Legislative Background and Rationale
In condominium developments, it has long been common for purchasers to enter into sale and purchase agreements at an early stage of construction. However, registration of ownership title in the real estate registry could only take place at a later stage, typically after completion of the building and finalisation of the condominium deed of foundation.
Until now, purchasers’ legal protection was primarily ensured by:
- the registration of the fact of sale subject to retention of title; and
- the registration of the related purchaser’s right.
Although these mechanisms provided a degree of protection, they did not in all circumstances offer a sufficiently strong, independently transferable and financeable legal position, particularly where mortgage financing or multiple parallel purchasers were involved.
The Condominium Right of Improvement was introduced to address this gap by enabling purchasers of future condominium units to acquire an independent, registrable and transferable right during the construction phase.
The Essence of the Condominium Right of Improvement
The Condominium Right of Improvement is a specific proprietary right tailored to condominium developments.
Its key characteristics are as follows:
- the purchaser acquires a right in respect of a separate unit not yet created (typically a residential unit) under construction;
- the right is independently registrable in the real estate registry; and
- it secures the purchaser’s legal position until ownership title is registered.
It is important to emphasise that the Condominium Right of Improvement is not a “right of improvement” in the classical sense applicable to land in general civil law structures. Rather, it is a purchaser-oriented legal construction specifically linked to condominium sale and purchase transactions.
The legal basis of the right is typically the sale and purchase agreement, or a separate agreement concluded in connection therewith, in which the parties expressly provide for the establishment and registration of the Condominium Right of Improvement.
Creation and Registration in the Real Estate Registry
The Condominium Right of Improvement comes into existence upon its registration in the Hungarian real estate registry.
Statutory conditions for registration include, inter alia:
- a duly executed agreement with appropriate content;
- compliance of the deed of foundation (or its draft) with statutory requirements; and
- payment of at least part of the purchase price.
The competent land registry authority examines whether the condominium documentation — in particular the deed of foundation — complies with applicable legislation. In the event of deficiencies, the application for registration may be rejected. In practice, this requires careful contractual drafting and precise documentary preparation on the part of developers and contracting parties.
By integrating the Condominium Right of Improvement into the real estate registry system, the legislator ensures that the purchaser’s right is visible, verifiable and legally enforceable for third parties.
Encumbrance and Financing
One of the most significant practical innovations is that the Condominium Right of Improvement may be independently encumbered. In particular, a mortgage may be established over it.
This is especially relevant:
- in bank financing transactions;
- in project finance structures; and
- where the purchaser intends to finance the purchase price through a loan.
Compared to earlier purchaser-protection mechanisms, the Condominium Right of Improvement provides a stronger and more flexible legal position, as the financing institution may rely on a registered and independently existing right as collateral.
At the same time, the possibility of encumbrance requires careful legal structuring, since the fate of the right — particularly in cases of breach of contract, termination or failure of the development — may give rise to complex legal scenarios.
Termination and Transition to Ownership
The Condominium Right of Improvement is inherently transitional in nature. Its function is to secure the purchaser’s position until ownership title can be registered.
Once the condominium is formally established, the separate unit is created and the purchaser’s ownership title is registered in the real estate registry, the Condominium Right of Improvement ceases to exist and is deleted. Any mortgage encumbering the Condominium Right of Improvement is automatically transferred and registered against the title sheet of the newly created condominium unit.
Accordingly, the structure effectively bridges the period between the off-plan contractual stage and the final acquisition of ownership.
Practical Implications
For Developers
- More thorough contractual and documentary preparation is required.
- The deed of foundation and overall project structure must reflect the new legal framework already at the planning stage.
- Financing structures may become more flexible and bankable.
For Purchasers
- A stronger, registered legal position during the construction phase.
- Increased transparency regarding the legal status of the development.
- The ability to use the acquired Condominium Right of Improvement as collateral for financing purposes.
For Financing Institutions
- A clearer, registry-based security interest.
- A more predictable legal environment for financing condominium developments.
Conclusion
The introduction of the Condominium Right of Improvement represents a significant step in the modernisation of Hungarian condominium and real estate law. The new institution enhances purchasers’ legal security, strengthens transparency within the real estate registry system, and enables more flexible financing structures.
At the same time, the application of the new rules requires careful contractual planning and deliberate legal structuring. In condominium projects — whether acting for developers or purchasers — it is advisable to assess, prior to contract execution, whether the use of the Condominium Right of Improvement is appropriate in the given transaction structure and, if so, under what conditions.
