HUNGARY Law and Practice Contributed by: Attila Ungár and Júlia Várkonyi, Lakatos, Köves & Partners
6.8 Costs Payable by a Tenant at the Start of a Lease At the start of the lease, tenants are often obliged to provide security to secure performance of the lease, primarily in the form of a cash deposit or bank guar - antee, and potentially in the form of a corporate guar - antee. If the costs of fit-out works are to be borne by the tenant (fully or partially), the tenant must pay this amount to the landlord in advance or cover the costs of the fit-out (refurbishment) directly. Tenants are usu - ally requested to take out and maintain throughout the term an all-risk tangible asset insurance and liability insurance. Tenants may be requested to provide the landlord with an eviction declaration to be incorpo - rated into a notarial deed at the tenant’s cost. It is also common to request payment of the first month’s rent and advance service charges at the start of the lease. 6.9 Payment of Maintenance and Repair The costs of repair and maintenance of the building, common areas and the leased premises are usually paid by the landlord but borne by tenants in the form of service charges. Leases usually include a non- exhaustive list of costs that are to be borne exclusively by the landlord or covered by the service charges. 6.10 Payment of Utilities and Telecommunications Generally, tenants pay the costs of utilities of the leased premises, either directly to utility providers (on the basis of separate utility agreements) or to the land - lord, who re-invoices such costs to the tenant (based on a separate electricity forwarding agreement). Tel - ecommunication costs and the costs of cleaning of the leased premises are borne directly by the tenant. 6.11 Payment of Property Taxes Property tax is payable by the landlord as building owner, but its amount is often included in the operat - ing costs – thus it is passed on to the tenants. 6.12 Insurance Issues Generally, tenants should take out all-risk tangible asset insurance for the duration of the lease, against damages and loss in relation to items brought into the leased premises by the tenant, for an amount equivalent to the replacement value of such items. Tenants must take out liability insurance for personal
The landlord is usually obliged to maintain and repair the building, its structure and the common areas, while the tenant must maintain and repair the facili - ties within the leased premises. Rent is usually paid monthly or quarterly in advance. 6.5 Rent Variation Generally, rent will remain the same throughout the term of the lease (unless so-called step rent is agreed). However, indexation is a common practice, allowing landlords to increase rent annually. The most used indices are the Harmonised Index of Consumer Prices (HICP) published by Eurostat and the Monetary Union Index of Consumer Prices (MUICP). If rent is deter - mined in Hungarian forints, the parties generally use the index published by the Central Statistics Office. A decrease in rent based on indexation is usually excluded. Landlords often give a three- to six-month rent dis - count, which in practice means that the tenant is only required to pay 50% (or a certain decreased percent - age) of the monthly rent during the discount period. A tenant may no longer be eligible for a rent discount if they are in breach of a material obligation under the lease (for example, if they are in arrears with payment). For retail, turnover rent is common besides or instead of a fixed rent, whereby an agreed base rent is usually topped up with an agreed percentage of the tenant’s net turnover. 6.6 Determination of New Rent Except for indexation, rent can only be changed by the mutual amendment of the lease. 6.7 Payment of VAT As the main rule, rent for real estate is exempt from VAT, although lessors can opt to apply VAT taxation to the renting of real estate or non-residential real estate in general. The general VAT rate is 27%. VAT exemption cannot be applied to the renting of places for accommodation purposes or for parking purposes, among others.
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