HUNGARY Law and Practice Contributed by: Attila Ungár and Júlia Várkonyi, Lakatos, Köves & Partners
7.4 Management of Schedule-Related Risk The tools most commonly used to manage schedule-related risk are: • delay penalties (or liquidated damages); and • withholding certain amounts (from the con - tract price based on achieving project mile - stones by the deadline). These are typically supplemented with a provi - sion that the owner is entitled to claim damages exceeding the amount of the penalty. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance Parent company guarantees and bank guar - antees are commonly used to guarantee con - tractors’ performance. It is also typical for the contractor to replace the withheld contract price with an equivalent amount of bank guarantee. A construction trustee regime is applicable above certain construction value thresholds, which aims to ensure due payment within all levels of the construction chain (ie, the owner shall advance the contract price for the respec - tive phases to the trustee, to be released upon certification of due performance). Another form of security can be a performance warranty, based on which a particular percent - age (usually 5% or 10%) is withheld from the amount of every contractor’s invoice. Such amounts shall be released only if certain require - ments are fulfilled by the contractor (eg, the issu - ance of all required permits). 7.6 Liens or Encumbrances in the Event of Non-Payment Contractors have a statutory lien up to the amount of the outstanding contract price and
costs over the assets of the owner that are pos - sessed by the contractor within the scope of the construction agreement. The contractor is not entitled to encumber the property – rather, only the tangible assets of the owner. The lien is removed automatically if the contractor’s claims are settled. 7.7 Requirements Before Use or Inhabitation A structure may only be occupied if the com - petent authority has issued a final and binding occupancy permit verifying that such structure is suitable for safe and intended use and has been built in line with the building permit. Generally, the sale and purchase of real estate is VAT exempt. The seller can opt to apply VAT to the sale and purchase of real estate in general or to non-residential real estate, in which case the sale and purchase would be subject to reverse charge – ie, the purchaser will be responsible for the assessment and payment of VAT. The VAT exemption does not apply to the trans - fer of new real estate (ie, real estate that has not been occupied or where less than two years have passed since its occupancy or develop - ment), nor to building plots. As such, the sale and purchase of such real estate is subject to VAT at the general 27% rate, which must be paid and assessed by the seller. A preferential 5% VAT rate can be applied to the sale of: 8. Tax 8.1 VAT and Sales Tax
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