Hungary must restore the abolished usufruct / pocket contracts for EU citizens
The property rights to Hungarian agricultural land, which were seized from foreigners and legal entities years ago, will be re-registered in the land register. The state will also pay compensation to the victims. The cancellations were part of a crackdown on pocket contracts, but the European Court of Justice has declared the measures illegal under EU law in a case that has provoked major international reactions.
The government's recent proposal to Parliament to amend the Domestic Land Transport Adjustment Act ends almost eight years of international litigation.
With the amendments, Hungary is legally obliged to re-register usufructuary rights, which were de facto abolished by Parliament in 2014 as part of a comprehensive land readjustment package. In 2014, provisions came into force whereby usufructuary rights established by contract between non-neighbours were abolished by operation of law.
This meant that the rights that the usufructuaries had legally registered in the land register under the previously applicable law were declared null and void.
The provisions also applied to private individuals and legal entities from the EU who could lawfully acquire usufructuary rights in Hungary until 2002. It was only from this time on that national regulations prohibited the establishment of usufructuary rights to agricultural land by natural and legal persons who were not Hungarian citizens.
The whole legal mess was caused by the fact that, according to the domestic view, foreigners used the usufructuary right to circumvent the legal provisions that prohibited their actual acquisition of property on the Hungarian land market since 1994.
In everyday language, this meant that they had contracts in their pockets with some Hungarian owners for the acquisition of land and in practice secured a legal and registrable usufruct. The speculative intention behind these transactions was that at some point Hungary, as an EU member state, would have to approve the acquisition of land by foreigners and that these background purchase contracts could then be withdrawn from "accounts" and presented to the land registry offices.
However, the cancellation of valid usufructuary rights triggered a strong international backlash, causing outrage especially in Austria and Germany. The measure mainly affected Austrian and German nationals and their companies who had registered usufructuary rights to land in western Hungary near the border, mainly in Vas, Győr-Moson-Sopron, Zala and Veszprém counties, and who were deprived of these rights without compensation as of 1 May 2014.
The victims filed several lawsuits with Hungarian courts, which referred the case to the European Court of Justice for a preliminary ruling. The Austrian government turned to the European Commission, which first initiated infringement proceedings against Hungary and then also referred the case to the European Court of Justice. The main objections were that the Hungarian measures violate the rules on freedom of establishment and free movement of capital, which are fundamental EU rights.
In 2018 and 2019, the ECJ eventually handed down rulings and condemned Hungary. This led to the current legislative changes, including provisions on readmission and compensation.
So, it has been more than seven years since the cancellations and three to four years since the judgments, which means that the recovery and compensation obligations are still have quite a while to go.
Under the proposed legislation, affected persons will be able to apply for recovery between the 1st of July and the 31st of December 2022. The official procedure will be carried out by the National Land Centre of the Ministry of Agriculture, which will send a notice to the cancelled beneficiary or his or her successor by 7 May next year.
If there are no problems with the requested conversion, the original situation will be restored. If this is not possible - for example, because the land has been acquired in good faith by the owner from someone else in the meantime - the application will be rejected, and compensation will be granted.
The Ministry of Agriculture does not yet have exact figures on the number of persons and areas that might be affected by the reclamation and compensation, since in 2014 not only the data on usufruct were deleted from the land register, so they have to be determined first. In any case, age can be a decisive factor in the extent to which beneficiaries can make use of the new option.
Assuming that beneficial ownership is generally registered at a very young age and that those who made use of this possibility immediately before the ban came into force in 2002 were between 40 and 50 years old, the majority of those concerned are now likely to be over 65 or to have died in recent years.
Source: European Court of Justice / ECJ