- Commercial leases
Commercial leases are very common for holding office and retail space, and to a more limited extent, for industrial buildings and plants. Most commercial lease transactions commence with an offer to lease in the form of a letter of intent or head of terms, which contains the business terms agreed upon by the parties, including the space, term, rent and any tenant inducements. Commercial leases are typically on a net/net rental basis, which requires a tenant to pay basic rent and a proportionate share of realty taxes, insurance, utility, service charges and common-area maintenance charges. In a retail lease, a tenant is generally required to pay turnover rent in addition to basic rent.
- Residential leases
In contrast to commercial leases, residential leases are heavily regulated in Hungary and legislation favors tenants. Rent fees are not regulated and there is no cap on rent increases either. However, termination of a lease and eviction of a tenant are not easy under currently applicable regulations.
Generally, commercial lease provisions are not regulated and are freely negotiable. However, residential leases have several compulsory statutory provisions which cannot be negotiated to the detriment of the tenant.
There is no maximum term for leases – parties may conclude a commercial or residential lease for a limited or unlimited term.
However, the tax authority may qualify the leases with significantly long lease terms (such as 50 or 99 years) as acquisitions by imposing the related transfer tax consequences.
The lease term can be extended, if the lease agreement makes express provision for this.
For office leases, the usual lease term is five years with an option for the tenant to extend for an additional five years.
Most commercial retail leases are for a 10-year or 15-year term with an option for the tenant to extend the term for five or 10 years.
No, except when expressly provided for in the lease contract.
A landlord can generally terminate the lease when the tenant breaches the terms of the lease, which usually includes failure to pay the rent, the service charge, or any other payment under the lease. In addition, based on court practice, if the lease agreement provides so, either party may terminate the lease without cause (break option for termination). Under the New Civil Code, the tenant can terminate the lease if the leased premises poses health hazards.
No. In the case of commercial lease agreements, rent is typically paid in euro since the landlord usually obtains financing for the development in euro.
For residential leases, rent is generally paid in Hungarian forint.
This will depend on the agreement of the parties. In case of residential leases, rent is usually paid at the beginning of each month. For commercial leases, rent and service charges are paid quarterly in advance.
Rent is usually indexed each year, either on the basis of the Monetary Union Index of Consumer Prices (MUICP) published by the European Central Bank if the rent is paid in euro, or on the basis of the International Comparison Program (ICP) published by the Hungarian Statistical Office if the rent is paid in Hungarian forint.
The following is usually required of landlords:
- Repair and maintain the structure of the property
- Insure the property
- Provide various services under a commercial office or retail lease
- Provide tenants with a valid notice of termination (in writing) if terminating the tenancy
- Pay rent on time
- Keep the property in good order
- Inform the landlord if repairs are needed and give the landlord access to the property to carry out repairs
- Give the landlord access (often by appointment) for inspections and landlord's work
Tenants are generally allowed to assign the lease or sublet the premises provided that they obtain the consent of the landlord. The landlord is usually required to act reasonably when considering the tenant’s request.
According to common market practice, if the premises are substantially damaged or destroyed by an act of God, then the landlord has a specific period within which to reconstruct or repair the leased premises. If the landlord doesn’t do so, both landlord and tenant are entitled to terminate the lease. Rent generally abates according to the extent of the damage or destruction.
The tenant may be liable for repairs or replacement if the damage to, or destruction of, the premises are attributable to the tenant.
The landlord is usually responsible for obtaining adequate insurance coverage relating to the leased premises and the landlord will usually recover the cost of insurance from the tenant in a net lease. The tenant is usually required to insure the area it leases within the leased premises.