Defaulting tenant of business premises in Hungary - practical notes
The office, logistics and residential real estate sectors are flourishing in Hungary. This situation naturally increases pressure on lessees to accept the conditions set by the landlord. Nevertheless, landlords and potential landlords have to be careful and consistent in setting these conditions, since a non-performing lessee with the lessee remaining in the leased premises long after the termination of the lease creates problems for the lessor, including loss of income.
Leases are mostly governed by the Civil Code, some special provisions being part of the Act on Residential Properties and Premises. The Civil Code gives the parties freedom to contract while the Act on Residential Properties and Premises may impose special regulations, especially in relation to residential properties owned by local governments.
While it is obviously in the landlord’s interest to be entitled to terminate the lease in case of non-payment or unlawful, unacceptable conduct of the lessee, the conditions for doing so are not in themselves sufficient to release the landlord finally from the lease, unless the lessee in fact vacates the premises at termination. The legislation has recognised this and provides several tools for the landlord to accelerate the process of having the premises vacated and ready to accept new lessees or to provide more security in order to avoid losses due to the lessee’s breach of contract.
Bank guarantees and cash deposits are common and accepted solutions for providing the landlord with at least limited security against all sorts of payment obligations arising from the lease.
Landlords in the commercial, office and logistic sectors often require a vacation declaration given unilaterally by the lessee in which the lessee undertakes to vacate the leased premises according to the conditions set forth in the lease. This unilateral declaration must, however, be contained in a notarial deed. As a consequence, the lessor does not have to initiate prolonged court proceedings with an uncertain result in order to force the lessee to vacate the premises. If a vacation declaration has been provided by the lessee and once the lease is terminated, the lessor needs only to prove the termination, after which the enforcement procedure based on the unilateral declaration can be commenced against the lessee for possession of the premises.
In the event of a lease for a fixed term, the lessor is entitled to file an application within 60 days from the expiry of the lease for a special procedure according to the Enforcement Act. This process is subject to the 60 day time limitation. According to the special rules, the court must order that the premises be vacated by issuing an order but without issuing an executory deed. An appeal filed against such order does not have suspensory effect. The application has to include some basic details of the landlord, the lessee, the address of the property and its owner. If the application is in compliance with the requirements, the court issues the order within five working days from the date of the application.
Pursuant to the provisions of the Civil Code, the lessor is entitled to a statutory lien on the lessee’s property, movables found within the rental property for the value of unpaid rent and additional costs. The lessor is entitled to prevent the removal of the lessee’s property as long as his lien remains in effect.
The legal regulations on leases are aimed at balancing the interests of the lessor and the lessee, and the legislative intention is to protect both parties’ rights, which is an acceptable and important objective. Nevertheless, it is important to note that the legislation provides possibilities for both sides to protect their rights and obligations against the other party. We have shown above some possibilities available to the lessor which may help the lessor not just to protect his interest against the lessee but also enforce his rights. In addition to these possibilities, it is always important to properly assess the lessee’s financial background before entering into a lease with any legal or natural person.