Szerző: Ügyvédi Iroda
When concluding real estate sales contracts, one of the most frequently occurring problems is the proper handling of the right of first refusal. This legal institution can significantly influence the sales process, as persons holding the right of first refusal take precedence over third-party buyers. However, there are significant differences between the substantive legal rules of the Civil Code (Ptk.) and the regulation of land registry procedures, which often cause misunderstandings and legal complications. In our article, we present in detail the practical issues of the right of first refusal during real estate sales.
The Concept and Types of Right of First Refusal
The right of first refusal means that if the owner wants to sell their real estate, they must first offer it for purchase to the person entitled to the right of first refusal, under the same conditions as offered by a third party. This right ensures that certain persons enjoy priority in purchasing the real estate.
Right of First Refusal Based on Legislation
The right of first refusal based on legislation derives directly from the law, without a separate agreement. The most common example is the co-owner’s right of first refusal, which Section 5:81 of the Civil Code provides for co-owners of undivided common property real estate. If a co-owner wishes to sell their ownership share, the other co-owners have priority over third parties.
In addition, numerous other laws establish rights of first refusal, for example:
- The nature conservation law, which provides the state with a right of first refusal for protected natural areas
- Monument protection regulations, which provide rights of first refusal for monument real estate
- Rights of first refusal provided for local governments in certain areas
Contractual Right of First Refusal
According to Section 6:221 of the Civil Code, a right of first refusal can also be established by contract, whereby if the owner wants to sell the thing, the person entitled to the right of first refusal is entitled to purchase the thing with priority over third parties. To establish a contractual right of first refusal, written form is required, and in the case of real estate, it is extremely important that this right must be registered in the land registry to achieve full legal effect.
The Significance of Registration in the Land Registry
The registration of the right of first refusal in the land registry has a crucial role. If a contractually established right of first refusal is registered on the real estate, it will be effective against everyone who acquires rights to the real estate after the registration. This practically means that the real estate authority can verify whether the seller has fulfilled their obligations related to the right of first refusal.
It is important to know that the founding documents of condominiums or the bylaws of cooperative houses often contain rights of first refusal in favor of the owners of individual units (apartments), but they rarely arrange for the land registry registration of these rights. Therefore, these entitled parties do not enjoy protection in the land registry procedure, which causes numerous practical problems.
Exercise of the Right of First Refusal and the Notification Obligation
The right of first refusal can be enforced if the entitled party learns that the real estate has been put up for sale. Therefore, the key element of exercising the right is fulfilling the proper notification obligation.
The Seller’s Notification Obligation
Section 6:222, paragraph (1) of the Civil Code imposes a clear obligation on the seller: if they receive a purchase offer from a third party that they wish to accept, they are obliged to communicate the offer in its entirety to the person entitled to the right of first refusal before accepting the offer. This rule ensures that the person entitled to the right of first refusal can learn about the third party’s offer and make an informed decision.
The method of fulfilling the notification obligation is also significant in the land registry procedure, as it must later be proven that the owner fulfilled this obligation.
The Effectiveness of Legal Declarations
The effectiveness of legal declarations has great significance from the perspective of exercising the right of first refusal:
- A legal declaration made between persons present becomes effective immediately. For example, if the seller personally delivers the purchase offer, the deadline begins immediately.
- A legal declaration made between absent parties becomes effective upon reaching the addressee. For example, if the offer is sent by mail, the deadline only begins when the entitled party receives the shipment.
This difference can cause problems in practice if the shipment is not delivered for a longer period, or if the entitled party’s contact information changes.
Acceptance or Rejection of the Offer
According to the Civil Code, the person entitled to the right of first refusal has two options:
- Accept the offer – in this case, the contract is concluded between them and the seller
- Make no accepting declaration during the period of offer binding – then the owner can sell the thing according to the third party’s offer
An important difference between the Civil Code and the land registry rules is that the Civil Code only provides for accepting declarations, it does not mention any waiver declarations. If the person entitled to the right of first refusal does not wish to exercise their right, it is sufficient if they remain silent – from a substantive legal perspective, they do not need to expressly waive.
The Right of First Refusal in Land Registry Procedures
In land registry procedures, special rules apply to handling the right of first refusal, which significantly differ from the substantive legal rules of the Civil Code.
The Real Estate Authority’s Right of Control
The real estate authority’s right of control is limited, it only exists if:
- it can be established from the registry data that a right of first refusal based on legislation exists, or
- the contractually based right of first refusal has been registered in the land registry
This means that a significant circle of those entitled to the right of first refusal – for example, those entitled to unregistered condominium rights of first refusal – do not enjoy protection in the land registry procedure. This causes problems in practice, as such entitled parties can only enforce their rights through civil litigation.
Obtaining Waiver Declarations and Alternatives
Section 43, paragraph (1) of the Implementing Regulation of the Land Registry Act prescribes as a main rule the attachment of the entitled party’s waiver declaration in certain cases. This is necessary if a right of first refusal is registered on the real estate or it can be established from the registry data that a right of first refusal based on legislation exists, and the registration of ownership is not requested in favor of the person entitled to the right of first refusal based on a sales title.
This requirement is not in harmony with the Civil Code’s regulation, which does not require a waiver declaration. If the entitled party does not provide a waiver declaration, the Implementing Regulation of the Land Registry Act offers an alternative: the applicant can prove that the seller fulfilled their notification obligation (e.g., with a return receipt, acknowledgment of receipt).
Exceptions and Special Rules
Two important exceptions exist to the main rule:
- Extraordinary difficulty or significant delay: If obtaining the waiver declaration would involve extraordinary difficulty or significant delay due to the entitled party’s place of residence or other circumstances, the joint declaration of the contracting parties is sufficient, in which they present the facts making the difficulty probable.
- Notification by posting (garages): In the case of garages registered on condominium or cooperative house property sheets, the common representative’s declaration is acceptable that they posted the purchase offer in the common-use premises of the condominium for the duration of the offer binding period. An important limitation is that this only applies to garage-designated real estate.
Practical Advice and Recommendations
Proper handling of the right of first refusal is crucial for the smooth conduct of the real estate sales process. Below we provide some practical advice.
Handling Postal Shipments
In the case of communications related to the right of first refusal, the principle of “generally expected behavior” has great significance:
- The postal shipment must be properly addressed.
- If a properly addressed postal shipment returns with “unknown”, “moved away”, “not collected” markings, this is generally acceptable because the sender demonstrated generally expected behavior.
- The seller cannot be expected to conduct research after those entitled to the right of first refusal.
- It is sufficient to send the shipment to the owners registered on the property sheet at their addresses registered on the property sheet.
It is important, however, that if the seller has knowledge that the addressee is reachable at another address, then the shipment must also be sent there.
Specificities of Condominium Real Estate
In the case of condominium real estate, special attention must be paid to handling the right of first refusal:
- The condominium’s founding document must be checked to see if it contains provisions regarding the right of first refusal.
- Information should be requested from the common representative about the right of first refusal and its entitled parties.
- In the case of selling a condominium garage, the simplified rule (posting) can be applied.
- For other condominium real estate (e.g., apartments, storage units), the traditional notification method must be followed.
Strengthening Legal Security During Real Estate Sales
To strengthen legal security, we recommend the following steps:
- Document the procedure related to the right of first refusal in detail in the sales contract.
- If there are few persons entitled to the right of first refusal, strive to personally obtain waiver declarations, this can significantly speed up the procedure.
- Always properly address postal shipments and use return receipt or other delivery-confirming services.
- Take into account entitled parties outside the land registry (e.g., spouse) as well.
By applying the above practical advice, the risk of legal disputes related to the right of first refusal and the prolongation of land registry procedures can be significantly reduced. This makes the real estate sales process smoother and safer for all parties involved.