There is one key document around which the whole building process revolves: this is the permit to build.
Under Hungarian law the permit is required for all building activities, which includes alterations, extensions, renovations, reconstruction, modernisation or development.
This permit is obtained by the developer from the construction authority, which forms part of the municipality for the area in which the work is to be carried out. The permit will contain all the consents required from other authorities, and will cover, for example, environmental requirements, ancient building protection, nature protection and fire safety.
The local construction authority has 60 days from the date of the application for a building permit to reach a decision. Any construction may only be commenced in accordance with a final and enforceable building permit, and a permit is considered to be final only if no appeals have been filed, or once any appeal which has been lodged has been determined by the regional authority.
Once the permit has been issued, it will be delivered to the developer, the municipality, all authorities that have issued consents which are included in the building permit, and all owners of the properties which neighbour the proposed site.
Those parties then have 15 days to lodge an appeal against the permit. There are no specific grounds for bringing an appeal set out in the legislation, so appeals can be brought for a wide variety of perhaps tenuous reasons, leading to a delay in construction. Once an appeal has been filed, construction cannot start until the appeal has been favourably determined.
Any appeal will be heard by the regional construction authority that is responsible for supervising the local construction authority and which will determine if the building permit is in line with applicable laws and is factually correct. The regional construction authority has 30 days to give its decision. If it rejects the building permit, the whole process starts again.
Even when a permit becomes "final and enforceable", any person with a legal interest in it can still make a challenge by applying to the Hungarian courts for a decision that the issue of the permit was wrong as a matter of law. (By this stage, it is not possible to challenge the facts on which the permit has been issued.) Any such application must be filed within 30 days of the issue of the final and enforceable permit, and once an application is filed this has the effect of postponing the development, perhaps for years, while the court considers it.
Problems arise when developers do not wait for their final and enforceable building permit. This is a fairly common problem in Hungary, and there have been some high-profile examples in Budapest. Investors in particular should be careful to carry out a thorough due diligence exercise before becoming involved in any development project, in order to ensure that a valid building permit has been issued.
Where a development is commenced without a permit, the consequences can be extreme. The construction authority will require construction to be suspended, and there is a danger that it will decide that the building should be demolished – as was the case with a Budapest cafe built next to the Citadella, an ancient monument. After nine months of litigation, the developer was given 15 days in which to demolish the construction and reinstate the site. It was also responsible for all the costs of doing so.
The developer may be able to convince the authority that the building does not materially harm the legal interests of any third party, in which case a permit may be granted to sustain the building. Clearly, this is not something a developer or investor would want to rely on.
This article was co-authored by Judit Fiath, a solicitor at Linklaters, Budapest, and by Victoria McKinnell, a solicitor at Linklaters, London.