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Country - Hungary
Sale and Purchase
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A. ACQUISITION OF REAL ESTATE
Applicable legislation
Generally, the laws of Hungary shall apply.
Is the purchase of real estate assets by foreign investors subject to restrictions?
There are certain restrictions on the acquisition of arable land by foreign citizens and a prohibition on its acquisition by legal entities, whether foreign or domestic.
In addition, non-EU citizens and legal entities may acquire real estate only with the consent of the relevant chief administrative officer (megyei közigazgatási hivatal vezetője).
Do different legal regimes apply to the transfer of title to different kinds of real estate (commercial, residential, manufacturing)?
No, although there are restrictions on the transfer of certain types of real estate (for example arable land and protected buildings etc.
Do mandatory pre-emption rights apply to the sale of real estate assets?
In certain cases, yes. The Hungarian State has a pre-emption right in the case of protected historical buildings. Current occupiers, neighbouring landowners and the Hungarian State (in that order) have pre-emption rights to arable land. In case of sale of the ownership proportion by one co-owner of a jointly owned property the other co-owners have pre-emption rights.
Is expropriation (compulsory purchase) possible?
If so, under what conditions?
Yes. The Hungarian State and municipalities can expropriate real estate in certain exceptional circumstances for public purposes set forth by law (e.g. national defence, energy supply, development of traffic infrastructure), subject to providing complete, immediate and unconditional compensation to the owner.
Is real estate registered?
If so, is this official information made available to the public?
All plots of land in Hungary are registered with land registry offices located in designated Hungarian cities. The land register comprises: the land registry excerpts (including title deeds); the document archives; the realty map; and cancelled entries. It also includes other information relating to the real estate, such as details of encumbrances and easements. There are also details of the physical extension of the property and, in the case of agricultural land, the cadastral income. This information is generally trustworthy and accurate.
Land registers can be viewed by the public without restriction, notes can be made and official copies requested. Some of this information is also available on the internet to registered users. However, in some cases (for example, in the case of documents and official resolutions kept in the document archive) permission is required from the covenantee or grantee.
Is transfer of title recorded?
Can other related deeds (for example preliminary sale agreements) be recorded?
The transfer of title is recorded. Transfer of ownership of real estate is only valid once it is registered in the land register. Registration can be based on:
- a sale and purchase agreement in notarial deed;
- a sale and purchase agreement countersigned by an attorney-at-law or legal counsel;
- a decision of the court and authorities.
Letters of intent and preliminary sale agreements cannot be registered, however, if the property is sold with title reservation (i.e. the final purchase agreement is already signed but the transfer of title is subject to the payment of the full purchase price) then the fact of the sale with title reservation can be registered and prevents the sale by the seller to a third party.
Do buyers usually carry out due diligence?
If so, what due diligence is typically conducted and what is its timing (i.e. before or after contract execution)? Is there any protection for the buyer during the due diligence period (for example an exclusive right to negotiate or buy)?
In an asset deal investors usually carry out technical, environmental and legal due diligence on title, building permits, leases and contracts relating to the property. In a share deal a corporate and financial due diligence also takes place. Due diligence is carried out before purchase, typically after the signing of a letter of intent (heads of terms). A certain exclusivity period is in most cases agreed between the buyer and seller.
Is title insurance available?
Yes it is available; foreign insurance companies have recently started to offer title insurance in Hungary.
How are deals typically structured?
Either as direct acquisition of the real estate (asset deal) or acquisition of the company holding title to the property (share deal). The choice between these two structures is normally tax driven. A share deal avoids the payment of VAT and transfer tax (stamp duty) and allows an efficient tax planning for the vendor.
B. STRUCTURE OF THE CONTRACT
Are there formal requirements regarding the content and structure of the sale and purchase contract?
The deed of transfer must be made in writing. For registration of the transfer in the land register, the deed must be prepared by a notary or countersigned by an attorney-at-law or legal counsel (jogtanácsos). Further specific requirements are set out in the applicable act.
A preliminary contract must have the same written form as the final deed of transfer.
What is a typical contract like?
The content of the contract is subject to negotiation. However, essential elements include the purchase price and the exact identity of the property (including location and land registry number), the purchase price payment mechanism, date and method of handover, warranties, the vendor's consent to the registration of the purchaser's title, etc.
Are special consents required for certain transactions (for example consent by a spouse)?
The consent of a spouse must be obtained in the case of the sale of jointly owned assets. However, as a general rule, the sale of goods by one spouse is assumed to have the consent of the other, except where the buyer should have known that the other spouse did not consent to the sale.
There are certain pre-emption rights, however, which can be regarded as a special kind of consent (see above).
What seller's warranties are provided under statute (for example the state of building, asbestos etc)?
Can they be excluded or varied by contractual agreement? Is there a deadline for claims to be made?
According to the Hungarian Civil Code, the seller warrants that he has title to the property, that the property is free from any third party rights, and that it is free from any defects or lack of essential qualities that might preclude the agreed use of the property or which might have a negative impact on its value.
If these warranties are breached, the purchaser is entitled to request the termination of the sale and purchase agreement (upon return of the purchase price and the payment of damages by the seller) or a reduction in the purchase price.
The statutory warranties can be derogated by the agreement of the parties.
It is common to restrict representations and warranties in favour of the seller, and to link them explicitly to the buyer's due diligence by excluding everything which is disclosed in the due diligence documents.
What are the buyer's remedies against misrepresentation by the seller?
If the property is not free from third party rights, the buyer may withdraw from the agreement and demand compensation. If the seller acted in good faith, it is only obliged to pay any costs related to the execution of the agreement.
In the case the property is not free from defects,
a) the purchaser shall, in the first place, be entitled to choose repair or replacement unless this is impossible or it results in disproportionate expenses on the part of the seller as compared to the alternative remedy. If the seller is unable or unwilling to repair the goods within a reasonable time, the purchaser shall be entitled to repair the goods himself or have them repaired by others at the expense of the seller. Until repair or replacement is completed, the purchaser shall be entitled to withhold a proportionate portion of the purchase price.
b) if the purchaser is entitled to neither repair nor replacement or if the obligor refuses or is unable to provide repair or replacement, the purchaser may require an appropriate reduction of the price (or repayment of part of the price if it has already been paid) or have the contract rescinded. The purchaser is not entitled to have the contract rescinded in case of minor defect.
Are there any interests in real estate other than exclusive ownership?
If so, what are they?
Under Hungarian law the following rights may be exercised in relation to real estate:
Land use:
The owner of a building built on the land has the right to use this during the life of the building.
Usufruct:
This is a right to possess, use, and collect the proceeds of a property owned by someone else.
Right to use (beneficiary use):
This is similar to usufruct, although the individual can only use the property to meet his own needs and those of relatives living in the same household.
Easements:
These can be granted to enable an individual to use someone else's property for a specific purpose or to require the owner to refrain from certain activities.
Easements include the grant of rights of way, the supply and drainage of water, the building of a cellar, installing pylons, buttressing a building etc.
Mortgage:
The mortgagee is entitled to sell the mortgaged property and discharge its overdue claims secured by the mortgage from the purchase price.
Call option:
The beneficiary of the call option is entitled to purchase the property at any time within the option period by means of its unilateral statement upon payment of the purchase price agreed in advance.
Pre-emption right:
The beneficiary of the pre-emption right shall be entitled to purchase the property instead of a third party offeror if it accepts the terms and conditions of the purchase offer made by such third party.
C. PUBLIC LAW ASPECTS RELATED TO THE ACQUISITION OF REAL ESTATE
What are the most important areas of public law for an investor to consider when purchasing real estate?
The buyer should investigate the following:
- Zoning and town planning provisions: the general and detailed development plans, and related implementation rules will present whether the proposed use of the property is possible.
- Building permits: the structure must comply with the original building permits (as described in the attached designs and plans);
- Occupancy permits: all real estate assets must be granted an occupancy permit confirming that environmental, fire, and health and safety requirements have been met.
Is the buyer of a real estate asset responsible for soil pollution or contamination of the building even if it is not caused by him?
Yes. According to Hungarian environmental law, the owner and the occupier (if different) are both liable for any historical contamination. If the owner can prove beyond doubt that the contamination has not been caused by him and can identify the polluter, then the owner may be able to escape liability.
How can a buyer ascertain the possible uses of an area under the applicable zoning or planning laws?
Can uses be changed?
The local development plan and local laws describe the uses allowed in different areas of a city. Any change is subject to the amendment of the applicable local development plan.
Is it possible to enter into specific development agreements with relevant public authorities in order to facilitate a project?
Can public authorities make a charge for this?
Yes. Under development agreements the private developer normally undertakes to carry out certain public works, such as building roads, public parking spaces, green areas etc.
The completed developments shall be handed over to the public authority (e.g. municipality) free of charge.
D. TAXES RELATED TO ACQUISITION OF REAL ESTATE
Are there transfer taxes or sales taxes?
As a general rule, the transfer of real estate is exempt from VAT, unless the vendor opted for applying VAT at a rate of 20%. If the transfer is vatable, then the reverse charging mechanism applies, i.e. the purchaser is liable for VAT. The transfer of new buildings and building plots is always subject to VAT, and the seller is liable for VAT at a rate of 20%, i.e. no reverse charging applies.
If the parties agree to transfer the real estate asset through a share deal, no transfer tax is payable. If the transfer takes the form of an asset deal, 10% of market value is payable as transfer tax. The tax authority normally accepts the consideration (i.e. gross purchase price) stated in the transfer agreement unless it is obviously below the market value.
In the case of residential real estate, the tax rates are as follows: 2% on the purchase price for the value up to HUF 4 million (EUR 16,000) and 6% thereafter. If the buyer is a property dealer and acquires a property for resale, then the real estate transfer tax is normally 2%.
What are the normal transaction costs?
Costs will include legal fees (which can be charged at an hourly rate, on a fixed-fee basis or as a percentage of the purchase price) and notary fees (if the transfer agreement is put in a notary deed) which are in most cases calculated on the basis of the purchase price.
Estate agency fees are usually between 1% and 4% of the value of the property. Unless otherwise agreed between the parties, the agent can claim its entire fee from both parties.
How are transaction costs shared by the buyer and seller?
Usually the buyer pays the notarial and legal fees and transfer tax.
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