Usufruct rights are back to haunt landowners

A government decree of 1991 and then the 1994 law on land prohibited that foreigners acquire ownership on agricultural land (the law on land extended this prohibition to Hungarian companies). That’s where

instead of selling land, indefinite period or long term usufruct contracts were made.

An amendment of the law in 2002 extended the applicability of the limitations on sale to usufruct contracts. Finally, from 2013 on the land registry offices removed these rights from the land registers.

In the case before the European Court, the present owner acquired a plot of land in 2012. The usufruct rights on this plot were registered already in 2002 (moreover, it was agreed already in 2001, thus, before the limitation of the law on land became effective). This registration was nevertheless invalid according to Hungarian law at that time, as, according to the above-mentioned amendment the usufruct rights should not have been registered even when they were agreed upon before the amendment. It is up to discussion whether that amendment counts as retroactive legislation, according to the judgment of the European Court, however,

the limitation of the usufruct rights was unlawful in its entirety under EU law.

The effect of the judgments establishing this was inserted into Hungarian law in 2021, enabling for the beneficiary to ask to re-register the usufruct right, except when the landowner could assume in good faith that the usufruct right did not exist. These cases are precisely defined in law. On this basis the usufruct right was re-registered in our case as well, which act was challenged in court by the owner. The Hungarian court turned to the Court of Justice of the EU because it had doubts whether the land registry is obliged to assess before registration whether the original registration was lawful. This assessment is, however, not foreseen by the 2021 amendment and thus this would only be possible if EU law would require it. The usufruct right was established by the previous owner of the land plot, thus, according to the Hungarian court, the present owner did not act in bad faith. Moreover, according to the Hungarian court, as the usufruct right was erased from the registry, the owner could assume that this right has ceased to exist.

The Luxembourg judges investigated not only the text of the law, but also whether the above limitation of the ownership rights of the new owner is justified. They based themselves on the legal principle that if a measure is fit for the purpose and proportional, then the infringement of another right can be justified.

The prohibition of registering the usufruct rights limited the free movement of capital enshrined in Article 63 of the Treaty on the Functioning of the European Union, and the annulment of the prohibition and the creation of the possibility to re-register the usufruct right intended to remedy this infringement.

Although thus the rights of the owner are limited, but according to the judgment this measure was necessary and proportionate. Namely, the ownership rights can be limited by law when respecting the essential content of the right, taking into account the principle of proportionality when this is indispensable and serves the general objectives recognised by the EU and the protection of the rights and freedoms of others.

On the other hand,

as invalidating the usufruct right was not lawful, the acquisition of the unlimited ownership right based on this invalidation cannot be considered lawful notwithstanding the fact that the ownership itself was acquired lawfully by the present owner.

The Court recognises that it could be more practical, for the avoidance of abuse, to prescribe a case by case assessment of the circumstances of the acquisition of the usufruct rights when re-registering it, but in this case the purpose is not to avoid abuse but to remedy the infringement of Union law and for this case that principle cannot be applied.

Based on all this re-registering the usufruct right whose invalidation infringed European law is also not precluded neither by Article 63 of the Treaty on the Functioning of the European Union about the free movement of capital, nor by Article 17 of the Charter of Fundamental Rights about the ownership rights even when the original registration infringed national law in force at the time of registration.

To be noted that the re-registration was not automatic, the beneficiaries had until the 28th February 2023 to request re-registration, after which day this rights expired.

Cover photo (for illustration purposes only): Shutterstock