AN OLD-NEW LEGAL INSTITUTION IN HUNGARY:BUILDING RIGHT (“ÉPÍTMÉNYI JOG”)
Effective from June 24, 2023, the Hungarian Civil Code has been amended, introducing a new legal institution known as building right (in Hungarian “építményi jog”). After 64years, this legal institution is making a comeback in the Hungarian legal system.
ESSENCE
Under the building right, the holder of the building right has the right to construct and utilize a building on or beneath the surface of a property. It can be established on either existing or future buildings.
He/she also can possess, utilize, and make use of the building erected or already existing on the property.
Our expert:
Dr. Dóra Tuczai
LL.M. (Berlin)
Attorney-at-Law
Partner atbudlegal Law Firm
DURATION AND REMUNERATION
The building right can be established for a specific period, but not exceeding 50 years. It can apply to the entire property or a part thereof. The building right must be recorded in the land register. Any limitations on the building right are valid against third parties only if these limitations are a scertainable from the land register or the underlying contract.
The contract should specify whether the owner of the property will receive a one-time or recurring payments (long lease rent)for the establishment of the building right. The long lease rent is payable to the respective owner of the property.
TRANSFERABILITY
The most significant difference between building right and usufruct or lease rights is that building right can be transferred, acquired by succession, and encumbered with a mortgage or other rights such as a pre-emptive right.
The official justification for the legislative amendmentemphasizes that the introduction of building right enablesthe financing of larger projects, such as the construction of asolar power plant. The difficulties in financing investments inthe construction of various buildings, structures, artworks,and technical facilities arose from the lack of sufficient creditguarantees.
ENCUMBRANCE
The problem lay in the fact that the building or artwork to be constructed in the future could not be mortgaged because either the value of the existing properties was insufficient in relation to the value of the investment to be financed or the developer seeking the loan did not have ownership rights over the property.
This was a typical and significant obstacle, particularly for investments in solar power plants.
RESTRICTION FORCONSUMERS
It is important to note that, it is still not allowed for consumers to establish or acquire building rights in relation to their own real estate.
Although this new regulation is welcomed and will solve legal or contracting difficulties in different areas, this restriction is particularly disadvantageous for investments where the building is planned on agricultural land, as agricultural lands are currently mainly owned by private individuals.
Given that the official justification stated that the establishment of building rights for consumers is currently not allowed due to the aforementioned reasons, we assume that this prohibition is just a temporary restriction and will be abolished later.
