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The Building Licensing Rules are Changed, Eliminating the Possibility of Blackmail

The Building Licensing Rules are Changed, Eliminating the Possibility of Blackmail

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So far, it has been relatively easy for neighbours and other stakeholders to challenge the building permit of a major development project during the licensing process. This situation created major potential for extortion for these individuals. However, with the amendment of the building regulations, which came into effect on 1 March, this vulnerability would appear to have been eliminated.

The timing and cost of licensing always plays a significant role in the return on property investments. However, in addition to the unpredictability of the regulatory procedure, licensing has so far been exposed to another serious risk factor. Neighbours and other interested parties could challenge the decision issued by the building authority – even for concocted reasons. This could delay the completion of the construction by many months. In many cases, the opportunity to appeal has been used as a means of blackmail by those concerned: they have sought to obtain financial gain from the investor or the contractor by raising the theoretical possibility of a formal appeal against the development.

The new building regulations that came into force on 1 March, while changing the acting building authority, have put an end to the vulnerable position of developers and their clients.

The acting authority is set to change

While until the end of February, building permits were issued by the notaries of the municipality concerned, from March, these procedures have been transferred to government offices. What’s more, this change applies not only to new cases, but also to cases already in progress, provided that no substantive decision was taken in the matter by 29 February.

Given that many ongoing cases are expected to change hands, the transition is expected to be a time-consuming and lengthy process. However, it is important to know that the transfers do not affect the procedural deadlines. That is, the transfer alone does not extend the time limits for dealing with the case.

There can be no more appeals; all complaints must be taken to court

At the same time, as of the 1 March, it is no longer possible to appeal against building permits. From now on, the person who is adversely affected by the building permit must turn directly to the courts to assert his claim. In other words, the amendment does not affect the right of stakeholders to take action against an approved building permit, but they will have to do so through a more formalised judicial procedure rather than in a more informal and flexible appeal system. This is expected to reduce the number of legal remedies and increase investors’ sense of security.

It also improves the situation of investors that while appeals had a suspensive effect on the first-instance decision, the initiation of legal proceedings has no such effect. So far, even though the first-instance authority issued a permit, if an appeal was lodged against it, it was not possible to start the licensed construction work until the second-instance authority had made a decision on the appeal. And that was the real weapon for those blackmailing through such an appeal. From now on, however, in the absence of an extraordinary judge decision the commencement of the construction work need not to wait until the legal remedy procedure has been conducted.

Last but not least, the court will only review the lawfulness of the issued building permit in the context of a petition for action, which will also make life easier for the investors and contractors. In the case of an appeal, the second-instance authority would examine the entire official procedure that had come before, regardless of the reason for the appeal. That is, the decision could be annulled even if the appellant had “failed to guess the right reason”. From March, an appeal against the building permit will require more thorough preparation from the injured party, for whom it will not be enough to try to guess where the infringement may have occurred.

What can be expected in practice?

In the short term, the transfer of cases between authorities is likely to cause some disruption. It can also be expected that more cases than usual will result in a pending decision – that is, the client will automatically receive the requested building permit even if the authority has not taken a substantive decision in time. In the long run, the cost and time required for major investments could be reduced significantly. This, ultimately, may also have a positive effect on property prices.

By Levente Bihari, Senior Attorney, Jalsovszky

Hungary Knowledge Partner

Nagy és Trócsányi was founded in 1991, turned into limited professional partnership (in Hungarian: ügyvédi iroda) in 1992, with the aim of offering sophisticated legal services. The firm continues to seek excellence in a comprehensive and modern practice, which spans international commercial and business law. 

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