Blog » TRANSFER OF CONTRACT UNDER THE HUNGARIAN LAND ACT - SUPREME COURT VS. CONSTITUTIONAL COURT: 1-1
TRANSFER OF CONTRACT UNDER THE HUNGARIAN LAND ACT - SUPREME COURT VS. CONSTITUTIONAL COURT: 1-1
02 September 2020
The legal debate surrounding the “infamous” legislative amendment in 2015 introducing the right to unilaterally increase land rents has taken another turn. In its decision this spring, the Hungarian Supreme Court disregarded the previous decision of the Constitutional Court on this matter and omitted the application of the disputed provision when deciding a legal issue. Our article will discuss the significance of the decision, as well as the contradiction between the two highest organs of the judiciary.
1. The legislation at issue
The regulation in question was introduced at the time of the large-scale auctions of state-owned lands in 2015, with the aim of allowing new owners of the previously state- owned lands to raise rents paid by old tenants to market levels. However, ex-post State intervention in existing leases is contrary to one of the most fundamental principles of law, the prohibition of retroactive legislation.
The legal implementation of the idea was also problematic because a significant part of the leases were not even covered by the laws in which the unilateral amendment right was incorporated. The legislator therefore cut the Gordian knot and introduced a provision in the transitional act of the new Civil Code (hereinafter: “Ptké.”), according to which, in the event of a transfer of a contract by virtue of law (this happens with the lease contract when the land changes hands) the previous contract is considered terminated and replaced by a new contract (leg.: novation).
With the help of this “legislative twist”, leases in respect of the auctioned lands are automatically renewed by law at the time of the change of ownership, making the recently introduced unilateral rent increase option applicable.
The legislative step has sparked a long-running professional debate, the critics of the legislation argue that the novation provision inserted in the Ptké. is contrary to the approach of the Civil Code and the related case law, since, according to the latter, the transfer of a contract results in legal succession, which means a continuous relationship without renewal of the contract.
2. 2018: Supreme Court vs. Constitutional Court: 0-1
In the year following the entry into force of the change in legislation, several judges filed Judicial Initiative for Norm Control before the Constitutional Court, seeking the annulment of the aforementioned provisions, which they considered to be unconstitutional. In a 2017 decision, the Constitutional Court joined 6 (six) such initiatives and then rejected them for formal reasons without examining the merits of the case.
Subsequently, the Supreme Court also turned to the Constitutional Court after encountering the above problem in one case, ie. that in connection with the transfer of the contract, the Civil Code is contrary to its own transitional/interpretative law, the Ptké. (leg.: norm collision). As conflicting norms jeopardize the predictability of the law, and thus the constitutional requirement of legal certainty, in order to resolve the conflict of norms, the Supreme Court sought the annulment of the problematic provision of the Ptké. containing the novation due to its unconstitutionality.
The Constitutional Court rejected the Supreme Court’s initiative for the annulment of the regulation. In the statement of reasons, the Constitutional Court defended the provision on the merits, in its opinion the legislator inserted a special rule in the Ptké. in connection with the transfer of contracts by virtue of law, and as a special rule, it is not in conflict with the rules of the Civil Code governing the transfer of contracts in general (special law overrides the general law). The Court further stated that the provisions of the Civil Code do not explicitly exclude the concept of novation.
In any case, the Constitutional Court called on the National Assembly to harmonize the mentioned legislations (this has not yet happened).
3. 2020: Supreme Court vs. Constitutional Court: 1-1
In the light of the above antecedents, it is an unexpected turn of events that the Supreme Court, in its judgment in the spring of 2020 disregarded the above-mentioned decision of the Constitutional Court and found that at the time of the auction of the land, the lease on the property had not been renewed due to the transfer of the contract by law, so the lease contract remained under the rules that were in force when it was concluded in 1993.
In the legal justification, the Supreme Court highlighted that the Ptké. is a norm facilitating the entry into force of the Civil Code, so, due to its function, it cannot take over the Civil Code’s role and may not override its provisions. The Supreme Court thus resolved the norm collision with the help of legal interpretation, which eventually led to the disapplication of the Ptké’s problematic provision.
The significance of the decision is outstanding, as according to it, land leases falling under the scope of the former land act before the new Land Act of 2013 do not automatically become subject to the rules allowing unilateral fee changes (Ptké., Fétv.) in the event of a change of ownership of the land, thus, unilateral rent modification has/had no legal basis in many cases.
The decision may give even more impetus to the debate around the norm, as with the introduction of the “limited precedent system” this year, the above decision of the Supreme Court is now binding, and the Hungarian courts cannot deviate from it. For this reason, it is possible that a number of lawsuits will be filed against unilateral fee changes, referring to the above precedent.
4. Supreme Court vs. Constitutional Court: the final score?
It is legitimate to wonder how the two bodies at the top of the judicial hierarchy, the Supreme Court and the Constitutional Court could make conflicting decisions and whether the Supreme Court can disapply a legislation that is otherwise applicable.
As a starting point, let us examine whether the Supreme Court can disapply a provision of a piece of legislation, in this case the Ptké. The answer to this question is not that simple: on the one hand, the Fundamental Law allows judges to consider other methods of interpretation in addition to the grammatical interpretation that is based exclusively of the words of the law (such other methods are for example: legislator's intention, systematic, principles of interpretation in a law, common sense, etc.)
However, the Fundamental Law also states that the legislations are binding on everyone, which means that the provisions of the Ptké. cannot be disapplied or overridden by the Supreme Court and it cannot take over the role of legislator.
Consequently, although there is a 'technical' possibility of derogating from legislation, it in all cases carries the risk of the decision being unconstitutional.
That being said, let us examine the relationship between the Constitutional Court and the Supreme Court. Pursuant to the Act on the Constitutional Court, the decisions of the Constitutional Court are binding on everyone, including the Supreme Court. Since in the present case the Constitutional Court has previously found the disputed provision of the Ptké. to be lawful, the judgment of the Supreme Court to the contrary may violate the binding force of the decision of the Constitutional Court, which would constitute a violation of the legal provision establishing the binding force.
As discussed above, the disapplication of legislation carries the risk of unconstitutionality. Against a judicial decision deemed unconstitutional, the parties concerned may lodge a constitutional complaint before the Constitutional Court, which annuls the decision if it finds it unconstitutional.
Therefore, the outcome of the debate examined in our article currently depends on whether the entitled persons file a complaint before the Constitutional Court in connection with the decision of the Supreme Court. If so, the “match” continues. Although the decision of the Constitutional Court is predictable, the case may hold further interesting turns for both those working in agriculture and those interested in Hungarian law.
 Sections 50/A and 110/A of the Act CCXII of 2013 on laying down certain provisions and transition rules in connection with Act No CXXII of 2013 concerning agricultural and forestry land trade („Fétv.”); and Section 53/C of Act CLXXVII of 2013 on the transitional and authorising provisions related to the entry into force of the Act V of 2013 on the Civil Code (Ptké.)
 see Govt. Decision No. 1203/2016. (IV. 18.)
 derived from Art. B) (1) (rule of law principle) of the Fundamental law
 see Sections 2(2) and 15 of the Act CXXX of 2010 on law-making
 Section 53/C
 based on Section 25 of Act CLI of 2011 on the Constitutional Court
 Constitutional Court decision No. 3278/2017. (XI. 2.)
 derived from Art. B) (1) (rule of law principle) of the Fundamental law
 Constitutional Court decision No. 22/2018. (XI. 20.)
 Supreme Court judgment BH 2020.7.204 I.
 Act LV of 1994
 Act CXXII of 2013
 entered into force by Act CXXVII of 2019
 Art. 28 of the Fundamental Law
 Art. R) (2) of the Fundamental Law
 see Constitutional Court decision No. 20/2017. (VII. 18.)
 Section 39 of Act CLI of 2011 on the Constitutional Court
 Section 27 of Act CLI of 2011 on the Constitutional Court
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