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Commission opens infringement procedure against Hungary

EU

In an investigation of whether Hungarian investment laws are in compliance with EC standards, the European Commission said yesterday that they would formally request that Hungary submit observations on its legislation regarding the termination of certain contractual rights of investors in their use of agricultural land.

The Commission argued that Hungarian legislation has restricted the rights of cross-border investors. This may violate EU law on free movement of capital and freedom of establishment. The Commission noted that any restriction of these basic treaty freedoms must be justified and must comply with the principle of proportionality. Member States are permitted to set their own rules governing the system of property ownership. However, this must be done within the limits of EU law.

The first contested provision is contained in a Hungarian law from December 2013. The law terminated certain usufruct contracts (contracts which assign the right to use a property and profit from it) on May 1, 2014. The Commission said that the new law granted only a four and a half months of transition to the usufruct-holders against a previously announced transitional period of 20 years. So, investors had expected to continue using the land on the basis of this earlier transitional period and had made their investment decisions accordingly. But the new Hungarian law seems to deprive the affected parties of their rights, the Commission noted.

The Commission also contests a second provision of the same law that allows for the unilateral termination of certain land lease contracts concluded more than 20 years ago, subject to a very short notice period.

The Commission's request in the form of formal notice is the first stage of infringement procedures. Hungary has two months to respond.

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