Selling a Property Encumbered by Usufruct in Hungary

Usufruct is one of the most common encumbrances in Hungarian real estate law. It is particularly frequent in cases of inheritance, gift or transfers of assets within a family, where ownership and the right of use become separated.

Many people believe that a property encumbered by a usufruct right cannot be sold, or that the usufructuary’s consent is always required for the sale. The reality is more nuanced. Such properties can indeed be sold, but the sale involves a number of circumstances that can significantly affect the transaction and the value of the property.

What Is a Usufruct Right?

Usufruct is a right in rem that entitles the usufructuary to possess and use the property and to take its benefits, irrespective of the fact that they are not the owner of the property.

The usufructuary may, for example:

• live in the property;
• let it out;
• be entitled to collect the rent;
• exclude others from using the property, including the owner.

Usufruct is a right registered in the land registry, so it remains effective against every subsequent owner.

Can a Property Encumbered by Usufruct Be Sold?

Yes. The owner is entitled to sell the ownership of the property even if a usufruct right exists over it.

In this case, however, the buyer does not acquire an unencumbered property but ownership burdened by the existing usufruct right.

In practice this means that the buyer becomes the owner, but the usufructuary remains entitled to use the property for as long as the usufruct right subsists.

Is the Usufructuary’s Consent Required for the Sale?

As a general rule the owner may sell the property without the usufructuary’s consent.

Usufruct does not prevent the transfer of ownership.

It is important, however, that the sale and purchase agreement clearly states the existence of the usufruct right, and that the buyer is aware of the encumbered property they are purchasing.

In practice the usufructuary often takes part in the transaction as well, particularly where the parties’ aim is to terminate the usufruct right and sell the property free of encumbrances.

How Can a Usufruct Right Be Terminated?

A usufruct right may cease in several ways:

• on the death of the usufructuary;
• where the right was created for a fixed term, on expiry of that term;
• by waiver;
• by redemption;
• in certain special statutory cases.

A common solution on the property market is for the owner and the usufructuary to agree on terminating the usufruct right, for which the usufructuary receives consideration.

The property can then be sold free of encumbrances.

How Much Can a Usufruct Right Reduce the Value of a Property?

A usufruct right can significantly affect the market value of a property.

From the buyer’s perspective it is a material circumstance whether they can actually use the property, and when they can take possession of it.

As a general rule:

• the younger the usufructuary,
• and the longer the right is expected to subsist,

the greater the value-reducing effect to be expected.

Properties encumbered by usufruct can therefore often be sold only at a lower price than unencumbered properties.

What Should the Buyer Watch Out For?

Before buying a property encumbered by usufruct, it is particularly important to check:

• the land registry extract;
• the holder of the usufruct right;
• the basis on which the right was created;
• the duration of the usufruct;
• the actual conditions of use of the property;
• the conditions of the handover of possession.

The buyer must be aware that acquiring ownership does not necessarily mean being able to use the property immediately.

What Should the Seller Watch Out For?

It is especially important for the seller that the legal position of the property is clearly settled.

To avoid later disputes, it is advisable to clarify before putting the property on the market:

• the usufructuary’s willingness to cooperate;
• the possibility of terminating the usufruct right;
• the information relevant to the buyer.

A failure to provide adequate information can even lead to warranty claims or legal disputes.

Why Is It Worth Seeking a Lawyer’s Assistance?

Selling a property encumbered by usufruct is in many cases more complex than selling an unencumbered property.

A lawyer experienced in real estate law can help with:

• examining the land registry extract and the registered rights;
• preparing the termination of the usufruct right;
• drafting the sale and purchase agreement;
• conducting the land registry procedure;
• clarifying the rights and obligations of the parties.

Summary

Selling a property encumbered by usufruct is legally possible, but the existing usufruct right can significantly affect the market value of the property, how quickly it sells and how much interest buyers show. For both the seller and the buyer it is important to establish the legal position precisely and to prepare the contract properly.

A carefully prepared transaction and appropriate legal advice can help ensure that the sale is completed safely and without later disputes.