Law and regulation of rental agreements in Hungary during Covid-19

Updated on 23.03.2020

No, in principle not, but final determination must be made on a case-by-case basis depending on the specific terms of the lease.

The lessee is entitled to close its premises, unless contractually agreed otherwise. In principle the lessee would not be eligible for rent reduction as a result of the COVID-19, but final determination must be made on a case-by-case basis [depending on the specific terms of the lease].

Under the Civil Code of Hungary, no rent shall be paid by the lessee for the time period during which the lessee cannot use the leased premises due to circumstances beyond its control. However as a general principle, new legislation adversely affecting the lessee's operation is perceived to be the entrepreneurial risk of the lessee, although as the Hungarian Government has enacted restrictions on opening hours impacting certain industries, a final determination on this point can only be made on a case-by-case basis taking into consideration all circumstances such as the type of premises leased by the lessee, terms of the lease agreement and scope of the Governmental intervention.

Bank guarantees and cash deposits are most common in the market with some lessees providing parent company guarantees as the form of security under the lease.

As noted above, under the Civil Code of Hungary, no rent shall be paid by the lessee for the time period during which the lessee cannot use the leased premises due to circumstances beyond its control. If restrictions are imposed on industries prohibiting the use of such premises for the purpose set out in the lease, then the lessee may argue for full rent abatement for such period although as a general principle new legislation adversely affecting the lessee's operation is perceived to be the entrepreneurial risk of the lessees. Therefore, final assessment can only be made on a case-by-case basis taking into consideration all circumstances, such as the type of premises leased by the lessee, terms of the lease agreement and scope of the Governmental intervention.

As regards the lessee's right to terminate the lease agreement, the general rule is that a lessee may terminate in case the lessor does not ensure that the premises are suitable for ordinary use, furthermore the parties may terminate the lease if the performance of the lease becomes objectively impossible. In principle, such arguments of the lessee could be difficult to uphold due to the defect to the premises not occurring for a reason within the lessor's control (in respect of the premises not being suitable for ordinary use) and the performance may only be temporarily frustrated (in respect of the performance becoming impossible).If performance does not become completely impossible and thus the lease is not frustrated but the force majeure event directly results in a delay or defective performance, the lessee may be exempt from the liability for damages if it proves such delay or default stems from the force majeure event.

Furthermore, under certain strict circumstances, Hungarian law allows for the modification of the lease by the court upon the request of a party, however the circumstances need to be assessed case-by-case.