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‘Land Safely’ With Your PV Investment in Hungary

The sudden boom in solar PV investments in Hungary raises a series of legal questions.

László Kenyeres, Partner, Wolf Theiss Budapest

Based on publicly available data of the Hungarian Energy Authority and MAVIR, as of 2016 the overall PV capacity requested amounted to 2,500 MW. The first solar projects under the feed-in-tariff system were put into operation before the end of 2017 with a total capacity of 22 MW. Currently, the total installed PV capacity is around 432,8 MW.

As the second wave of solar power plants are now in the construction phase, administrative practice and case-law is also expanding. However, when discussing investments in new technologies, for instance solar PV, contradictions may occur in the interpretation and application of national laws and regulations.

Due to the lack of unanimous agreement over some legal aspects, technological booms are necessarily accompanied by less comprehensive changes in the legal environment. In this context, interpretation and practice related to the legal classification of solar PV plants and the question of ownership or land use rights over the interim period of the construction (as well as other use of such land) are two of the most topical issues from the point of view of investors and authorities.

Risks Related to Land Use

According to the data of the Hungarian Central Statistical Office, 78% of Hungary’s territory (i.e. 7.29 million hectares) is considered agricultural land: 59% is arable, 26.6% forest, 11% grassland and 3% is classified in other classes.

Despite local disparities, it is clear that most of the land available for PV investments is considered either high or good-quality agricultural land. However, it is important to underline that, pursuant to Hungarian laws on agricultural land and its transactions, it is strictly forbidden for companies to acquire ownership or obtain other rights over such land, whatever its quality.

In exceptional cases, agricultural land, mainly with lower quality, may be used for other purposes. Power generation, hence the deployment of solar systems is deemed as non-agricultural activity. Nonetheless, investors are still entitled to receive a permit from the competent authority to use such land for other legitimate purposes; enabling them to prepare the land for the construction and operation of a solar PV power plant.

As a final step, after construction and before the contractual settling of the ownership on the land, the reclassification of the land to non-agricultural use must be registered by the land registry office. Within the interim period, preparatory works by the investor create a situation where collaboration between the actual land owners and PV investors is indispensable in order to avoid unnecessary disputes with the authorities and business partners. Land owners are expected to tolerate any necessary interference, land use and construction works on their lands, while investors compensate those efforts by paying a special fee fixed in the pre-contracts.

Legal Classification of PV Power Plants

Another aspect that may arise when launching solar PV investments is the special classification of the plants from the point of view of civil law and any related sectoral law. European examples, such as the laws of the Netherlands or Italy, show similarities with the Hungarian law by considering PV power plants as immovable property despite being easily dismantled. According to existing Hungarian sectoral legislation, special technical solutions – for instance solar PV power plants – shall be treated as special structures. Despite their permanent and immovable nature, PV power plants may not be registered as independent properties in the land registry.

In conclusion, there are certain land related risks to watch out for when planning PV investments. When making costly investments at a given site with beneficial geographical characteristics such as high annual sunshine hours, risks related to the lack of ownership of the land may be reduced by careful planning and comprehensive contractual solutions. The government seems to have realized these discrepancies and has issued a decision requesting the competent Ministry of Agriculture and the Ministry for Innovation and Technology to revise the relevant regulation.

Kinga Máté, Associate, Wolf Theiss Budapest