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Construction Right to be Reintroduced Into the Hungarian Civil Code

Construction Right to be Reintroduced Into the Hungarian Civil Code

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At the beginning of May 2023, a new bill to amend certain laws to increase the competitiveness of the economy was submitted for public consultation. The bill proposes amendments to many laws, but the most important of these is the regulation of construction right in the Civil Code.

Under the new legislation, the holder of a construction right may construct or use a building on or under the surface of a real property. This means that he has the right to construct a building and use the real property for this purpose, as well as the right to possess, use and benefit from the building constructed. The construction right is a marketable right, may be transferable, may be subject to succession, and may be held simultaneously and jointly by several holders, subject to the rules on common ownership.

Construction right is mainly comparable to a usufruct right, but it gives the rightholder a stronger basis in that it grants him, in addition to the right of free use and enjoyment, the right of free disposal of all the works and their components which are created under the right. The fact that construction right is a transferable and encumberable right also provides an additional possibility and advantage compared to the usufruct right.

The construction right can be established by a written contract for a limited period of time, and in addition to the contract, it also requires the registration of the right in the land register in favour of the holder. The establishment of a construction right may be free of charge or for consideration, as freely agreed by the parties. In the latter case, the holder of the construction right is obliged to pay a one-off and/or periodic recurring fee, the amount and due date of which must be specified by the parties in the contract establishing the right.

The bill provides for the possibility for the owner of the real property to establish the construction right for its own benefit as the beneficiary and to pledge it independently, however, a so-called “consumer” may not establish or hold construction right on the real property which he owns - except by inheritance.

The construction right will cease to exist if the rightholder has not exercised it for fifteen years or, if it has been established for more than fifty years and fifty years have elapsed from the date of its establishment. It is also important to emphasise that the transfer or encumbrance of the real property subject to the construction and vice versa are independent from each other.

A building established under a construction right remains part of the real property concerned even if the owner of the property and the holder of the construction right are different persons unless otherwise agreed by the parties, which is possible under the bill, according to the rules on the separate ownership of the building and the land. Therefore, the construction of a superstructure does not automatically create an independent right of ownership.

The reintroduction of the construction right could also have an economic stimulating effect. Currently, the financing of investments in buildings and technical equipment have a barrier to economic growth and competitiveness. The difficulty is caused by the fact that the building or structure to be constructed in the future cannot be mortgaged or accepted as collateral for a loan and cannot therefore, serve as adequate collateral for the financing needed to carry out the project.

Solar power plant investments are a typical example in this context, since the value of the investment is not only the asset to be installed and built, but also the power plant licence and the long-term takeover guarantee associated with the land. As in the case of renewable energy investments, the right of construction could significantly facilitate the financing of construction projects.

The introduction of this legal instrument is also justified by the fact that, at the same time, a complete overhaul of real estate registration law is underway, which will provide an appropriate basis and opportunity for the reintegration of construction law into the Hungarian legal system.

By Gabriella Galik, Partner, KCG Partners Law Firm

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The firm has a wealth of knowledge in corporate law, M&A, projects and construction, energy, real estate, tax, employment, litigation, privacy and forensics, securitization, estate planning and capital markets.

To address clients’ regional and international concerns, the firm maintains active working relationships with other outstanding independent law firms in Central and Eastern Europe, whilst senior counsel Mr. Blaise Pásztory brings over 40 years’ of US capital market and fund management experience.

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