ESG in Real Estate - Green Leases expert guide in Hungary

Yes, if a building or individual unit is being transferred or leased for consideration, the seller or lessor must provide the prospective buyer or lessee with the EPC or a copy of it.

The EPC must be provided no later than the date on which the contract is entered into and subsequently delivered to the buyer or lessee no later than the date of handover.

There are certain exceptions to the provision of an EPC in the case of sales and leases, e.g. no EPC is required if, inter alia, the transfer of ownership takes place before the occupancy permit has been issued, or if an independent building has a useful floor area of less than 50 m2. 

There are requirements relating to the indication of the energy performance class of the building or individual unit in the advertisement of the building or individual unit when it is offered for sale or rent. 

There are minimum energy performance requirements for the construction of new buildings or major alterations, but apart from these construction-related requirements, there are no minimum EPC requirements for the sale or rental of a building or a stand-alone unit.

The Hungarian ESG Act does not directly specify any ESG requirements applicable to new or existing buildings, however in a broader sense environmental requirements naturally apply to new buildings and alterations of existing buildings, such as energy efficiency and urban planning requirements, in certain cases preliminary environmental assessments, etc.

Although there is currently no legal requirement to include green clauses in leases, there is an increasing demand from the market to include green clauses in commercial leases, particularly in the office, retail and logistics sectors. The inclusion of such green clauses is not generally seen in residential leases. 

Green lease clauses in commercial leases typically include obligations for the tenant and landlord to cooperate in relation to energy efficiency, consumption and data sharing, obtaining or maintaining the unit's or building's green certificate, rentalisation of service charge savings made by the landlord and, increasingly, coverage of the installation and operation of photovoltaic systems during the lease term.

There is no market standard approach to green lease drafting, although the green lease provisions tend to cover the same or similar topics with the strength of the green clauses varying from soft cooperation obligations to dark green obligations with sanctions in case of failure to adhere to such green requirements. 

The lack of green lease provisions is generally reported in due diligence reports related to acquisition or refinancing, however it is not expected to be a dealbreaker for the investors or financing institutions.

Nevertheless, institutional investors are generally interested in having such green lease provisions especially if they have sustainability reporting requirements themselves or if they try to obtain green financing or designate the asset as a green asset (in which case compliance with the EU Taxonomy Regulation is more important than having green lease provisions).

Green lease provisions tend to be on the light green side of the spectrum, focusing on cooperation between the parties and obligations to be fulfilled by the parties on a best efforts basis. From a legal perspective, penalties or even termination rights could be included as sanctions for non-compliance with green lease provisions, but such an approach is not common in the market. Penalties, rent adjustments or termination rights may be seen in the case of built-to-suit projects where the tenant has a strong requirement for the building to have a certain level of green certification and the landlord fails to obtain such green certification.

There are no legal requirements for a building to have such LEED, BREEAM, WELL or similar green certificates, but for certain types of assets (offices, logistics, etc.) there is strong market demand for such green certificates, which are common in the market, especially for new buildings and Class A buildings. In the past, such building certificates were generally obtained either for the design or construction stage, but recently tenants have become more aware of the need for such green certificates to cover the in-use phase and operation of the building. 

Where the tenant requires the building or unit to have such certification, the lease will typically require the landlord to obtain and/or maintain such certification during the term of the lease and will require that any fit-out work carried out by the tenant does not jeopardise the certification.

There is currently no legal requirement to use or install such systems in relation to the building, however the installation of such photovoltaic systems is heavily regulated by specific regulatory regimes, including permitting, energy regulatory and tax considerations, while there may be several contractual structures that can be applicable depending on which party will install the photovoltaic system, who will become the owner, etc.

There are no comprehensive regulations specific to soil artificialisation or biodiversity, but such considerations are present in the construction industry in the urban planning and zoning requirements (e.g. biological activity value measured during the preparation of urban development plans). Such requirements affect that which areas are designated for development and may result in requirements for the construction of new buildings or major alterations to existing buildings requiring building permits. Such requirements are usually enforced through implementation of the zoning requirements, and as such, new building permits can only be obtained in compliance with such zoning and environmental requirements.