The European Commission (EC) has opened an infringement procedure against Hungary after new legislation restricted the rights of foreign investors to use agricultural land.
The EC notified the Hungarian government last week that it could be in violation of the European Union law on the free movement of capital and freedom of establishment. This is the first step of the process, according to Felix Bubenheimer, a communications official at the EC.
The government now has two months to either explain how the legislation is not against EU law, or to change the law to satisfy the EC. Failure could result in court proceedings, added Bubenheimer.
The first contested provision of the new legislation, passed in December 2013, is the termination of usufruct contracts – contracts that give relevant parties the right to use a property and to profit from it – on May 1, 2014. This gave foreign land users a transitional period of just four-and-a-half months compared to the previous 20-year period, according to the release.
“Investors had expected to continue using the land on the basis of this earlier transitional period and had made their investment decisions accordingly,” reads the release. “The new law thus seems to deprive the affected parties of their acquired rights and of the value of their investments.”
Similar concerns were raised about the new legislation’s ability to unilaterally terminate land-lease contracts concluded more than 20 years ago with a very short notice period.
Austrian agricultural companies are the most affected by the legislation change as they have used Hungarian farmland for many years, Bubenheimer said. He added that the Austrian government welcomed the procedure.
The use of agricultural land by foreigners has been a controversial debate within Hungary for many years, Bubenheimer told Agri Investor.