or leased real estate; or (iv) buying and selling of own real estate. By calculating the 75% share acquisition volume, the various individual acquisitions of shares below the threshold should be added up and considered together in case the acquirers are related companies, or close relatives. The market value of the real estate owned by the company shall qualify as transfer tax base, proportionate to the amount of shares transferred, while the transfer tax rate is equivalent with the general transfer tax rate applicable in case of asset transfer.

9.2 When is the transfer tax paid?

In case of transfer of ownership, a notification to the tax authority must also be submitted to the land registry, as the basis for determining the transfer tax. The transfer tax is payable once the tax authority has issued a written notification stating the amount of the tax and the payment deadline.

9.3 Are transfers of real estate by individuals subject to income tax?

See question 9.5.

9.4 Are transfers of real estate subject to VAT? How much? Who is liable? Are there any exemptions?

Companies are allowed to choose between applying the standard VAT rate of 27% with respect to property sales, or the VAT exempt method. The VAT exempt method allows companies not to charge VAT on property sales; however, in that case VAT cannot be reclaimed on input services.

Newly established companies can opt to apply the standard VAT rules by indicating their relevant intention when submitting the prescribed documents concerning the establishment to the Court of Registration. The VAT treatment of property sales cannot be changed for five years from the above election.

If the sale of a property is made within two years of the issuance of the final occupancy permit, or the sale is made before the first actual, proper occupation and utilisation of the property, the sale is subject to VAT. In case of a sale after two years of the issuance of the occupancy permit, the VAT treatment depends on the election of the taxpayer (the sale is VAT exempted unless an election is made by the taxpayer to the contrary).

VAT is paid by the buyer to the seller, and the seller must pay the VAT to the tax authority. The current VAT rate is 27% of the purchase price.

9.5 What other tax or taxes (if any) are payable by the seller on the disposal of a property?

Based on the general rules, private individual sellers shall be required to pay 16% personal income tax upon the transfer of a real property. Certain costs occurred in connection with the real estate (such as the acquisition costs, renovation costs) can be deducted from the tax base.

If the seller is a corporate entity, a corporate tax rate of 10% shall be payable in respect of the first HUF 500 million portion of the positive tax base (including revenues from real property sales) and 19% regarding the portion in excess.

VAT shall be paid as set out in question 9.4 above.

9.6 Is taxation different if ownership of a company (or other entity) owning real estate is transferred?

As a main rule in Hungary, a company considered as a 'real estate company' if the following requirements are met: more than 75% of its consolidated total assets represented by real estate are located in Hungary; and at least one of their shareholders is resident in a state, with which Hungary has not concluded a double tax treaty or in a state where the double tax treaty allows such gains to be taxed in Hungary. Tax liability for the shareholders of a 'real estate company' will arise when the shareholder sells, gifts, or contributes the shares of such company. The tax base is the difference between the income from the sale of the shares and the acquisition costs including expenses related to the shares during the shareholding period. The current tax rate is 10% regarding the first HUF 500 million of the accumulated positive tax base, and 19% regarding the portion in excess. In case of transferring through a share deal, no VAT liability shall arise.

10 LEASES OF BUSINESS PREMISES

10.1 Please briefly describe the main laws that regulate leases of business premises.

Lease agreements must be concluded in writing and are governed by the Tenancy Act and by the Civil Code. Furthermore, in connection with the dispossession, some provisions of the Act on Court Enforcement Procedures also apply. Under Hungarian law, some statutory provisions are mandatory but the main part of lease conditions is freely negotiable.

10.2 What types of business lease exist?

Hungarian law does not distinguish between different types of business leases.

10.3 What are the typical provisions for leases of business premises in Hungary regarding: (a) length of term; (b) rent increases; (c) tenant's right to sell or sub-lease; (d) insurance; (e) (i) change of control of the tenant; and (ii) transfer of lease as a result of a corporate restructuring (e.g. merger); and (f) repairs?

  1. Length of term

    Although there are some contracts with an indefinite term – especially regarding residential real estate – leases of business premises are generally concluded for a definite period of time, typically varying from 1 to 5 years.
  2. Rent increases

    The rent, and its indexation, is generally freely negotiable. Typically, the index or inflation rate, as published by the Hungarian Office for Statistics (rents defined in Hungarian Forint) or by Eurostat (rents defined in Euro) are applicable.
  3. Tenant's right to sell or sub-lease

    Hungarian law does not regulate the transfer/assignment of a lease right. It is also not common to stipulate such a right in the framework of a lease agreement. The tenant is only entitled to sublet the lease premises subject to the landlord's consent. Such a sub-lease does not affect a tenant's position in the main contract.
  4. Insurance

    In case of business premises, property insurance is maintained by the owner, but the costs are often recharged to the tenant, while the tenant is required to maintain business insurance.
  5. (i) Change of control of the tenant

    Under Hungarian law, a change in the tenant's ownership does not affect the lease relations. Nevertheless, lease agreements generally provide for prior notices in this regard, or the provision of further lease collateral (bank or parent company guarantee).

    (ii) Transfer of lease as a result of a corporate restructuring (e.g. merger)

    A corporate restructuring on the tenant's side will usually result in a general legal succession, and an automatic change in the tenant's position.
  6. Repairs

    The landlord has to maintain the building, its central equipments/facilities and the premises for common use (Tenancy Act). Generally the landlord warrants that the leased premises are appropriate for the intended use. Such maintenance or even minor repairs or the cleaning are usually covered by the operational costs.

10.4 What taxes are payable on rent either by the landlord or tenant of a business lease?

Any income from lease activities shall increase the personal income and corporate tax base, respectively, and shall be subject to taxation under general rules. Private persons consolidate the income from lease with their general tax base and pay 16% personal income tax on the total income. Private persons pay 14% of the total income as healthcare contribution additionally in case the yearly income from the lease exceeds HUF 1 million. Under Hungarian law, with certain exceptions, conducting leasing activity is free of VAT. However, landlords can choose to apply VAT and regarding the lease of business premises. This may be recommendable, as otherwise tenants may not be able to off-charge their VAT payments.

10.5 In what circumstances are business leases usually terminated (e.g. at expiry, on default, by either party etc.)? Are there any special provisions allowing a tenant to extend or renew the lease or for either party to be compensated by the other for any reason on termination?

Business leases are usually terminated through expiry. The Hungarian regulation is quite strict on termination and there are some mandatory provisions to comply with otherwise the termination can be declared null and void. The landlord can terminate a lease with a definite term only on default of the tenant (i.e., default on paying the rent, on performance of a material obligation, intolerable behaviour, non-allowed usage, causing damage, etc.) ("extraordinary" termination) (Tenancy Act). Generally, the tenant is not allowed to terminate a lease concluded for a definite term. However, the court practice recognises the tenant's right to terminate the agreement in case the landlord is in a breach of a warranty (e.g., the leased premises cannot be used). Indefinite term leases can also be terminated with an "ordinary" notice meaning that no default is necessary. Statutory notice periods and the termination procedure (including a reminder regarding the legal consequences of the non performance) must be observed. Extension rights and compensation (usually a contractual penalty) are subject to the lease agreement.

10.6 Does the landlord and/or the tenant of a business lease cease to be liable for their respective obligations under the lease once they have sold their interest? Can they be responsible after the sale in respect of pre-sale non compliance?

Transferring interests/shares in the landlord or the tenant (share deal) does not affect the lease. Sale of the leased premises (asset deal) results in a legal succession on the landlord's side under the Civil Code. The seller will have no obligations under the lease agreement following the succession. The succession, however, does not affect obligations incurred before the transfer or any recourse against the seller under the sale and purchase agreement.

10.7 Green leases seek to impose obligations on landlords and tenants designed to promote greater sustainable use of buildings and in the reduction of the "environmental footprint" of a building. Please briefly describe any "green obligations" commonly found in leases stating whether these are clearly defined, enforceable legal obligations or something not amounting to enforceable legal obligations (for example aspirational objectives).

In line with the EU-directive 2002/91/EC, the Hungarian government has introduced a unified energy performance assessment method by adopting Government Decree No. 176 from 2008 on the certification of the energy performance of buildings, which promotes green development on the domestic property market. As a general rule under Hungarian law, obtaining an energy certificate is required for the builder of a new building, prior to actually taking possession of the building. Generally, green certificates must be obtained also in case of a lease, or in case of purchase of a building. In case of lease or purchase, the owner must present the energy certificate to the lessee or the purchaser.

11 PUBLIC LAW PERMITS AND OBLIGATIONS

11.1 What are the main laws which govern zoning and related matters concerning the use and occupation of land? Please briefly describe them and include environmental laws.

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

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

11.2 Can the state force land owners to sell land to it? If so please briefly describe including price mechanism.

The state is entitled to expropriate land from the owner only in special cases if a public interest (public traffic, military purposes, etc.) exists, and subject to immediate and full compensation. The amount of the compensation is established based on the local market value of the real estate. If the owner does not accept the compensation offered, he can request the court to determine the price.

11.3 Which bodies control land/building use and/or occupation and environmental regulation? How do buyers obtain reliable information on these matters?

The building departments of the local municipalities control the construction works and/or occupation and they issue the various types of permits. During the licensing procedure, several other authorities having specific duties (fire protection, health, environmental protection, utility, etc.) also grant their approval and they are also entitled to set forth specific conditions.

11.4 What main permits or licences are required for building works and/or the use of real estate?

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

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

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

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

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

The two remaining construction permits are the permit for function change and the retroactive building permit.

11.5 Are building/use permits and licences commonly obtained in Hungary? Can implied permission be obtained in any way (e.g. by long use)?

While most construction works still require a valid building permit, certain construction works (e.g., fence, private roads, temporary buildings etc.) may be carried out based on a notification sent to the building authority. Furthermore, there are certain construction works that require neither a building permit nor a notification.

If a building is erected without a valid building permit or in breach of the provision of a building permit (illegal buildings), the building authority may, subject to certain conditions, grant a continuation (retro-active) permit. Nevertheless, the building authority may also take further measures not later than 10 years from the completion of the construction works or the occupancy of the building (implied permission).

11.6 What is the appropriate cost of building/use permits and the time involved in obtaining them?

The general official administrative deadline is two months; the administrative terms vary depending on the type of the procedure and construction works. However, the procedural deadlines may be extended by the authorities. The actual timeframe for the licensing procedure depends on the type and the size of the development project, a first instance non-binding building permit can normally be obtained within 2-3 months.

The costs of the building/use depend on the scale of the real estate project.

11.7 Are there any regulations on the protection of historic monuments in Hungary? If any, when and how are they likely to affect the transfer of rights in real estate?

Historical monuments of national importance in Hungary are protected by the Act LXIV of 2001 on the Protection of Cultural Heritage. In addition to the national protection of historic buildings, local governments are also entitled to classify buildings as part of the local cultural heritage (FVM Decree 66/1999 (VIII.13). As part of the protection of historic monuments, the Act on the Protection of Cultural Heritage provides pre-emption rights for the Hungarian state, and for the local governments for buildings classified as historic monuments.

11.8 How can e.g. a potential buyer obtain reliable information on contamination and pollution of real estate? Is there a public register of contaminated land in Hungary?

A public register of contaminated land does not exist in Hungary. However, the permanent contamination and pollution of real properties may be registered in the real estate register as a significant fact related to the property based on (i) decisions of the relevant Hungarian environmental authority, or (ii) relevant court decisions. In addition to the fact of the contamination, the registration shall contain the extent and nature of permanent environmental damage.

11.9 In what circumstances (if any) is environmental clean up ever mandatory?

The relevant authority may, subject to certain statutory conditions, order a mandatory environmental clean-up. The polluter must take all necessary steps to mitigate the impact of the pollution and to restore the original conditions. In addition to the general application of the "polluter pays" principle, the owner of the real estate may also be ordered to conduct the environmental clean-up, and an environmental fine may also be levied on the owner. Beyond the legal consequences and sanctions under administrative law, the polluter is also liable under civil law.

11.10 Please briefly outline any regulatory requirements for the assessment and management of the energy performance of buildings in Hungary.

Directive 2002/91/EC is transposed into the Hungarian legal system by Ministerial Decree 7/2006 (V.24).

12 CLIMATE CHANGE

12.1 Please briefly explain the nature and extent of any regulatory measures for reducing carbon dioxide emissions (including any mandatory emissions trading scheme).

Under the current EU ETS system, at least 90% of the carbon dioxide emission allowances (the "Allowances") are allocated by Member States to installations free of charge during the 2008 to 2012 period. Pursuant to the New EU ETS Directive, as opposed to the current system, the main rule for the distribution of Allowances will be mandatory auctioning as of 1 January 2013.

The rules on Allowance trading in Hungary are provided by Act XV of 2005 on the Trading of Allowances and its enforcement decrees provide for the rules on Allowance trading. Hungary has submitted a derogation request for the third (starting from 1 January 2013) and fourth (starting from 1 January 2021) trading period of EU ETS and the European Commission has already approved the derogation in relation to the third trading period. In the National Plan attached to the derogation request, the Ministry of National Development sets out that from the value of the Allowances allocated free of charge to the emitters in the third trading period, a pumped storage project, smart metering pilot projects and a natural gas pipeline connecting Hungary and Slovakia will be supported by the government.

12.2 Are there any national greenhouse gas emissions reduction targets?

The National Climate Change Strategy ("Nemzeti Eghajlatvaltozasi Strategia") (the "Strategy") for the period of 2008 to 2025 has been adopted by Parliament resolution 29/2008 (III.20). The objectives of the strategy will be accomplished by national climate change programmes that are be outlined by the government every two years and, pursuant to the Strategy, Hungarian greenhouse gas emissions will see a 20% decrease by 2025 compared to the base year of 1990.

12.3 Are there any other regulatory measures (not already mentioned) which aim to improve the sustainability of both newly constructed and existing buildings?

Decree No. 7/2006 (V.24) TNM on the determination of energy characteristics of buildings sets out that during the design of a new building over 1,000 m3 the applicability of (i) energy supply systems based on renewable energy sources, (ii) heat pumps, and (iii) electricity generation in a cogeneration process, must be examined.

Furthermore, compulsory renewable energy share targets and/or maximum values for carbon dioxide emissions in respect of certain buildings would be introduced in the amendment, according to the National Renewable Energy Action Plan.

Grants for Renovation of Prefabricated-Panel Residences provides funds for the renovation of residential buildings built with prefabricated panels (being large block buildings with low thermal U value).

This article appeared in the 2013 edition of The International Comparative Legal Guide to: Real Estate; published by Global Legal Group Ltd, London. www.iclg.co.uk.

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