Blog articles #hungarian

The Housing and Real Estate Market Advisory Board (LITT), established in 2019 at the initiative of the National Bank of Hungary (MNB), published its forecasts and recommendations on the residential and commercial real estate market in January 2020. Their study identifies four key objectives for the direction of development. 

The first is to increase the number of newly built dwellings, the second is to ensure affordable housing for all through the development of a business rental sector, the third is to reduce the administrative burden on the commercial property market and to stimulate more effectively the construction industry and the domestic production of building materials. In this blog article, we look at ideas for the re-regulation of tenancies for housing.

LITT also pointed out that the market price of Hungarian apartments has risen significantly in recent years, partly due to Hungarian and foreign buyers buying these properties for investment rather than for housing. In contrast, the number of new dwellings has not increased sufficiently. The rise in residential property prices has also brought with it a rise in rents, making it significantly more difficult for many individuals who do not own their own property to secure their housing. Therefore, LITT considers it very important to increase the number of rental homes in the country and to promote the regularisation and promotion of tenancy.

This could be done by providing a reduced VAT rate for long-term rentals, which could boost business renting. The possibility of tax relief for tenants below a certain income or for employers who support letting was also highlighted. A sensitive issue in tenancies is the system of security deposit transfers, which could be ensured by setting up a "Good Tenant List" or by establishing a public guarantee scheme.

In our view, the security of tenancies can be strengthened not only by re-regulating the financial aspect and introducing discounts, but also by ensuring that properties are in an acceptable technical condition for human habitation in all respects and that they are monitored. Examples from abroad show in many places that state regulation and control are present at a much higher level in the rental market, forcing landlords to act properly towards tenants when concluding contracts and checking the technological suitability of properties.

It would be useful and provide greater security for tenants if they could obtain an independent person's certificate on the technical adequacy of the property and the reliable and safe functioning of the utilities and systems in the property before the tenancy starts, similar to the energy performance certificate check.

It would also be worthwhile to re-examine the legal regulation of tenancies and to adapt the provisions on typical problems that can be identified in current practice in the course of disputes in a way that is acceptable to the parties.

A new approach to the regulation of tenancies, from a legal, technical and financial point of view, could provide a more secure solution for housing for a large section of society.

Dr. György Zalavári LL.M.
Ecovis Zalavári Legal Hungary
Lawyer | Mediator | Corporate Law and Data Protection Specialist
gyorgy.zalavari@ecovis.hu

The provisions of the Civil Code concerning the right of construction entered into force in 2023, the most important provisions of which are analysed by Dr. György Zalavári, attorney-at-law, in this article.

Under a building right contract, the right holder may establish, construct or have constructed or use a building on or under the surface of real estate owned by another. A building right cannot be created by oral contract or by inducement. The grantee is granted the right to possession, use, and to receive the benefits of the building and its component parts erected on the land of another.

The consideration for the building right (the building rent) is due to the owner of the property. It can be a lump sum or a fee paid on a continuous basis or even a fee calculated on the basis of the turnover of the activity in the building, which must in any case be specified by the parties in the contract.

The building right may be transferable and subject to succession. The successor is also subject to the provisions of the contract establishing the building right. The transfer or encumbrance of the building right shall not affect the ownership of the immovable property. Claims arising from the building right or from the transfer or encumbrance thereof shall be governed mutatis mutandis by the rules governing claims arising from the ownership or from the transfer or encumbrance thereof.

The building right may also be subject to a pledge on the basis of a pledge agreement, which must also be registered in the Land Register. Restrictions on the exercise of the right in the contract establishing the building right against third parties shall be effective only if they are made known to any person from the entry in the Land Register or from the deed on which it is based. The building right shall be subject only to those rights and obligations which preceded the entry of the building right in the ranking list. Subsequent charges on the property do not affect the building right.

The building right may be held by several holders simultaneously and jointly. In the case of multiple holders, the rules of civil law on common ownership apply to the exercise of the building right and the performance of obligations. However, a building right may be created on a property jointly owned by several owners only if it is jointly owned by all the co-owners.

The building right may be established for a limited period of time, up to a maximum of fifty years.

The building right must be registered in the land register in favour of the holder. A building right may also be established by the owner of the property for his own benefit by means of a unilateral declaration. A building right may only be established on a part of a real estate subject to a land use right in favour of the holder of the land use right and at the same time as the cancellation of the land use right.

The consumer is excluded by law from the possibility to establish a building right, the consumer may not establish a building right on the immovable property owned by him and such a right may be acquired by the consumer only by inheritance. Thus, a natural person (individual) who is a consumer acting outside the scope of his profession, self-employment or business activity cannot establish a building right; this is only possible for enterprises, institutions and other legal persons. 

If the right holder renounces the building right in writing and it is deleted from the land register, the right ceases. 

The building right also expires after the expiry of the fixed term or after fifty years. The building right may also be terminated by the court in a lawsuit if the owner of the property proves that the holder of the building right has seriously infringed the rules governing the exercise of the rights or has seriously breached the obligations incumbent on him.

Dr. György Zalavári LL.M.
Ecovis Zalavári Legal Hungary
Lawyer | Mediator | Corporate Law and Data Protection Specialist
gyorgy.zalavari@ecovis.hu

"My client approached me nearly two years ago about acquiring ownership of a property in Hungary by way of eminent domain, having used it for more than 15 years without disturbance and in good faith. The acquisition of the property by that title was finally established by the court. However, the property was subject to a usufructuary right, which was acquired by the holder sometime in the 1970s.

The beneficial owner was, according to the information available, a very elderly man whose last known address was on another continent nearly 50 years ago. While the right of ownership can be obtained by legal action against the former owner in the case of dispossession, it is not possible to obtain a court judgment to cancel the beneficial ownership of the property against the holder on this ground. 

This has led to the legal situation where our client has become the sole owner of a property subject to a usufruct right to which the right holder has never actually used the property and was already living in another country, many thousands of kilometres away, when that right was created half a century ago. Thus, the property was unmarketable for my client with this encumbrance, he could not sell it, because who would buy a house on which an unknown person had a beneficial interest. 

In the Land Registry, this usufruct can only be cancelled by a declaration of renunciation by the beneficiary or by the original death certificate attesting to the deceased's death. Unfortunately, there is no legal procedure for cancelling, by any presumption, the right of a person who is unreachable to the owner, who lives far away, who, according to the available data, is in his eighties and who has not been effectively connected with the use of the property for a long time.

In order to find a solution to the case, I first tried to contact the beneficial owner at the foreign address I had found in the land registry and in the documents of the probate proceedings of the last century. I was unsuccessful, however, because the person concerned had long been unavailable at that address. Fortunately, the beneficiary did not have a common surname in that country, so I tried to find his contact details through databases, directories and social networking sites available on the Internet. In doing so, I called a number of people with similar names by phone and via the Internet.

This process was long in itself, and in the meantime my client, losing a little hope, was also trying to find the person in the distant country through diplomatic channels, in parallel with the involvement of the ministries. Unfortunately, these formal procedures were also unsuccessful. The breakthrough in this case came when luck smiled on me and I managed to leave a message on the answering machine of one of the person's children in the country concerned, who listened to it and called me back.

He said that the person he was looking for was his mother, who unfortunately passed away years ago. He also indicated that he did not have the original document required, but provided all the missing personal information to enable me to proceed with the authorities outside to obtain the death certificate. I attempted to do this remotely. It should be stressed that this was during the time of the covid epidemic and the associated curfew restrictions around the world. Despite repeated attempts, I was unsuccessful with the foreign authorities, and finally, after several procedural inquiries, I was informed that the death certificate would only be issued to the relatives of the deceased. As a result, I spent many months negotiating with the claimant's now well-adult child to obtain his willingness to assist in obtaining his mother's official original death certificate, given the restrictions and the stumbling block in the authorities there.

It has to be said that I needed not only luck, but also the goodwill of the relative I found to finally obtain the original death certificate, which was essential for the cancellation of the beneficial title.

Of course, my client was forced to keep financing all the costs of the official procedures outside the country in order to be able to help us with the deceased child.

But perseverance finally paid off and after nearly 3 years of work, the original, long-awaited document arrived at our law office one day by express mail. Then, armed with the necessary document, the cancellation of the usufruct could be quickly done in the national land registry.

This was one of the interesting and unique professional successes of my law practice.

However, the story above also shows that it is easy for many of us to find ourselves in a legal situation involving real estate where it is extremely difficult, or sometimes almost impossible, to find an easy, self-evident, quick legal solution. It could easily have happened in the above case that I could not find any information about the deceased, and in that case I would not have been able to achieve the desired goal."

 If you have a similar problem with an unavailable beneficiary, widow's right holder or other encumbrances on real estate regarding the cancellation of the land register, please contact our lawyer Dr. György Zalavári, who will try to find a solution for your case.

Dr. György Zalavári LL.M.
Ecovis Zalavári Legal Hungary
Lawyer | Mediator | Corporate Law and Data Protection Specialist
gyorgy.zalavari@ecovis.hu

Copyright must be taken seriously. People who download illegal copies of design software from dubious sources on the internet, rather than buying it from the rightful owner or a distributor, often do not realise the serious consequences they could face. It does not seem realistic to them that anyone would notice when they download software illegally stripped of its IT protection features onto their work or home computer. Very expensive design software is typically only installed on a computer to speed up a task and then forgotten about.

According to the experience of Dr György Zalavári, the author of this article, it is a great surprise when the author of the software, an employee of the company selling the software or a legal representative of the company, unexpectedly contacts them by e-mail and indicates that the software has sent information to their system that it has been used without authorisation.

This data usually contains information that can be used to identify the domain, IP address or MAC identifier that identifies the user, the specific computer, the Internet connection or even the company to which the person is linked by some legal relationship.

It is particularly unpleasant if the letter is not addressed to the employee but directly to the manager of his employer, who is typically unaware that someone has used illegally installed software in his company. Under copyright law, unauthorised use of software is an infringement of copyright and carries a number of consequences.

However, in addition to damages and civil claims, these consequences include the possibility of criminal offences. The rightholder may decide to initiate one or both types of proceedings in relation to the infringing activity.

In particular, the application of the software owner may come as a serious surprise to the management because these letters usually contain a very high claim for damages, far exceeding the market value of the software, which is not available at a low price, as it also includes additional damages.

It is important for all managers who may be concerned about the unauthorised use of design software to be aware that the companies that produce the software have a special system for continuously tracking down unauthorised users on the basis of the signals sent by the software to the development centre via the built-in automatic mechanisms.

The primary objective of software creators is not typically to bring as many prosecutions and damages actions as possible before the courts and other authorities, but rather to legalise these illegal uses and to establish a commercial relationship with all those who have tried to use their software in any way, and to sell them software that is now legal to use in a somewhat forced settlement of the illegal use.

This not only generates revenue for them from software sales, but is also a desirable way to increase the number of additional users. When faced with such a situation, it is essential for the company manager to order an internal investigation and to find out who has actually installed illegally downloaded software, on which computer and for what purpose.  It is also advisable to request any available IT identification data from the rightful claimant, in the hope that it may reveal that the computer or Internet connection in question does not actually belong to the company.

In such a case, we strongly recommend that you initiate discussions with the owner of the software and try to obtain as much information as possible about the case. A complete refusal to negotiate and a lack of communication may lead to the software vendor initiating liability proceedings.

Another issue is the determination of the employee's liability for damages under employment law. If you find yourself in such a situation, we recommend you contact our experts.

Dr. György Zalavári LL.M.
Ecovis Zalavári Legal Hungary
Lawyer | Mediator | Corporate Law and Data Protection Specialist
gyorgy.zalavari@ecovis.hu

Hungary, with its rich history, vibrant culture, and strategic location in Central Europe, has become an increasingly attractive destination for real estate investors. Whether you are looking for a cozy apartment in Budapest, a picturesque countryside home, or a commercial property, the Hungarian real estate market offers diverse opportunities. This guide will walk you through the essential steps and considerations for purchasing real estate in Hungary.

Understanding the Market 

Before diving into the buying process, it's crucial to understand the Hungarian real estate market. Budapest, the capital, is the most popular area for property investment due to its economic significance and cultural appeal. Other regions, such as the Balaton Lake area and cities like Debrecen and Szeged, also offer promising investment opportunities. 

Legal Regulations for Foreign Ownership 

Foreigners can purchase real estate in Hungary, but there are some restrictions. Non-EU citizens need to obtain a permit from the local government office, which usually takes a few weeks. EU citizens face fewer restrictions and can buy property under similar conditions as Hungarian citizens. You can also buy property via a Hungarian company. Purchasing arable land for a foreigner citizen is strictly limited in several cases and a complicated procedure is required. 

Property Ownership

Hungary recognizes various forms of property ownership, including exclusive, common ownership and condominiums as a mixed type. Exclusive ownership is the most common and provides the buyer with complete ownership of the property and the land it stands on. 

Finding a Property

Several online listings and property portals provide advertisements for real estates in Hungary. Websites like ingatlan.com, otpotthon.hu, realtorlawyers.hu and realestatehungary.hu are popular and provide extensive listings of residential and commercial properties. 

Legal Due Diligence, Technical Property Inspection

Before making an offer, it’s essential to inspect the property thoroughly. Ensure that the property has a clear title and is free from any encumbrances. This step typically involves checking the Land Registry and obtaining a certificate of ownership. It is crucial to engage a real estate lawyer who can check the legal background of the real property and ensure all legal aspects are covered, and represent you in the complete procedure. Make sure to choose an lawyer who is fluent in your in English. Also consider hiring a professional surveyor and architect to assess the property's condition and identify any potential issues. 

Financing the Purchase

Both Hungarian and international banks offer mortgages to foreign buyers. The terms and conditions vary, so it's advisable to compare different offers. Non-residents may face stricter lending criteria and higher interest rates. 

Currency Considerations

Since Hungary uses the Hungarian Forint (HUF), currency exchange rates can impact the purchase cost. It’s wise to monitor exchange rates and consider using a foreign exchange service to lock in favourable rates. 

The Buying Process Once you find a suitable property, you can make an offer. If the seller accepts, a preliminary agreement is signed, and a deposit (usually 10% of the purchase price) is paid when you signed at least a preliminary contract. 

Be careful with the realtors!

  Be aware of signing any documents offered by realtors, they are not entitled to formulate legal documents. Numerous legal cases generated by their false, incorrect or invalid documentation prepared without legal education and right to practice law. Also, realtors’ agreement are often very tricky in Hungary, they often use conditions advantages just for themself and the state attorney office challenges continuously such invalid, abusive realtor engagement agreements in the representation of the public. The big realtor networks are not exceptions, their franchise members are usual defendants in such litigations. 

Instead, contact your lawyer as a first step, they are legally educated and allowed to elaborate legal documents, and it is advised to check with them the realtor’s contract. 

Signing the Contract

The final purchase contract is drafted and countersigned by a lawyer. This contract outlines all terms of the sale, including the purchase price, payment schedule, and transfer date. 

Registration

After signing the contract, the property must be registered with the Land Registry with the assistance of a lawyer. This step officially transfers ownership to the buyer and typically takes a few weeks. 

Costs and Taxes

In addition to the property price, buyers should budget for additional costs, including: - Legal fees: 1-2% of the purchase price - Registration fees: Approximately HUF 6,600 (from the end of July 2024 it is HUF 10,600) - Real estate agent fees: 2-5% of the purchase price  

Duties, taxes

The basic transactional duty associated with real property purchase is 4% of the market value.  The tax authority may alter from the purchase price if it considers it less that the real market value. There may also be other local taxes and fees. 

Renovations and Maintenance If the property requires renovations, hiring local contractors and obtaining necessary permits will be essential. Regular maintenance is also crucial to preserve the property's value. 

Property Management

For investors who do not plan to reside in Hungary, hiring a property management company can be beneficial. These companies handle tenant issues, maintenance, and ensure the property is well-kept. 

Conclusion

Buying real estate in Hungary can be a rewarding investment, offering opportunities in a diverse and growing market. By understanding the local market, navigating the legal landscape, and conducting thorough due diligence, you can make a successful and informed purchase. Whether you're seeking a permanent residence, a vacation home, or an investment property, Hungary's real estate market has something to offer. 

If you plan to purchase a real estate in Hungary, contact Dr György Zalavári, lawyerand partner of Ecovis Zalavári Legal  Hungary. 

Dr. György Zalavári LL.M.
Ecovis Zalavári Legal Hungary
 Lawyer | Mediator | Corporate Law and Data Protection Specialist
gyorgy.zalavari@ecovis.hu

Much debate has focused on the legal classification of the "purchase security" used by Hungarian real estate agents and whether it is legal for real estate agents to handle money in this way. In the following I will try to answer these questions.

Since the Hungarian legal system does not regulate this type of "purchase security", it is necessary to examine its characteristics and to identify the known legal relationships on the basis of these characteristics.

How does a purchase security work?

One typical practice is that, when a potential buyer wishes to make an offer to buy a property, the real estate agent will in many cases inform the buyer that the offer can only be made to the seller if the buyer, in order to prove the seriousness of his intention, hands over a certain amount of money, typically hundreds of thousands or even millions of forints, in cash. 

There is then no agreement between the seller and the buyer as to the purchase security and the real estate agent is not an agent of the property owner in the context of the handling of the money. The manner in which the purchase security is to be disposed of is not usually set out in a written contract, but is accompanied by the explanation that its fate depends on the buyer ultimately purchasing the property.

If the seller accepts the buyer's offer, the real estate agent will hand it over to the seller at the time of the contract and the parties agree that it forms part of the purchase price. In some cases, the estate agent returns it to the buyer at the time of the sale and the buyer pays it to the seller. If the seller rejects the purchase offer, the estate agent returns this amount to the buyer.

The interesting case is if the buyer withdraws after the seller has accepted the purchase offer, the buyer's deposit is not returned by the estate agent,

it is either retained as a commission (which is incomprehensible because there is no agency or other legal relationship between the buyer and the real estate agent, so the real estate agent cannot be entitled to any amount from the buyer),

possibly a part of it to the seller (this is also incomprehensible because there is no agreement between the buyer and the seller which determines the amount of the purchase security or gives the seller the right to receive it, especially as this amount is not a deposit or a contingency). This amount is certainly not a deposit or a contingency, as there is no agreement between the seller and the buyer to pay it.

A purchase security is a sum of money held by the real estate agent without a valid contract to this effect, and paid or taken over by one or other party, subject to the failure or fulfilment of certain conditions, which are not usually set out in writing. It may also be recorded that he carries out this activity regularly in the course of his business, with a view to obtaining a profit or income, and that it is therefore commercial conduct on his part.

On the basis of these criteria, we cannot identify any legal title in the legal relationships that have been established which would enable the buyer to retain it or the amount to be transferred from the buyer to the property agent or retained by the property owner by virtue of any title whatsoever.

If we are considering whether the amount might have to be repaid to the buyer or transferred to the seller, we can apply the rules of the escrow agreement governed by Act V of 2013 on the Civil Code (Civil Code Act) to the assessment of the purchase security.

The Civil Code. 6:360 of the Civil Code, the depositary is obliged to keep the movable property specified in the contract and to return it upon termination of the contract, and to pay a fee to the depositor. Ptk. 6:364 (2) of the Civil Code, there is also a deposit whereby the depositor is obliged to release the deposited object to a third person specified in the contract upon the occurrence of the conditions specified in the contract or upon termination of the contract.

The commentary to the Civil Code points out that further detailed rules on the deposit of money are laid down in other specific legislation.

Pursuant to Article 2 (1) (c) of Act CCXXXVII of 2013 on Credit Institutions and Financial Undertakings (Act on Credit Institutions and Financial Undertakings), the Act does not apply to the management of cash deposits if its business is regulated by law.

Since there is no statutory provision for the commercial management of funds by real estate brokers (as opposed to notaries, courts and lawyers), the Hpt. applies to them, i.e. it is on the basis of this Act that it can be assessed whether real estate brokers are entitled to manage funds on a commercial basis.

Pursuant to Article 3(1)(l) of the Hpt, the commercial provision of deposit services in forint, foreign currency or foreign exchange is a financial service.

Pursuant to Article 6(1)(79) of the Hpt, a deposit service is defined as the deposit and management of funds on behalf of a client in a separate deposit account, with or without interest, under conditions laid down by law.

A cash deposit service is a special case of a civil law (movable) deposit regulated by the Civil Code, where a financial institution deposits and manages funds on behalf of a client in a separate deposit account, with or without interest, in accordance with the terms and conditions laid down by law and the deposit contract concluded for this purpose.

The management of the escrow account is also necessary to qualify as a deposit service under the Hpt.

We have to analyse the report on the commercial nature of the activity, as this is the basis for the qualification of the activity as a financial service subject to authorisation pursuant to Article 3(1) of the Hpt.

Pursuant to Article 6(1)(116) of the Hpt, the following elements must be examined in relation to the commercial character of the activity:

-for consideration, for the purpose of acquiring property,

-for the purpose of concluding transactions not specifically defined in advance,

-it is carried out on a regular basis.

Commerciality is when the service is provided for a fee or other economic benefit. In my view, commerciality can also be established if the activity is carried out in order to increase the efficiency, profitability, level of income and return on the main activity carried out in a commercial manner. In the above case, if the real estate agents are entitled to a share of the "commission on the purchase", this condition is fulfilled.

Pursuant to Article 7(2) of the Hpt, only financial institutions may provide financial services, unless otherwise provided by law.

It should be stressed that in cases of regulated commercial deposit of funds (by notaries, courts and lawyers), the legislation contains a number of provisions which provide for the depositing of funds and protect the financial interests of the depositor. Thus, regulated trusts are subject to liability insurance, chamber supervision, a deposit insurance fund and a compulsory registration process for state asset liability, ensuring that the depositor is covered for the payment of the deposit in case of error, mistake or possible misuse of the funds. However, these guarantees are absent in cases of non-statutory management of the funds.

An analysis of the above legislation indicates, in my opinion, that real estate agents are not authorised to handle funds on a commercial basis in the absence of a specific legal authorisation. In view of this, I interpret the legal provisions to mean that real estate agents may not, in the course of their business, accept deposits of money known as "purchase security" or manage such deposits.

The Ecovis network lawyers assist clients in Hungary and many other countries. For companies looking to expand in China, German lawyer Richard Hoffmann, founder of Ecovis Heidelberg, can provide support. 

With years of German and international experience, Richard Hoffmann has successfully assisted hundreds of companies in navigating the complexities of legal, tax and compliance issues in China, with his special knowledge of the Chinese business environment. The following is an English translation of Richard Hoffmann's article on the fight against corruption in China, published in English and translated with permission.

"In recent years, there has been an increasing number of cases of businessmen and celebrities getting into trouble for financial crimes or corruption. Examples are often in the news and often involve tycoons or people in the entertainment industry. 

As China tightens regulations and penalties increase, foreign and multinational companies based in China need to be careful in the way they do business. Internal corruption and inadequate safeguards can make companies liable for crimes committed by their employees. Therefore, companies need to keep a number of things in mind and be aware of the different types of behaviour that lead to commercial corruption.

This section provides an overview of the basic legal framework in China and the different types of commercial corruption, and then provides useful insights for companies that are dealing with or trying to prevent corruption.

Under the chairman of the anti-corruption campaign, Xi Jinping

In 2012, when Xi Jin-ping first took office, he introduced and implemented the largest organised anti-corruption campaign China has ever seen, with the aim of cracking down on "tigers and flies" (a term used to refer to high-ranking officials and local civil servants). Since then, more than 4.5 million people have been investigated and more than 200,000 officials have been suspended pending trial, according to the Central Commission for Discipline Inspection (CCDI). 

The public sector was initially the most affected by the start of the campaign, but slowly the crackdown on corruption in the private sector and foreign companies has been stepped up. In 2014, a major British pharmaceutical company was fined half a billion dollars for bribing doctors and hospitals to promote its products. This policy and the crackdown on corruption will continue, as President Xi Jinping said after the 20th Party Congress report that he will continue to pursue and root out corruption in China.

What are the different types of trade corruption in China?

Passive bribery, extortion and embezzlement by a company employee

The following conduct is punishable:

-taking unlawful possession of company money,

-Unlawful acceptance of money or property in exchange for favours.

Penalties for accepting bribes range from three years' imprisonment to a fixed term for "relatively large" amounts. In serious circumstances, up to 10 years' imprisonment can be imposed, while "particularly large" offences can carry a life sentence. All penalties include a fine.

Bribery of a company employee

Article 164 of the Chinese Criminal Code states that it is illegal to give money or property to a company employee and is punishable by up to three years' imprisonment, and in some cases up to 10 years' imprisonment, depending on the offence.

Bribery by a company

In the case of a company bribing an employee, Article 164 of the Chinese Criminal Code stipulates that the company and the person(s) directly committing the offence may be fined and imprisoned for a fixed term. Even if the activity does not result in a criminal offence, the company may still be held liable and fined between 10,000 and 200,000 yuan.

How can I prevent corruption in my company?

Of course, there are steps and procedures that need to be put in place in a Chinese company to reduce the risk of corruption among employees. Examples include:

-A clear policy on reimbursement 

Employees should know what types of expenses are reimbursable and how the process works. Reimbursement strategies can help identify suspicious behaviour such as corruption or fraud. Details should be included in the staff handbook so that all employees have access to it.

-Corporate seal management

As they have a very strong legal basis in China, company seals can easily be misused by employees or third parties by signing contracts, permits, etc. without the company's knowledge. In addition, it is advisable to distribute the responsibility for the management of company seals (not giving too much power to one person). In foreign companies, the legal representative usually manages the seal, which makes it difficult for the company to maintain its independence as to how the seal is used.

What can I do as a company if the worst happens?

What to do depends on the seriousness of the infringement. However, there are several things and steps that a Chinese company should be aware of. An independent investigation should be carried out by an internal audit/compliance team or by a trusted external third party. Depending on the outcome, several types of action are possible:

-Persuading the employee to resign,

-Termination by the employer for the reasons involved (e.g. breach of contract, code of conduct, etc.),

-terminate the contracts of the suppliers concerned,

-Implement crisis management once the situation has been made public.

The consequences of non-compliance

In preventing corruption, it is essential for Chinese companies to build up their own defence mechanisms and learn how to deal with these circumstances when any form of corruption occurs. Bribery committed by an employee is considered as the company's own act and therefore subject to civil and criminal liability. An exception is when the employee's conduct does not promote competitive advantage or business opportunities.

If government agencies are involved in the investigation, Chinese companies must cooperate and provide the requested information. Concealment or obstruction can lead to more severe penalties (such as higher fines and penalties for those involved).

 On the other hand, active cooperation can reduce the severity of the punishment or even eliminate it altogether under Chinese criminal code sections. Chinese companies are advised to focus on communication and support among all stakeholders to fully cooperate with the authorities during the investigation process.

Our useful advice

All in all, no one wants to find evidence of corruption in their own Chinese company. If it does happen, you need to know what the next steps are. Putting in place a detailed compliance system from the start is a good foundation and a significant step towards preventing corruption. Understanding and implementing the legal framework of Chinese law within the company and communicating this to employees is essential. It makes sense to employ an expert to oversee and ensure the company's compliance, with significant knowledge of the Chinese legal system, language and culture."

If you are looking to expand your company in China, contact Dr György Zalavári, lawyer at Ecovis Hungary Legal's international contact.

Dr. György Zalavári LL.M.
Ecovis Zalavári Legal Hungary
Lawyer | Mediator | Corporate Law and Data Protection Specialist
gyorgy.zalavari@ecovis.hu

In every lawyer's life, there are cases that will be remembered at the end of his or her career, because of their complexity, their professional uniqueness or their incredibly long duration. One such case is about to be concluded in our law firm, in which our client, seeking justice, will finally get his money, with interest, after 18 years of litigation and enforcement proceedings.

The case started 18 years ago over an unpaid, high-value invoice from a client who was building a building to order. The client took possession of the building, started using it, but failed to pay the final invoice, not only depriving our client of profits, but also pushing his company to the brink of insolvency due to subcontractor and project-related taxes.

To enforce the claim, our client filed a lawsuit and after all the appeals, finally obtained six court decisions and, after just 7 years, had an enforceable judgment on his claim.

But then he was disappointed, the bailiff was unable to recover his claim because the debtor had transferred the property twice in succession, by sale and trust, to other legal entities in which he had an interest.

We spent the next 8 years trying to prove, and finally succeeding, in various court proceedings the collateral nature of these fraudulent transactions. These proceedings have exhausted, often on several occasions, all the remedies available under the Civil Procedure Code and have been the subject of two judgments in the form of leading decisions.

Our client's chances were greatly enhanced by the fact that, in the second foreclosure case, the courts, on our motion, placed the property under security in foreclosure as an insurance measure to prevent further transfers. This avoided the risk that, following successful court proceedings, the property, which offered the possibility of recovering the debt, would be permanently excluded from enforcement.

Of course, the debtor also objected to all the measures taken by the executor during the enforcement procedure, contested every step of the procedure, made unfounded denunciations, and therefore the enforcement procedure could only be concluded years after the last court decision had become final.

Finally, after 18 years, when the case came of age, our client will receive the principal amount of his unpaid invoice, together with interest and the legal costs awarded by the courts. Unfortunately, in this case, too, we suffered a loss due to the practice of the courts in winning cases where, on several occasions, instead of the market, actual legal representation fees, the courts in charge of the case calculated lower legal costs based on an unknown calculation, and therefore, despite successful legal representation, the bailiff was able to recover less than the market, actual fees for our client in this case.

The debt recovery, which turned out to be a long procession, turned out to be fortunate for our client, thanks to the fact that, unlike in many other cases, the debtor did not manage to remove the assets securing the claim during the enforcement of the legitimate claim due to the attachment.

Dr. György Zalavári LL.M.
Ecovis Zalavári Legal Hungary
Lawyer | Mediator | Corporate Law and Data Protection Specialist
gyorgy.zalavari@ecovis.hu

The answer is simple: yes, you can. Although the Hungarian Civil Code has allowed this possibility for many years, in practice we find that this solution is more often used in the structures of foreign companies.

According to Hungarian law, it is possible for a company to have a legal entity as its managing director, but in this case the legal entity is also obliged to appoint a natural person to act as managing director on its behalf.   

In relation to this natural person, the legal provisions and restrictions that would otherwise apply to the appointment of a natural person as a managing director should also be examined.

In the case of Hungarian companies with a foreign parent company, it also happens that the managing director of the foreign company is another company, and the managing director of this other company is also another company.In such a case, not only the company certificate of the foreign parent company but also the company certificate of the company of the managing director of the foreign parent company must be submitted in the Hungarian company procedure when the Hungarian company is established. 

This is necessary because the application for company registration must be accompanied by the document from which the right to represent the foreign member can be established, and this also applies to the other company representing the foreign company.

 Although this document is not listed as a mandatory attachment in the Act on Company Procedure, it is a requirement that can be deduced from the general rules. 

Based on the practical knowledge of the lawyer Dr. György Zalavári, the author of this article, it is important to note that the prosecutor's office investigating the proceedings of the commercial court will pay attention to this element and, in case of its absence, will bring an action against the registration order even if the commercial judge has decided on the registration of the company without it.

However, it can create an unpleasant situation in the life of the company if bankruptcy or liquidation proceedings are initiated against the other company representing it, because it is then recommended to take immediate action to change the company's representation. Otherwise, it may even happen that the bankruptcy trustee or liquidator of the other company becomes the natural person entitled to act on behalf of your company. 

Therefore, if another company is the managing director of our company, it is important to keep a close eye on its legal status and operation and, if necessary, to take swift and timely action to change the representation.

Dr. György Zalavári LL.M.
Ecovis Zalavári Legal Hungary
Lawyer | Mediator | Corporate Law and Data Protection Specialist
gyorgy.zalavari@ecovis.hu

The acceleration of company registration procedures has reduced the importance of the pre-incorporation phase, but it is a necessary stage in the life of any company. 

The pre-company is created by the signature of the founders of the memorandum and articles of association and countersigned by a lawyer, and is dissolved by registration in the Trade Register or by the final refusal of an application for registration or the withdrawal of the application for registration.

Although the pre-company is formed as described above, it may not commence commercial activities until the application for registration has been filed with the Commercial Court. 

The tax authority will then establish the tax number for the pre-company, stating that this is not otherwise a necessary condition for carrying out the economic activity, but that care must be taken in the economic activity carried out at this stage in order to ensure that the tax deduction is exercised in a lawful manner. [KGD.2008. 176] If, however, the tax authority refuses to issue a tax number, the founders are jointly and severally liable for the tax obligations of the pre-company. [Art. 22]

The pre-corporate nature of the company must be indicated in the company's documents and declarations; failing this, a declaration made by the pre-corporate company is, if the company is not registered, a declaration made jointly by the founders.

A pre-company is not a separate legal form: it is governed by the rules applicable to the company which it is intended to set up, except that there can be no change in the members except by operation of law, i.e. the shares cannot be transferred; it cannot form or become a member of a company; it cannot be the subject of proceedings to exclude a member; and it cannot be the subject of a transformation, merger, division or dissolution without succession. In the pre-company stage, the articles of association may not be amended, except upon request of the court of registration and the body competent to grant official authorisation, but the Civil Code does not preclude the members of the pre-company from amending the articles of association, with the amendment taking effect on the day following the registration of the company. [BDT2006. 1453.]

The pre-company may therefore conclude contracts after the application for registration, which are considered legal transactions of the company after registration. If, however, the registration of the company is finally refused or the application for registration is withdrawn, the pre-company must cease to exist without delay and the obligations entered into must be met out of the assets made available to the company being formed. 

The founders shall be jointly and severally liable to third parties for any claims that cannot be settled. If, in the company being formed, the liability of the member for the obligations of the company has been limited and there remain, despite the member's liability, unpaid debts, the directors of the company being formed shall be jointly and severally liable to third parties for such debts.

Dr. György Zalavári LL.M.
Ecovis Zalavári Legal Hungary
Lawyer | Mediator | Corporate Law and Data Protection Specialist
gyorgy.zalavari@ecovis.hu

Since the GDPR came into force, the concept of data protection has become part of our daily lives, and the very first step in contacting almost any service provider is to give consent to the processing of our data.

 However, data protection is not only crucial in the life of a company, but also in the life of a condominium, since in Hungary, condominiums are mainly owned by natural persons. It is important to know that the provisions on data protection do not apply to the data of companies, as this public information is available to anyone, and the rules on business confidentiality may be of more interest in relation to it.

What personal data processing is involved in a condominium? 

Obviously, the natural identification data of private owners, which are available to all other owners in the deed of association, are certainly personal data that need to be protected. This also includes the contact details that owners use to communicate with each other by telephone or email, as this is information that is not known to third parties and that must be protected. 

In addition to these data, the common representative of the condominium also has the bank account details of the co-owners, which are nowadays also considered as highly sensitive information.

Many condominiums have cameras in common areas, stairwells or in the gardens of the condominium to ensure the security of property and persons. The use of cameras is a major privacy issue, and it is essential that condominium owners establish appropriate use and policies before installing such equipment on their property.

But what do co-owners need to do to comply with the relevant data protection rules?

Dr. György Zalavári, a data protection lawyer, points out that the condominium's privacy documentation must be approved by the general assembly and an extract of the documentation, with the essential information on data management, must be placed in the condominium in such a way that it is available to everyone upon entering the property.

It is not excluded that a condominium with a particularly large number of sub-units and thus a significant number of owners may even have to elect a data protection officer by law - this is a requirement in the case of large-scale processing of personal data.

If you have any questions regarding the data management of your condominium, please contact our data protection lawyer, Dr. György Zalavári, who will be happy to assist you.

Dr. György Zalavári LL.M.
Ecovis Zalavári Legal Hungary
Lawyer | Mediator | Corporate Law and Data Protection Specialist
gyorgy.zalavari@ecovis.hu

In the case of a gift, the donor transfers the ownership of an object to the donee free of charge, with the possibility of reclaiming it under certain circumstances.

One of the legal bases for reclaiming a gift is if the donor needs it for his/her subsistence. It is important to note that only the gift still existing can be recovered and only if its return does not endanger the subsistence of the donee. The donee is not obliged to return the gift even if the donor adequately provides for the donor's subsistence by means of an annuity or maintenance in kind.

The gift may also be recovered for a serious infringement committed by the donee or a relative living with the donee at the expense of the donor or a close relative. In addition to the above, it is also possible to claim not only the existing gift, but also the value of the value of the gift that has been replaced. 

A serious breach of a criminal offence or a breach of a legal obligation is considered to be a serious breach, provided that a final court or administrative decision is not a prerequisite for the claim to be enforceable, but the mere deterioration of the relationship between the parties or the lack of respect for the donor is not sufficient.

 The gift cannot be recovered if the gift or the value substituted for it is no longer present at the time the infringement was committed.

Finally, the donor can also claim the gift back if he or she has subsequently made the gift on the basis of a presumption that has been permanently frustrated, without which the gift would not have been made. Three conditions must be considered in this context: (i) the transaction was based on a presumption; (ii) without the presumption the transaction would not have been concluded; (iii) the presumption was subsequently permanently frustrated. In the examination, the circumstances surrounding the gift must be carefully weighed, for example, 'the relationship which existed between the donor and the donee before the gift was made is of great importance; the value of the object of the gift must also be examined, and in connection with this whether the gift is so significant that it may be reasonably inferred that the donor was in fact induced to make the gift by the presumption which he had put forward' [PK. 76]. 

The gift cannot be recovered or the value substituted for the gift cannot be claimed if the failure of the assumption on which the gift was based was caused by the donor's wrongful conduct.

The gift can never be reclaimed at the normal rate, but it can never be reclaimed even if the gift-giver has forgiven the offence. Forgiveness or waiver of reclaiming is when the gift-giver does not reclaim the gift after a long period of time without good cause.

Dr. György Zalavári LL.M.
Ecovis Zalavári Legal Hungary
Lawyer | Mediator | Corporate Law and Data Protection Specialist
gyorgy.zalavari@ecovis.hu