HUNGARY Law and Practice Contributed by: Attila Ungár and Júlia Várkonyi, Lakatos, Köves & Partners
ownership, purchasers can effectively rely on publicly available land registry data. Title insurance and warranty and indemnity (W&I) insurance products have been recognised more and more in recent years, and are typically used by insti - tutional investors. 2.4 Real Estate Due Diligence Real estate due diligence involves inspecting publicly available data (eg, land registry) and requesting addi - tional documents available only to the seller (eg, lease agreements). Due diligence in an asset deal usually covers the fol - lowing main areas: • title (including encumbrances and easements); • permits; • zoning; • leasing and operating agreements; and • environmental and real estate-related litigation. If the transaction is a share deal or if financing is involved, the areas to be reviewed are more exten- sive (eg, corporate, employment, financing and tax matters). 2.5 Typical Representations and Warranties Representations and warranties depend on the busi - ness practice and strength of the parties. However, certain warranties are generally found in any contract relating to real estate, such as: • the performance of the agreement is not restricted; • the seller is the owner of the property; • the property is free of encumbrance or litigation; • there are no environmental issues; and • there are no hidden defects. In commercial real estate transactions, it is custom - ary for the seller’s representations and warranties to expire after a certain period. Fundamental warranties (eg, relating to ownership title) are granted for at least 60 months, while others are usually limited to 24 to 36 months. Sellers usually provide tax-related warranties up to 84 months, including the reviewed tax year.
It is also customary to limit the seller’s maximum exposure to warranty liabilities to the amount of the purchase price for fundamental warranties. For other warranties, a cap of 10%–30% of the purchase price is usually applied. In the case of misrepresentation, the buyer may allege a breach of the contract and the Civil Code, and claim damages. Please see 2.3 Effecting Lawful and Proper Transfer of Title regarding the use of title and W&I insurance. 2.6 Important Areas of Law for Investors The most important areas of law for investors are property law, construction law, local zoning laws, tax laws and environmental laws. For restrictions on for - eign investors, please see 2.11 Legal Restrictions on Foreign Investors . 2.7 Soil Pollution or Environmental Contamination In accordance with the “polluter pays” principle, the person causing the environmental damage is liable for such damage. However, the current owner of the property may also be considered responsible for the environmental damage, alongside the person who actually causes the pollution. The owner may excuse itself by naming the person (eg, previous owner, ten - ant) who actually caused the pollution, but this is dif - ficult to prove. In order to avoid difficulties of proof, appropriate war - ranties are necessary, under which the seller declares that, to its knowledge, there are no toxic materials or environmentally hazardous substances, explosives or similar materials on or under the surface of the property. The buyer of the property typically seeks to exclude its liability for pollution that occurred prior to the acquisition. 2.8 Permitted Uses of Real Estate Under Zoning or Planning Law Local building regulations, including zoning plans, are publicly available from the ordinances of local munici - palities. Potential purchasers are expected to check such databases to ensure compatibility with their development plans.
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