Rules of Real Estate leasing in Hungary

The legal features of leasing are similar to rent. The leasing is such kind of rent where the subject-matter of the rent becomes the property of the renter after a period of time stipulated in the leasing agreement.

Let’s Examine the Rules of Real Estate Leasing in Hungary in detail.

The main legal features of leasing agreement is not specified in the Civil Code. The legal construction of leasing can be described as follows.

The leaser obtains the ownership of the real estate – house, flat etc. - by virtue of the commission of the lessee, while he gives the real estate in the use of the lessee for a defined period of time. As you can see, the leaser remains the owner of the real estate during the leasing.

Basically banks and other financial institutions are dealing with leasing, so the formula of the leasing can be precised as follows.

The bank (other financial institution) purchases the flat (house) by virtue of the commission of the lessee, however the flat (house) will be used by the lessee. Naturally the lessee shall pay leasing fee to the bank (financial institution) as countervalue.

As the flat (house) is used by the lessee, the risk of damages and the burdens as the running expenses shall fall on the lessee.

After the expiry of the period of time stipulated in the leasing agreement and the payment of the so called residue-value the lessee acquire the title of ownership over the flat (house). The latter is the favourable feature of the leasing.

There exist close-ended and open-ended real estate leasing agreements in the practice.

According to the provisions of the close-ended real estate leasing agreement, the lessee acquires the title of ownership over the real estate automatically.

According to the provisions of the open-ended real estate leasing agreement, the leaser is authorized to give his permission to the purchase of the real estate at the so called residue-value.
 
The leasing of the real estate has plenty of advantagese.g:

• simplified credit-review,
  
  
• no income certification is needed,
  
  
• low (or even zero) own financial sources are needed,
  
  
• transparent leasing fees.

The disadvantage of the leasing in comparison with the real estate credit is the absence of the state support. In consideration of the latter fact, the fees of the leasing are higher than the fees of the credit.
 
The risk of the leasing is similar to the risk of credit. The bank sells up the flat (house) of the non-paying lessee after the expiry of the grace period.

Another risk is the case of vis maior (e.g. fire) which will bear by the lessee if the flat (house) is not insured.

With regard to the fact that the leasing agreement – either open-ended or close-ended – is not considered as a credit agreement the lessee is not entitled to the same financial benefits regarding personal income tax.

However the lessee concluded a close-ended leasing agreement can exercise his right for the so-called flat purchase preferment (if you sell your flat you are obliged to pay 25 percent personal income tax, but if you purchase or lease a flat within 5 years from the selling of your previous flat, you can deduct the price of the sold flat with the total sum of the leasing fee and after the deduction you can reclaim the part or the whole of the paid tax from the Tax Authority).

The lessee who is the party of an open-ended leasing has also resort to the flat purchase preferment if the leasing agreement lasts at least for 5 years.

Budapest, July 2008

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