Under Hungarian law the following rights may be exercised in relation to real estate:
The owner of a building built on land has the right to use the land during the life of the building.
A right to possess, use and collect income and other proceeds from a property owned by someone else.
This is similar to usufruct, but the individual can only use the property to meet his or her own needs and those of his or her relatives living in the same household.
These are granted to enable an individual to use someone else's property for a specific purpose or require the owner to refrain from certain activities.
Easements include:
The mortgagee is entitled to sell the mortgaged property in order to recover unpaid claims secured by the mortgage.
The beneficiary of the call option is entitled to purchase the property at any time within the option period on payment of the agreed purchase price.
The beneficiary of the put option is entitled to sell the property at any time within the option period for the agreed purchase price.
The beneficiary of the pre-emption right is entitled to purchase the property on the same terms and conditions as a purchase offer made by a third party.
Last modified 22 Mar 2024
There are certain restrictions on the acquisition of arable land by foreigners and a prohibition on its acquisition by legal entities, whether foreign or domestic.
In addition, non-EEA citizens and legal entities may acquire real estate only with the consent of the relevant administrative office.
On the basis of the laws introduced due to the COVID-19 pandemic, in certain cases the acquisition of real estate assets critical to carrying out the activities of certain strategic sectors with an ownership structure involving directly or indirectly certain foreign elements may require a notification to, and acknowledgement by, the competent Hungarian ministry.
Last modified 22 Mar 2024
In certain cases, yes. The Hungarian State has a pre-emption right over protected historical, cultural or world heritage buildings, properties located in specifically designated areas having cultural or historical importance or national parks or located in areas designated for the construction of highways. Current occupiers, neighbouring landowners and the Hungarian State (in that order) have pre-emption rights over arable land. Municipalities and third parties are also provided with pre-emption rights by specific national laws and regulations.
When one co-owner of a jointly owned property wishes to sell, the other co-owners have pre-emption rights.
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The main sources of real estate law are:
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There are certain restrictions on the acquisition of arable land by foreigners 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 competent administrative office.
Furthermore, the transfer of protected buildings (eg historical or cultural heritage buildings) as well as state and municipally owned buildings is also subject to certain restrictions.
On the basis of the laws introduced due to the COVID-19 pandemic, in certain cases the acquisition of real estate assets critical to carrying out the activities of certain strategic sectors with an ownership structure involving directly or indirectly certain foreign elements may require a notification to, and acknowledgement by, the competent Hungarian ministry.
Last modified 22 Mar 2024
After a sale and purchase agreement is entered into, an application for the registration of the change of ownership is to be submitted to the appropriate land registry office. The transfer of ownership takes place when registration is completed by the land registry office.
Since registration of the transfer of ownership requires the consent of the seller (usually granted once final payment of the purchase price has been received), the buyer may seek a court order for consent or the court may grant consent itself if it has been unlawfully withheld by the seller.
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All plots of land in Hungary are registered with land registry offices located in designated Hungarian cities. The land register comprises:
It also includes other information relating to the real estate, such as details of encumbrances and easements, and, in the case of agricultural land, the cadastral income. The land register and the information registered in the land register is very reliable.
Land registers are accessible to the public, notes can be taken 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 to access and to apply for copies.
The transfer of title is recorded in the land register. Transfer of ownership of real estate is only valid once it is registered in the land register. Registration can be based on:
Letters of intent and preliminary sale agreements cannot be registered. However, if the property is sold with title retention (ie the final purchase agreement has been signed but the transfer of title is still subject to the payment of the full purchase price), then the fact of the sale with title retention can be registered in the land register, effectively preventing the seller from selling the property to a third party.
Yes, it is available, although it is very rarely obtained by purchasers, largely due to the fact that the land register is very reliable in Hungary.
Foreign insurance companies offer title insurance in Hungary.
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Prior to the conclusion of the sale and purchase agreement, due diligence is normally carried out. Afterwards, the sale and purchase agreement is entered into and submitted to the land registry office for registration. The purchase price is usually paid once the seller has given consent to the registration and other conditions agreed by the parties have been met.
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When buying an asset, investors usually carry out technical, environmental and legal due diligence on title, building and occupancy permits, leases and contracts relating to the property. When buying shares in a special purpose vehicle holding the real estate, corporate and financial due diligence is also carried out.
Due diligence is usually started after the signing of a letter of intent (heads of terms) and is completed before purchase.
An exclusivity period is in most cases agreed between the buyer and the seller.
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The consent of a spouse must be obtained if the sale is of jointly owned assets.
Certain pre-emption rights also effectively mean that specific consents are required. The Hungarian State has a pre-emption right over protected historical or cultural heritage buildings and buildings located in specifically designated areas having cultural or historical importance or national parks etc. Current occupiers, neighbouring landowners and the Hungarian State (in that order) have pre-emption rights over arable land. When one co-owner of a jointly owned property wishes to sell, the other co-owners have pre-emption rights.
Also, non-EEA citizens or legal entities must also obtain specific permission from the competent authority before acquiring property in Hungary.
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The deed of transfer must be made in writing. In order to register 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 Real Estate Registration Act.
The content of the contract is subject to negotiation. However, essential elements include the purchase price and the description of the property (including the location and topographical lot number), details of payment, the date and method of handover, warranties, and the seller's consent to the registration of the buyer's title (this is, however, usually contained in a separate document).
Last modified 22 Mar 2024
Under 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 use of the property or have a negative impact on its value.
Under Hungarian law, there are restrictions on the exclusion of statutory warranties. Where defects were disclosed to the buyer before or at the time the sale and purchase agreement was entered into then the buyer may not be able to make warranty claims in these areas.
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If the acquisition of ownership or other relevant right is adversely affected by a right of a third party, the purchaser will ask the seller to eliminate adverse matter within a specified time, or to provide adequate guarantees. If the seller fails to comply with this time limit the purchaser is entitled to withdraw from the contract and to claim damages. If the seller has acted in good faith, it is only liable for the losses incurred by the purchaser in the conclusion of the contract.
If the property being acquired is encumbered by a third party right (such as a mortgage right), or its value is reduced by this adverse matter, the purchaser may ask the seller to eliminate the encumbrance within a specified time. If the seller fails to comply within the deadline prescribed, the purchaser may eliminate the encumbrance at the seller’s expense.
If the encumbrance cannot be eliminated or if it would require unreasonable expense to do so, the purchaser is entitled to withdraw from the contract and receive compensation or to have the consideration reduced commensurately in exchange for the assumption of the encumbrance by the purchaser.
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The buyer should investigate the following:
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Yes. Under Hungarian environmental law, the owner and the occupier (if they are different persons) are both liable for any historical contamination. If the owner can prove beyond doubt that it did not cause the contamination and can identify the polluter, it may be able to escape liability.
Last modified 22 Mar 2024
The local development plan and local building code describe the uses allowed in different areas of a city in a very detailed manner, specifying building heights, maximum floor-space ratios, minimum landscaped areas, etc. Any change to the zoning of property requires an amendment of the applicable local development plan.
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Yes. Under a development agreement the private developer normally undertakes to carry out certain public works, such as providing roads, public parking spaces, green areas etc. These would then be handed over to the public authority (normally the municipality) free of charge.
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Yes. The Hungarian State and municipalities can expropriate real estate in certain exceptional circumstances for public purposes laid down by law (eg national defence, energy supply, development of traffic infrastructure, large scale greenfield developments creating a large number of workplaces), subject to providing complete, immediate and unconditional compensation to the owner.
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As a general rule, the transfer of real estate is exempt from VAT, unless the seller has opted to apply VAT at the rate of 27%. The seller may choose to apply VAT to the sale of real property other than residential properties. If the transfer is subject to VAT, then the reverse charging mechanism applies, ie the buyer is liable for VAT thus the VAT is not included in the invoice, rather it is paid by the buyer direct to the tax authorities.
The transfer of new buildings and building plots is always subject to VAT, and the seller is liable for VAT at the rate of 27% or 5% (ie no reverse charging applies). The lower rate (5%) applies to new residential buildings and apartments having a usable floor area not exceeding 300 sqm and 150 sqm, respectively or certain residential properties constructed within brownfield development projects implemented on specifically designated areas. The VAT payable on the completion of a purchase of real estate may be reclaimed in accordance with the provisions of the VAT Act.
If the transfer takes the form of an asset deal, 4% of the market value is payable by the buyer as transfer tax. A reduced rate of 2% applies to the value above HUF 1 billion. Nevertheless, the transfer tax payable cannot exceed HUF 200 million per real estate. The tax authority normally accepts the purchase price stated in the transfer agreement unless it is obviously below the market value.
If the buyer is:
then the real estate transfer tax is 2% or 3% (providing the property is sold/leased within two years). A 2% rate applies where the property is acquired by a Hungarian real estate fund.
The transfer tax rate is 2% if the property is purchased by a REIT (real estate investment company) or if it is a wholly owned special purpose vehicle.
In addition, a service fee is payable to the land registry office. Legal and notarial fees may also be incurred. These additional costs are usually paid by the buyer unless otherwise agreed (eg each party pays their own legal advisers' fees).
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In the case of a share purchase, the acquisition of 75% or more of the shares (including shares held by close relatives, related parties etc) in a company holding Hungarian real property is subject to transfer tax provided that the balance sheet value of the company's Hungarian real property (or properties) exceeds 75% of the company's total balance sheet value (subject to certain adjustments). In such cases the general transfer tax rate, ie 4%, applies. Nevertheless, (i) a reduced rate of 2% applies to the value above HUF 1 billion, and the transfer tax payable cannot exceed HUF 200 million per real estate asset; (ii) if the acquirer is a REIT (real estate investment company), a reduced 2% rate applies (regardless of value).
If no adjustment applies as prescribed by the Duties Act, the tax base is the market value of the real property (or properties) owned by the acquired entity (or entities) in proportion to the shares held by the acquirer.
The transfer of shares is exempt from VAT.
Minor stamp duty and publication fees are payable by the buyer to the Court of Registration. Legal and notarial fees (usually to be paid as agreed by the parties) may also be incurred.
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Which taxes are relevant/which transaction costs will be incurred when buying real estate via the shares in the owning company (share deal) and how are the transaction costs shared between the buyer and seller?
In the case of a share purchase, the acquisition of 75% or more of the shares (including shares held by close relatives, related parties etc) in a company holding Hungarian real property is subject to transfer tax provided that the balance sheet value of the company's Hungarian real property (or properties) exceeds 75% of the company's total balance sheet value (subject to certain adjustments). In such cases the general transfer tax rate, ie 4%, applies. Nevertheless, (i) a reduced rate of 2% applies to the value above HUF 1 billion, and the transfer tax payable cannot exceed HUF 200 million per real estate asset; (ii) if the acquirer is a REIT (real estate investment company), a reduced 2% rate applies (regardless of value).
If no adjustment applies as prescribed by the Duties Act, the tax base is the market value of the real property (or properties) owned by the acquired entity (or entities) in proportion to the shares held by the acquirer.
The transfer of shares is exempt from VAT.
Minor stamp duty and publication fees are payable by the buyer to the Court of Registration. Legal and notarial fees (usually to be paid as agreed by the parties) may also be incurred.
Last modified 22 Mar 2024