European Investors vs Hungary 2:0 – Hungarian Land Act Condemned Again In Luxembourg

In May 2019 the European Court of Justice condemned again the Hungarian Land Act of 2014 cancelling usufructs on arable lands in Hungary without providing any compensation for right-holders. What is the "added value" of this second judgment, and why it is important for investors seeking damages for losing usufructs on lands?

Background

While acquisition of arable land in Hungary was always restricted or banned for non-Hungarians, foreign investors could "indirectly acquire" lands, due to a regulatory loophole, by setting up a company in Hungary which could acquire the usufruct of the property, which granted rights to the usufructuary close to ownership.

This loophole was closed in 2002, without affecting the acquired rights, however with effect from 2014 the new Land Act1 entered into force which cancelled the usufructs on arable land acquired earlier, and ordered the deletion of this rights from the real estate register, save if the owner of the land and the right-holder of the usufruct are close relatives ("close family tie" rule).

The Hungarian land offices deleted roughly 100.000 usufructs from the real estate register until the end of 2014, and cca. 5.000 foreigners were concerned.

Some of the right-holders challenged the land office decision in front of local courts, who started preliminary ruling procedure in front of the European Court of Justice ('ECJ') to interpret the free movement of capital, as basic principle of EU law, leading to the SEGRO case.2 In the SEGRO judgment, deliveed in March 2018, the ECJ held that the free movement of capital prevailed over the disputed provision Hungarian Land act, which cannot be applied in the SEGRO case.

The provisions of the Land Act impressed the European Commission too, who has started a so-called infringement procedure against Hungary back in 2014. While in SEGRO the interpretation of EU law was in focus to find the EU-conform solution for that particular case, this infringement procedure sought the declaration by the ECJ that Hungary has breached EU law.

The case in Luxembourg

In the litigation in front of the ECJ3, the European Commission argued that by cancelling usufructs on lands by law Hungary infringed the freedom of establishment and the free movement of capital, as basic freedoms provided by the founding treaties of EU, in addition the right to property enshrined in the Charter on Fundamental Rights of the EU, given the lack of any compensation.

The Hungarian government first...