Real estate transactions in Hungary | eBook

Formal requirements of real estate purchase contracts

The most important formal requirements of property (building site, apartment, house, agricultural land etc) sales:

Compulsory elements of contract of sale

To register the ownership, the contract of sale must include the following, amongst other things:

• Personal data of the parties

• • Private persons: full name, date of birth, name of mother, postal address, personal ID number
  • Organizations: name, seat, statistical number, Court registration number, tax number

• Clear identification of the concerned property (name of town, plot number) as well as the proportion of the ownership interest to be transferred;
• Statement on the nationality of the contracting parties
• Unconditioned and irrevocable statement of the registered owner on the consent to the transfer of his title
• Place and date
• In case of a multiple-page document, the signature of the contracting parties, the contract maker and the counter signers on every page

What is considered as a contract of sale?

The court can consider an agreement with a minimum content as a contract of sale, if it includes the following elements, what are the mandatory elements of the valid sale contracts:

Payment of the purchase price

A typical real estate deal would be sealed with the payment of earnest money (in Hungarian: ‘foglaló’) which is a special form of advance payment and usually amounts to 10% of the total purchase price. This money serves as a guarantee for the parties and is paid (typically in cash) to the seller at signing. If the deal is closed, the earnest money will be deemed as advance payment. If the dissolution of the deal is not attributable to any party, the earnest money shall be repaid in full. If the dissolution is attributable to the buyer, the seller shall keep the earnest money. If the seller is liable for the dissolution, he shall pay twice the earnest money to the buyer. A critical point of negotiations is therefore, who is liable for a dissolution caused by a third party (e.g. the bank rejects to provide the loan)?

In case the purchase price is paid in two or more instalments, there are two typical scenarios regarding the transfer of title. The first option is when the parties submit the request for registration but the seller places his consent to the transfer of title in the escrow of the representing attorney and they request the suspension of the process (in Hungarian: ‘függőben tartás’) immediately. The attorney will submit the consent of the seller to the land registry only once he has seen evidence of the payment of the total purchase price. This option is preferred usually by banks because the buyer will acquire the property in a legal status on the day of the submission, thus, any burden that would be registered after the date of the first submission, will be disregarded. However, the process may be suspended up to 6 months only, so the deal shall be finished within such period.

The other option is the sale of the property under applying a retention of title clause. This means that the land registry will finish its process and register the buyer but will also register that the title will be transferred only upon full payment of the purchase price. Unlike when the procedure is suspended, the land registry will confirm upon submission that the documents are lawful and complete. Therefore, the transfer of title (and so the payment of the full purchase price) can be postponed to a date later than 6 months, which is a favourable option in case of bigger projects. However, there is a risk on the buyer’s side that the property will be encumbered during such long period.

According to the Hungarian Civil Code and in line with the established practice:

The parties can differ from the above-mentioned cost bearing rules and can agree on that one of the parties will pay the lawyer (in particular, if that party insists on the personage of the lawyer), but it is important to highlight, that the seller cannot be compelled to pay the lawyer fees, while the buyer cannot be compelled to let the contract prepared by a lawyer appointed by the seller. No matter who pays the lawyer, he/she shall advise and represent both parties and explain the details of the transaction to them both.

The lawyer fee shall be set by free agreement between the parties, in practice it is usually between 0.5-1.5% percent of the purchase price, although lawyers usually apply a minimum fee of HUF 50,000.

Payable by the seller

According to the Civil Code of Hungary, the following costs will be charged to the seller:

Transfer related fees

These may include the basic expenses, what are necessary for the legitimate selling, such as the settlement of utility bills and mortgage liabilities, or the cost of real estate agents and their intermediaries, if the transaction happened this way.

Land register fees

The sale of a residential property is subject to the presentation of an energy certification (green card), the cost of which is typically borne by the seller. Also, it is usually the seller who pays the fees for obtaining actual title deeds and the property layouts. However, the parties can agree otherwise.

Personal income tax

In case of selling an apartment, house or any other real estate, a personal income tax payment obligation arise on the income from the selling, regulated by Article 59-64 of Act CXVII of 1995 on Personal Income Tax.

From 1 January 2016, the domestic personal income tax rate on property selling is 15%, but the amount of required tax depends on several factors:

Payable by the buyer

In case of acquisition of real estate transfer duty should be paid. The rate of this duty is 4% up to the transaction value of max 1 billion HUF, above this threshold the duty is 2% of the exceeding part of the value (max 200 million HUF per property).

Without attempting to be comprehensive, the tax allowances in 2022 are the following:

In addition, it is typically the buyer who pays the registration fee (HUF 6,600), the registration fee of a mortgage (HUF 12,600) and the costs of drawing up notarial deed (required if bank loan is involved).