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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”). The concept of building right is not unfamiliar in the Hungarian legal system, as it was previously regulated in several Hungarian laws in the early 20th century. However, the first Hungarian Civil Code of 1959 no longer regulated building right. Therefore, after 64 years, 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. This right allows the holder of the building right to either construct or have a building constructed on the property and use the land for that purpose. Furthermore, the holder of the building right can possess, utilize, and make use of the building erected or already existing on the property. Building right can be established not only for future buildings but also for existing ones.
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 ascertainable 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 and Encumbrance
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 amendment emphasizes that the introduction of building right enables the financing of larger projects, such as the construction of a solar power plant. The difficulties in financing investments in the construction of various buildings, structures, artworks, and technical facilities arose from the lack of sufficient credit guarantees. 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: Prohibition for Consumers
It is important to note that, according to the law, it is prohibited for consumers to establish or acquire building right rights in relation to their own real estate.
According to the official justification of the law, this restriction is justified by the fact that for more than six decades, building right could not be established in Hungary, and its reintroduction became necessary primarily due to the expansion of the economy and financing possibilities for large-scale investments. On the other hand, the establishment of such a right requires a contractual structure that is typically of longer duration and significantly restricts the rights of the property owner. This necessitates more careful consideration, which is not feasible for private individuals, especially in consumer contracts. Furthermore, the novelty of this legal institution, the lack of experience and contract practice, as well as the lack of understanding of the basis and nature of this right, could create potential for abuse.
However, 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.
For further inquiries, the budlegal law firm is available to assist you at any time.
Dr. Dóra Tuczai, LL.M. (Berlin)
Attorney-at-Law
Partner at budlegal Law Firm