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Country - Hungary
Commercial Leases
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A. SOURCES OF LEASE LAW
Applicable legislation
The general rules for leases are governed by the Hungarian Civil Code which provides the main rights and obligations of the parties entering into a lease agreement.
In respect of commercial leases of premises, the Act on the Lease of Flats and Premises provides special rules which prevail against the general rules of the Civil Code.
It is a general concept of Hungarian contract law that the contracting parties, unless the applicable law otherwise provides, may deviate from the provisions of the relevant law when negotiating and concluding a contract, although if there is any issue on which the contract is silent, the relevant rules of Hungarian contract law will apply.
In the case of commercial leases, however, the rules for termination are strict, which means that the parties may not contract out of the applicable provisions of the relevant law.
Do any specific rules apply to commercial leases?
See above.
Do different regimes apply to leases of commercial premises depending on the use of the premises by the lessee (offices, warehousing, industrial, retail)?
No.
B. DURATION AND TERMINATION OF LEASES
Is there a minimum or maximum obligatory term?
No leases in Hungary may be concluded both for a definite or an indefinite period of time and there are no statutory time limitations as to the term.
Does the lessee have a right to renew the lease upon expiry of the initial contractual period?
No statutory right of renewal is available to the lessee and any extension or renewal of the lease is subject to the agreement of the parties.
The lessor and the lessee may agree to extend the lease for a further period, which is usually three to five years. Generally, the terms and conditions of the new lease will be the same as those of the old lease, except for the amount of the rent and service charge. Consequently, a revision procedure is agreed in advance and should be commenced before the expiry of the initial term.
Do lessees enjoy security of tenure (i.e. the right to remain in occupation after their lease expires)?
There is no legislation in Hungary which gives a lessee of business premises the right, once his lease ends, to remain in occupation, and to renew his lease.
Do leases involve a lengthy procedure for the effective recovery of possession?
If the lease is terminated and the lessee does not surrender possession, the lessor will seek a court order and may request judicial enforcement to enable it to recover possession of the premises. This procedure can take several months.
Can government/local authorities require the compulsory termination of a lease?
Yes, in certain circumstances strictly regulated by law, the state or local authorities are entitled to acquire (expropriate) real estate including property held under leases. The state or the local authority is obliged to provide appropriate premises to the lessee in exchange.
Is there a preferential right of acquisition?
The parties are free to contract as they wish, therefore the lessor may grant a right of first refusal to the lessee, although it is not common in Hungary.
C. RENT AND COSTS
Are variable rental agreements common?
In Hungary, annual indexation on the basis of the consumer price index is general practice. Other types of variable rent agreements - including review of the rent at intervals in line with increases in the market rent for other similar properties - are not common in Hungary.
Most common indexation
Rent is normally adjusted annually in line with the inflation of the Hungarian Forint (at the rate of the consumer price index published by the Central Statistics Office of Hungary) or by an agreed proportion of the inflation. Where rent is determined in euros or US dollars, the Monetary Union Index of Consumer Prices issued by the Eurostat or the equivalent US CPI is generally applied for indexation.
Who usually pays the common expenses?
Normally, the lessor manages the property (especially in the case of multi-let buildings) and the services generally include security, heating, lighting and decoration and repair (and often replacement) of the structure of the building and the fabric of the common areas and common equipment, such as air conditioning and elevators. In the contractual practice the lessor is entitled to recover the full cost from the lessee or lessees by means of a service charge.
Are there any other expenses connected with the lease?
The lessor invariably insures a multi-let building and often a single-let building against all normally insurable risks and any loss of rent caused by insured damage. Quite often the full cost of insurance is passed back to the lessee or lessees as part of the service charge. Lessees are normally required to take out adequate insurance on the lessee's items brought into the property and for third party claims. In practice property-related taxes payable by the lessor are also frequently recovered in the service charge.
Which indirect taxes are applicable?
None, other than VAT. However, lease of premises is generally exempt from VAT, unless the lessor opted for applying VAT at a rate of 20%.
D. OBLIGATIONS OF LESSOR AND LESSEE
Who is responsible for the different works on the premises?
The lessor is obliged to maintain the common areas of the building, to correct serious defects in the structure and the interior of the building, in particular those relating to the gas, water and electricity systems, which can be a source of danger, and to maintain the central appliances in the building. The lessor is also obliged (as far as the legal, economic and technical possibilities allow) to make beneficial improvements, such as the installation of appropriate provisional and waste disposal systems, sanitary appliances, lifts and sound insulation.
Unless the parties otherwise agree the lessee shall be responsible for the maintenance and upkeep of its own premises, including cleaning, performing repairs, etc.
Can the lessee alter or improve the premises?
Any structural alterations will generally require the consent of the lessor. If the lessee makes structural changes to the property, then the parties have to agree on the costs. Without such an agreement, the lessee is not entitled to claim compensation for the improvements. The lessee may claim compensation from the lessor on the basis of unjust enrichment for improvements made to the premises by the lessee, if such improvements cannot be removed without harm to the conditions of the premises. Other improvements can be taken away by the lessee.
What restrictions are there on the lessee's right to use the premises?
Leases will generally restrict the use of the premises for a particular purpose. Activities which may cause a nuisance are prohibited.
Is there a right to transfer the lease?
Under Hungarian law it is legally possible to transfer commercial leases provided this is done with the consent of the lessor. The statute requires that such consent should be made in writing.
Transfer of the lease by the lessee is not very common; in such cases most lessors prefer entering into a new agreement with the new lessee. It is usually provided that the lessor's approval may not be unreasonably withheld and sometimes a deadline is set for the lessor's response.
Is there a right to sub-let the premises?
Unless otherwise agreed by the parties the lessee is entitled to sublet the premises upon the lessor's consent. Leases usually contain detailed stipulations as to the areas that can be sublet and the conditions of the subletting. Lessees generally sublet their premises rather than transfer the lease.
What are the usual guarantees?
The parties are free to contract as they wish. As security for any claims the lessor may have against the lessee, the lessee is often required to provide a security deposit (cash collateral) equivalent to approximately three months' rent or an irrevocable unconditional bank guarantee for the equivalent amount. A corporate guarantee from the parent company of the lessee may sometimes be acceptable.
The lessor holds a lien on the lessee's moveable property placed in the real estate securing any unpaid rent and costs. The lessor is entitled to block the removal of such property as long as its lien remains in effect. If the lessee removes such property without the lessor's permission and does not provide other appropriate security, the lessor is entitled to demand the return of the property at the lessee's expense. The lien is re-established upon the return of the property.
E. PARTICULAR TYPES OF LEASE
Do office leases have any particular characteristics?
There are some distinctions between leases of flats on the one hand and business premises on the other hand. As to flats, the lessee generally enjoys stronger protection. As to commercial leases, generally there is more freedom to contract.
Do retail leases have any particular characteristics?
Retail leases may have provisions enabling the landlord to maintain a suitable mix of tenants.
These agreements may contain obligations which exist for the benefit of the shopping centre as a whole. For example, an obligation to keep open and trade during specified hours and to contribute towards marketing the centre.
Although the lessor will maintain the structure and exterior of the premises, a retail lessee may be given the right to maintain its own shop front in its usual trading style.
Do hotel leases have any particular characteristics?
Hotel leases are similar to office leases, except where they are located in shopping complexes where they may have more of the characteristics of a retail lease.
Hotel leases often contain detailed provisions relating to the management of the property, or such management may be set out in a separate document with a dedicated hotel management company.
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