Category: Hungary

Dentons has advised Globe Trade Centre on the acquisition of a real estate portfolio from the real estate investor Peach Property Group. GTC acquired the portfolio in a consortium along with Luxembourg Finance House. Greenberg Traurig’s Germany office reportedly advised Peach Property Group.

Founded in 1994 and headquartered in Warsaw, GTC Group is a real estate investor and developer focusing on Poland, Hungary, and the capital cities of Central, Eastern, and Southern Europe.

According to Dentons, “the portfolio focuses on three cities in Germany: Kaiserslautern, Helmstedt and Heidenheim. In total, it comprises around 5,200 residential units, 47 commercial units, 71 other units, and 2,108 parking spaces, with a total rental area of 324,167 square meters.”

In 2021, Dentons advised on Globe Trade Centre’s bonds issuance (as reported by CEE Legal Matters on July 2, 2021).

The Dentons team included Budapest-based Partners Istvan Reczicza, Gergely Stanka, and Judit Kovari and Senior Associate Rita Varnagy as well as further lawyers in Berlin, Frankfurt, and Luxembourg.

Editor’s Note: After this article was published, Rymarz Zdort Maruta announced that it advised GTC as well, particularly on the company’s issue of series A participation notes in bearer form, with a total nominal value of approximately EUR 41.8 million, as well as the Polish aspects of financing the transaction. The firm’s team included Partner Jakub Zagrajek and Associate Patrycja Gliwka.

A recent ruling by Hungary’s Curia could signal a wave of lawsuits and substantial overtime compensation claims, potentially impacting millions of workers. According to a March 2023 ruling from the European Court of Justice (ECJ), the daily rest period – a minimum break between shifts – is distinct from the weekly rest period and must be provided beforehand.

In practice, this could mean that workers in standard shifts would be entitled to overtime pay for working past 1 p.m. on Fridays, in line with the daily rest period requirements. Employers could face retroactive claims for such overtime dating back several years, with the mandated overtime premium set at an additional 50%.

The distinction between daily and weekly rest periods has been a source of legal debate for years. Hungarian labour law allows a generous 48-hour weekly rest period, exceeding the EU’s minimum 24-hour requirement. However, the ECJ ruling underscores that Hungary’s more extensive weekly rest period does not exempt employers from also providing the standard daily rest period beforehand. This ruling has immediate implications, as it could render past practices non-compliant, raising questions of retroactive financial liability for employers.

Hungary’s response to this issue has been complex. In 2023, the Hungarian Labor Code was modified to attempt to address these issues, stipulating that employers need not assign daily rest if the subsequent day is non-working. However, two recent Curia rulings emphasize that this change does not retroactively cover previous practices. The Curia’s decisions highlight that from a legal perspective, all instances where daily and weekly rest periods “overlap” without proper daily rest given would constitute “extraordinary work” and qualify for compensation. This interpretation is critical, as it could trigger backdated claims covering up to three years, given the statutory limitation period in Hungarian employment law.

These rulings have broad implications, especially for those working in non-standard schedules, including many transportation and healthcare professionals. The rulings clarify that employers who failed to allocate daily rest periods before weekly rest periods were essentially assigning overtime, even if unintentionally. As a result, employers across various sectors may face significant liabilities in the form of compensation owed to workers for extraordinary work.

Employers may now be forced to reassess their scheduling and compensation practices to ensure compliance. Even though Hungary’s Labor Code modification in 2023 sought to address the daily versus weekly rest period issue, questions remain about whether the revised legislation aligns fully with EU labour law requirements. Until resolved, this uncertainty leaves open the possibility of continued legal action from workers seeking compensation for past practices.

For employees, the Curia’s rulings represent a significant step forward in labour rights protection, offering a clear pathway to seek owed compensation for rest period violations. With the statute of limitations covering three years, workers could pursue claims reaching back to 2021, particularly those working in full-time positions where daily and weekly rest periods may have overlapped.

By Reka Fulop, Attorney at Law, KCG Partners

The longstanding partnership between Hungary and Serbia has taken another step forward with the recent amendment to the double taxation convention. These agreements are crucial for eliminating double taxation on income and assets for both individuals and companies, fostering a more favorable business climate.

Not only that they prevent double taxation, but they also pave the way for quicker resolution of tax-related disputes, benefiting businesses and tax authorities alike. Economic ties between Hungary and Serbia have grown significantly in recent years, driven by strong political relations and a shared vision for economic development. Serbia has become a key destination for Hungarian investments, especially in sectors like trade and small to medium-sized enterprises. The updated tax convention further cements this partnership, encouraging even more Hungarian companies to explore opportunities in Serbia.

Signed in Budapest back in 2001, the original convention aimed to avoid double taxation on income and capital. The latest amendment, formalized in October 2024, enhances cooperation between Hungary and Serbia by expanding the exchange of tax information, including details related to VAT. This broader exchange is expected to boost tax control measures, helping both countries in their fight against tax evasion.

The amended article of the convention introduces provisions for the exchange of information between the two countries’ tax authorities. This exchange is designed to help enforce the provisions of the convention and ensure proper administration of taxes of all kinds, provided such taxes do not conflict with the convention. Information shared will be treated as confidential and can only be used by relevant authorities involved in tax assessments, collections, or legal proceedings. It may also be disclosed in public court cases or judicial decisions. However, the agreement does not require either country to take actions that are inconsistent with their domestic laws or to share information that is not available through standard procedures or would violate trade secrets or public policy.

The Secretary for Taxes of the Ministry of Finance and the State Secretary of the Serbian Ministry of Finance signed the amendment to the double taxation treaty between the two countries in October 2024. The amended protocol will take effect 30 days after the exchange of ratification instruments, with its provisions applying to tax and business information from 1 January of the following year. This strategic move not only strengthens economic cooperation but also sets the stage for continued growth in trade and investment between the two neighbouring nations.

By Denes Glavatity, Attorney-at-Law, KCG Partners Law Firm

On 10 October 2024, the Ministry of National Economy published a draft Government Decree on the National Trade and Consumer Protection Authority and another one on the amendments to the Government Decrees related to the establishment of the National Trade and Consumer Protection Authority.

The Ministry invited comments on these documents through a public consultation until 18 October 2024. The proposed legislation aims to establish, from 1 January 2025, the National Trade and Consumer Protection Authority, a central budgetary body operating as a central office under the authority of the Minister for Trade. The adopted Government Decrees were published in the Hungarian Gazette on 14 November 2024 and will enter into force on 1 January 2025.

The tasks of the National Trade and Consumer Protection Authority will include among others to contribute to the development and implementation of trade and consumer protection policy, to give opinions on draft legislation affecting its areas of responsibility, to propose to the Minister, where necessary, amendments to the legislation affecting his or her area of responsibility, and to operate a centralised system for the supply of samples.

Under the Government Decree on the National Trade and Consumer Protection Authority, in the framework of the professional management activities of the National Trade and Consumer Protection Authority, it (a) organises meetings and training courses, and runs professional working groups, (b) issues mandatory professional procedures, guidelines, control and sampling plans in the course of inspections and professional activities of the government offices, (c) designates laboratories for the examination of samples taken; and (d) supervises the implementation of recommendations made in internal controls, audits and specialised inspections which it carries out.

In addition, the National Trade and Consumer Protection Authority could oblige the government office to (a) participate in external audits carried out by international bodies, (b) collect, maintain records and provide data for the establishment and maintenance of national databases; and (c) to report and account for the tasks performed.

By Lidia Suveges, Attorney at law, KCG Partners Law Firm

The Hungarian Parliament voted to extend the state of emergency with an additional 180 days. The Hungarian Government declared a state of emergency by a government decree that entered into force on 25 May 2022.

The state of emergency has since been extended several times, most recently by a government decree published in the Hungarian Official Gazette on 17 April 2024 until 20 November 2024.

According to the Constitution of Hungary, a state of emergency may be declared for thirty days, but the Government may extend the state of emergency based on the authorisation of Parliament if the circumstances giving rise to the declaration of a state of emergency persist. The declaration of a state of emergency was necessary since a state of emergency is a special legal regime under the Constitution of Hungary, where the Government may issue a decree suspending the application of certain acts, derogate from certain provisions of acts and take other extraordinary measures, thus allowing a faster and more effective response to international events.

According to the explanatory memorandum to the act it is required to further extend the state of emergency since it is still necessary to ensure the possibility of developing effective, rapid national responses in order to deal with the consequences of the Russian-Ukrainian armed conflict and to manage the consequences of international, economic changes.

The act entered into force on 15 November 2024, on the day following its publication in the Hungarian Official Gazette, in which the Parliament authorises the Government to extend the state of emergency until 18 May 2025.

By Levente Csengery, Partner, KCG Partners Law Firm

The Ministry of Energy, taking into account regulatory experience as well as public feedback, has adjusted the emission limits for several particularly toxic air pollutants in factories, raising them to stricter levels in line with German standards, which are more stringent than the EU regulations.

The modified regulation sets the strictest emission limits in the European Union for certain air pollutants, with a particular focus on carcinogenic, mutagenic, and reprotoxic (CMR) substances, as well as nickel, cobalt, and manganese (NCM) compounds, which are bound to airborne dust and pose particular health risks. Thanks to this modification, environmental authorities will be able to impose stricter, reduced emission limits – cut to half or even a fifth of previous levels – regardless of the type of activity when issuing permits.

The significantly stricter provisions will apply to new investments (i.e., those for which environmental permitting procedures have not yet started) from the date the legislation comes into force. For ongoing permits, the new rules will be applicable from 1 January 2027. For already operating factories, the new, much stricter emission limits must be applied from 1 January 2028. In all cases, companies must initiate the modification of the relevant permits.

By Lilla Majoros, Attorney at law, KCG Partners Law Firm

Lakatos, Koves and Partners has advised Green Power Investment on the sale of two Hungarian photovoltaic projects with a combined capacity of 7.7 megawatts to an unidentified Austrian investor.

Green Power Investment is a Czech Republic-based renewable energy company.

The Lakatos, Koves and Partners team included Partner Adam Mattyus, Lawyers Kornel Dirner and Julia Varkonyi, and Trainee Lawyer David Nagy.

Lakatos, Koves & Partners could not provide additional information on the matter.

Schoenherr has advised Bank Gospodarstwa Krajowego on a EUR 40 million financing agreement for the development and long-term investment of a Puro Hotel in Budapest. Szabo, Kelemen & Partners Andersen advised Puro.

BGK is Poland’s state development bank. It supports Poland’s sustainable social and economic development and plays a role in financing exports and the foreign expansion of Polish companies.

According to Schoenherr, this marks the Puro brand’s first venture outside of Poland, with the hotel scheduled to open in mid-2026. The financing provided by BGK will enable the expansion of the Puro hotel chain into the Hungarian market.

The Schoenherr team in Poland included Partner Ilona Fedurek, Senior Attorney at Law Piotr Bartos, Attorney at Law Aleksandra Kulik, and Associates Gabriela Chrzanowska and Filip Grabowski while the team in Hungary included Partners Laszlo Krupl and Gabor Pazsitka, Attorney at Law Lilla Szepsi Szucs, and Associates Balint Bodo, Viktoria Magyar, and Nora Lilla Szilvasi.

The Szabo, Kelemen & Partners Andersen team included Partners Eva Balsay, Levente Kalman, and Zoltan Modos.

Despite 2024 being a relatively slow year in terms of real estate transactions, Act Legal Partners Adam Kaplonyi and Gergely Ban see ample signs to be optimistic about the sector’s outlook in Hungary.

CEELM: What have been the real estate sectors that have seen the most transactional activity this past year in Hungary?

Kaplonyi: To be honest, 2024 has not seen many transactions – something that is generally true for the entire real estate market, not just for a specific sector. The volume of investments has been decreasing in the entire Hungarian economy. At the same time, there are some promising activities, new developments, and opportunities in certain market sectors, which I think may lead to a new wave of transactions soon.  

Ban: I think that despite all the evident economic difficulties in Hungary and generally in the world, there are always some market players who can adapt and succeed. Thanks to our clients we already see specific prospective projects in the pipeline, some may even start this year.

CEELM: While accounting for the slowdown, which sectors have been most active in the country in terms of new developments/projects and why do you believe that was the case?

Ban: The hospitality sector has great potential, Hungary has traditionally been a popular target for tourists, and, now that the pandemic is over, it seems that tourism has fully recovered and will continue growing. Several new hotels (among them luxury ones) were completed in the course of 2023 and 2024 and I expect new developments to come. For example, in Budapest, there are still fantastic buildings out there with great potential waiting for a thorough refurbishment. 

Kaplonyi: Logistics certainly seems to be another strong sector. The continuous increase in warehouse areas was originally triggered by growth in e-commerce, later accelerated by the pandemic and the changing habits of customers. I am not sure for how long this trend will continue though. As we see it, it is not that difficult to find new tenants for such new buildings at the moment but finding good new locations may not be as easy. I do not see growth potential in classic retail (including plazas and smaller retail units) in the short run. The residential property development market may have had its ups and downs, but owing to the state subsidies provided to people wishing to buy new homes, it is still up and running.

CEELM: Are developments primarily driven by local or international players? What do you believe are the main draw factors for foreign investors in the sector in Hungary?

Ban: The share of local players in developments/investments is definitely increasing. There is now a group of Hungarian entrepreneurs, who, for one reason or another, are capable of implementing significant projects. Many of them are also looking for investment opportunities abroad. However, the largest developers are still international companies.

Kaplonyi: We also have to note that some international players – who we used to think of as an integral and stable part of the Hungarian market – either abandoned Hungary or downsized their portfolios and not all of their assets were purchased by other international investors. Nevertheless, based on discussions with colleagues within Act Legal and with clients, I still see and feel trust in the Hungarian market. There still are newcomers and wannabe newcomers. The main draw factors may vary from sector to sector, but the devaluating Hungarian forint is certainly one of them, especially since almost all commercial rents are paid in euros.

CEELM: Has the shock of labor and material pricing passed or is it still very much felt on the market? If the latter, what’s the realistic time frame you see for it to cool off?

Kaplonyi: Inflation decreased significantly – one might say it is more or less within a normal range now. Officially, it is 3% and, while the actual inflation is probably higher and inflation on costs of materials and labor is definitely higher, it is far less extreme than it was in 2022 or 2023.

Ban: I agree. At the same time, it is worth noting that the devaluation of the Hungarian forint against the euro and US dollar has been a constant trend, which will keep pushing up material prices to some degree.

CEELM: How has the rise of ESG impacted local players? Have you seen them adapt yet or is this evolution still very much an ongoing process?

Kaplonyi: If you mean sustainability in general, the key market players all adapted to the concept. It has been quite a while since a new building was completed without obtaining BREEAM, LEED, or other similar certifications. If one talks about office leases, it has long been a trend that tenants prefer to move into more efficient, more sustainable, more cost-effective buildings. If you mean compliance with recent ESG regulations, most companies are only in the phase of contemplating the “to do”-s rather than “doing,” but at the end of the day they will have no choice but to comply.

Ban: We’ve also seen an increased tendency of foreign companies enforcing their internal ESG policies on their contracting partners (landlords, suppliers, etc). Usually, that’s done on a take-it-or-leave-it basis and they also require their partners to enforce the terms throughout their own supply chain. Not all local companies are prepared to accept this yet. Sooner or later, the new ESG regulations will require this of everyone but the pressure is already there before any law was enacted in Hungary to make them mandatory.

CEELM: From a legislative/regulatory framework, what elements do you believe most supported RE projects in the country? On the flip side, what do you believe have been the biggest barriers to date?

Ban: Bureaucratic procedures are traditionally a problem in Hungary. However, a lot has been done in the past 15-20 years to decrease administrative burdens and simplify procedures. Many processes have been fully digitalized and they indeed become faster, more transparent, and more user-friendly. It is a success story. And such digitalization continues. For example, all land registry procedures will be digitalized from January next year and all registrations will take place without submitting any paper to the authorities. The entire Hungarian administration is undergoing a digital transformation.  

Kaplonyi: That said, we are still not great at maintaining a predictable legal environment. Hungarian governments tend to change laws – even fundamental ones – frequently either for short-term gains or because legislative faults (that should have been avoided in the first place) need to be corrected. The effective Civil Code, for example, entered into force 20 years ago but has been amended more than 30 times since then. If the government decides to support some preferred projects, they are not afraid to change the law in support of such projects. A recent general change includes the total reform of the zoning and building regulations and related licensing procedures starting this October, which promises less bureaucracy. We shall see how it works in practice. 

CEELM: What is your outlook for the sector in the next 12 months? 

Kaplonyi: Everyone is asking whether we have hit rock bottom yet and everyone gives different answers. Based on the activities of market players I am aware of, it seems to me we passed that point, but I can’t know for sure how representative my anecdotal observations are of the market as a whole. Overall, I believe 2025 should see a slow but steady move upward.

Ban: Our clients’ activities will definitely at least keep steady in Hungary. Moreover, we expect that they will bring more promising investments to Hungary in the next 12 months – e.g., expansions of existing facilities. We will be busy in 2025!

Bird & Bird has advised Iron Mountain on its acquisition of Wisetek.

Headquartered in Boston, Iron Mountain is an American enterprise information management services company founded in 1951.

Founded in 2007 in Cork, Wisetek operates in IT asset disposition, IT asset lifecycle management, and manufacturing services.

Editor’s Note: After this article was published, Bird & Bird informed CEE Legal Matters that its team was led by Dublin-based Partner Brendan O’Brien and Budapest-based Partner Pal Szabo and has also included lawyers from the UK and UAE. The firm worked side by side with Sheppard Mullin and Tilleke & Gibbins. Reportedly, RDJ advised the sellers.