CMS Expert Guide on Private Rented Sector leases in Hungary

In Hungary, institutional PRS transactions are relatively rare.

A few local funds invest in residential apartments, but these are not significant players on the residential market. These funds also acquire single apartments, not only entire buildings.

An institutional investor would typically look at a forward purchase structure, buying a residential building from a developer.

The typical conditions precedent is obtaining an occupancy permit, completing the construction (as confirmed by a technical expert), and the general contractor providing securities.

Considering that residential leases in Hungary are usually concluded for a fixed term of one to two years, pre-letting the property would not necessarily be a condition precedent, in contrast to office, retail and logistics developments, where pre-letting is the key condition precedent.

Financing is generally secured by a mortgage over residential apartments and other accessory collateral (pledge over quotas of the borrower company, pledge over receivables and bank accounts, etc).

A PRS project is generally subject to the same rules as a simple residential building, and no additional permitting requirements apply.

Accordingly, the key permit is the building permit (for a residential building). Once the building is completed, an occupancy permit needs to be obtained.

Some additional permits might be required depending on the nature of the project, e.g. an environmental impact assessment if the affected area is over 20,000 sq. m. or there are more than 300 parking places; a water facility permit if a grease trap is installed in the parking garage.

From a permitting point of view, no special permits are required to let apartments.

Simple residential zoning is required; no special conditions apply to PRS projects.

PRS projects qualify in Hungary as pure residential properties and hence there are no special features from a licensing point of view. 

However, we consider it important to note that a distinction should be made between short-term rental schemes (“Airbnb” and similar services) and residential rentals of more than 90 days (typically one to two years). 

Short-term rental (accommodation) services are subject to a licence requirement and also subject to stricter fire safety regulations, whereas in the case of long-term residential leases, no permit is required.

Under government decree 181/2003. (XI.5.), a statutory warranty applies to residential apartments, and hence also to the PRS sector. The duration depends on the relevant building element and can be three years (wall and slab structures, covers, door and window structures, etc), five years (roof tiles, water insulation, etc) and ten years (foundation structures, load-bearing frames, slabs, roof structures, etc.).

Hungarian law on leases is quite flexible and parties are guaranteed a great deal of contractual freedom.

Some mandatory rules apply to all residential leases (see Section 12 below), but no specific provisions apply to PRS projects as such, i.e., to letting of residential apartments by institutional landlords, except for general consumer protection rules under the Civil Code. 

No limitations apply to the lease term, except that, as mentioned above, short-term leases qualifying as accommodation services  are subject to certain licensing requirements (while there is no specific definition of length, accommodation services are typically made for less than 90 days).

Under residential lease agreements, it is customary to provide a security deposit equal to two to three months’ rent. If the sum exceeds three months’ rent, such excessive security deposit may be reduced by the court at the tenant’s request.

Other collateral (such as a bank guarantee) is also possible, but rarely used in residential leases.

The landlord is not entitled to evict the tenant with force even if the lease agreement is lawfully and effectively terminated. If the tenant is not willing to move out and hand back over the premises voluntarily, the landlord must initiate court proceedings for eviction, which can take several months or even years. 

To reduce the risk arising from the tenant not being willing to voluntarily fulfill its eviction obligation, it is becoming market practice that the tenant signs a unilateral declaration in the form of a notarial deed, undertaking to vacate the premises in the event of receiving a termination notice from the landlord. If properly drafted, such notarial eviction declaration is directly enforceable and the landlord can start enforcement without resorting to a court. At the landlord’s request, the public notary stamps the declaration as directly enforceable, and the enforcement procedure can be initiated based on the decision of the notary.

However, while the enforcement regime based on the notarial vacation declaration is quite efficient for non-residential leases, in the case of residential leases there is an enforcement moratorium for evicting private induvial tenants between 15 November and 30 April. During this period, no enforcement actions are carried out.

Some mandatory rules apply to all residential leases, but these are not particularly burdensome for the landlord, except for the limitations on the eviction mentioned in above Section 11.
The law on leases provides mandatory rules mainly in the procedure of termination (requirement for a prior written notice, mandatory notice periods, etc.), and some basic allocation of the repair and maintenance obligations of the parties.

No statutory limitations apply to rent increases or indexation.

Hungarian law provides tenants under residential leases with a certain additional level of protection compared with standard leases for nonresidential premises. These include a moratorium on evictions during the winter months, a certain procedure for the landlord to follow in the case of termination, the court reducing excessively high security, etc.).

Yes, this is not regulated by law and is entirely up to the parties to agree.

Although this is not legally required, a PRS project is typically structured as a condominium; that is, each apartment qualifies as a separate real estate unit with a separate topographical lot number. Under the condominium structure, each apartment constitutes a separate legal object, with its own assigned share of the property’s common areas (including the land). 

If a PRS project is operated as a condominium, the decisions are to be made by the general meeting of the owners (to be held at least once a year) and the condominium is represented by the condominium representative.

In larger condominiums, an audit committee needs to be created or an auditor needs to be engaged to ensure proper accounting.

The tenants of a PRS scheme are not involved in the operation of the condominium and do not have any right to vote.