The new act on agricultural land will result in many significant changes as of May 1, 2014
Besides these changes, another new act on detection and prevention of pocket agreements will also enter into force on March 13, 2014 to eliminate pocket agreements from Hungarian law.
Pocket agreement: null, void and unenforceable!
The clear purpose of this new act is to entirely eliminate the existing pocket agreements aiming to circumvent the statutory restrictions on acquiring or using agricultural land. The so-called pocket agreements are agreements through which a foreigner acquires certain rights over agricultural land - such rights generally relate to ownership - and consideration is paid in return, but the agreement is concluded in a different form (e.g. leasehold, usufruct, mortgage) due to restrictions on the acquisition of agricultural land.
The issue of pocket agreements has always been a problem. This is demonstrated by the fact that currently there are several pending judicial proceedings in this subject. However, as a result of this legislation not only the pocket agreements but also any other legal act or procedure related thereto shall be null and void. Furthermore, no claim arising from such legal act may be enforced in court, which practically means that no legal proceeding may be initiated before the court for a consideration already paid with respect to such agreements, thereby excluding all legal remedies
Pocket agreements concluded before March 13, 2014 may be terminated by the parties until mid-April and in this case the consequences of nullity shall not apply (as the parties eliminated the pocket agreement on a voluntary basis).
Agricultural land adjudicated to the State: fast and facilitated proceedings
The act authorizes the prosecutor to commence an investigation if it can be reasonably assumed on the basis of a notification that a legal transaction is functioning as a pocket agreement. In the course of the investigation, the prosecutor may require information from any authority and may initiate a court proceeding to establish the nullity of the agreement suspected of being a pocket agreement.
In these court proceedings, the prosecutor requests the court to establish the nullity of such pocket agreement, and also to transfer ownership of the respective agricultural land to the Hungarian State, provided that according to such pocket agreement the owner of the agricultural land handed it over to a person's possession who intends to acquire the ownership of the agricultural land and in return for the consideration received for the above, definitely waived all of its ownership rights in favor of such person.
The court decides on the motion of the prosecutor, provided that the court discusses the cases concerning pocket agreements with priority. It has to be emphasized that the court shall have jurisdiction to decides on establishing the nullity of pocket agreements in the future as well.
Criminal consequences: imprisonment for pocket agreement
As also a new legislation, the Criminal Code of Hungary provides that conclusion of pocket agreements are punishable by imprisonment. Pursuant to the new provisions effective as of May 2, 2014, the use or usufruct of agricultural land aiming to conceal pocket agreement will also be punishable by imprisonment. The length of imprisonment will be up to 3 years or from 1 year to 5 years as applicable. As a result of these provisions the existing and future pocket agreements will constitute crime, and the investigative authority may also investigate the previously concluded contracts. However, the extent of the penalty may be reduced without limitation if the parties of to the pocket agreement voluntarily confess such fact to the authorities and circumstances are unveiled before the authority discovers the case.
The assisting attorney and notary are also punishable according to the Criminal Code.