European Union: European Investors vs Hungary 2:0 – Hungarian Land Act Condemned Again In Luxembourg

Last Updated: 27 May 2019
Article by Richard Schmidt
Most Popular Article in Hungary, May 2019

In May 2019 the European Court of Justice condemned again the Hungarian Land Act of 2014 cancelling usufructs on arable lands in Hungary without providing any compensation for right-holders. What is the "added value" of this second judgment, and why it is important for investors seeking damages for losing usufructs on lands?

Background

While acquisition of arable land in Hungary was always restricted or banned for non-Hungarians, foreign investors could "indirectly acquire" lands, due to a regulatory loophole, by setting up a company in Hungary which could acquire the usufruct of the property, which granted rights to the usufructuary close to ownership.

This loophole was closed in 2002, without affecting the acquired rights, however with effect from 2014 the new Land Act1 entered into force which cancelled the usufructs on arable land acquired earlier, and ordered the deletion of this rights from the real estate register, save if the owner of the land and the right-holder of the usufruct are close relatives ("close family tie" rule).

The Hungarian land offices deleted roughly 100.000 usufructs from the real estate register until the end of 2014, and cca. 5.000 foreigners were concerned.

Some of the right-holders challenged the land office decision in front of local courts, who started preliminary ruling procedure in front of the European Court of Justice ('ECJ') to interpret the free movement of capital, as basic principle of EU law, leading to the SEGRO case.2 In the SEGRO judgment, deliveed in March 2018, the ECJ held that the free movement of capital prevailed over the disputed provision Hungarian Land act, which cannot be applied in the SEGRO case.

The provisions of the Land Act impressed the European Commission too, who has started a so-called infringement procedure against Hungary back in 2014. While in SEGRO the interpretation of EU law was in focus to find the EU-conform solution for that particular case, this infringement procedure sought the declaration by the ECJ that Hungary has breached EU law.

The case in Luxembourg

In the litigation in front of the ECJ3, the European Commission argued that by cancelling usufructs on lands by law Hungary infringed the freedom of establishment and the free movement of capital, as basic freedoms provided by the founding treaties of EU, in addition the right to property enshrined in the Charter on Fundamental Rights of the EU, given the lack of any compensation.

The Hungarian government first contended that by the acquisition of usufruct, the right-holders circumvented the national rules restricting foreigners to acquire arable land in at that time, and invoked the "public policy exception" to derogate from the basic freedoms.

However, in the opinion of the ECJ, acquiring usufruct through local companies was a legal option for foreign investors in Hungary in the 90s, furthermore the Hungarian state bodies and courts have not challenged that type of transactions for more decades. I addition and a general presumption of abusive practices cannot be used to justify the public policy exception from the free movement of capital.

Hungary has also invoked the so-called "general interest" connected to farming, namely that the new Land Act aims at preventing land acquisition for speculative purposes, to ensure that the owner of the land is the person who actually farms it, which, in its opinion, justifies the derogation from the free movement of capital.

In relation with the above arguments the ECJ has questioned that the challenged measure of the new Land Act is appropriate to attain those objectives, since the "family tie exception" does not guarantee that the usufructuary farms the land, in addition, the above purposes could be achieved by less restrictive measures, so it is disproportionate.

Finally, in the opinion of the Hungarian government, the Land Act does not amount to a deprivation of property without compensation based on the Charter, since in accordance with the general provisions of the Hungarian civil law, the investments of the usufructuary can be compensated by the owner, in the framework of a private settlement.

In this regard the Court highlighted that the remedies in accordance with the general provisions of civil law the usufructuary should pursue lengthy and expensive procedures, which is not in line with the provisions of the Charter of Fundamental Rights setting forth fair compensation in good time in case of deprivation of property.

Based on the above, the ECJ declared that by cancelling the usufructs on arable land by law without compensation, Hungary has breached EU law, namely, the principle of free movement of capital in conjunction with the right to property, guaranteed by the Character of Fundamental Rights.

Outlook

This judgment of the ECJ is an important step ahead in the infringement procedure against Hungary. In case the government of Hungary fails to remedy the unlawful situation, the European Commission can start a second procedure in front of the ECJ, in which lump sum or penalty may be imposed by Luxembourg, as long as the non-compliance is remedied.

However, the real "added value" of this judgment is that by reason of the official declaration of breach of EU law by the ECJ, private individuals and companies affected by the condemned legislation of Land Act can turn to Hungarian courts with a better chance of success, to seek compensation for the damage caused by legislation.

Although the Hungarian Supreme Court (Curia) has not yet confirmed the doctrine of state liability for EU law infringement, lower Hungarian courts have already rendered more judgments, declaring the principle the state shall bear liability for the damage caused for individuals by non-EU conform legislation.

Hopefully this time the Curia will have the chance to deliver a landmark judgment on state responsibility for EU law breach.

Footnotes

1 Law No CXXII of 2013 on transactions in agricultural and forestry land

2 Joined cases C-52/16 and C-113/16– SEGRO Kft. v Vas Megyei Kormányhivatal Sárvári Járási Földhivatala and Günther Horváth v Vas Megyei Kormányhivatal

3 Case C-235-17 Commission c. Hungary

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions