Possible Ways Of Transferring Agricultural Holdings In Hungary

Possible Ways Of Transferring Agricultural Holdings In Hungary Presented by: Dr. Hornyák Date: 7 June 2024 Introduction - Hungary agricultural law → transfer regulation: agricultural land, not agricultural holding (farm) - But: special legal institutions to protect the unit of the agricultural holding + to make the transfer of the holding easier (in special cases) - From historical aspects: 1 legal institution: fideicommissum → examination: from the perspective of Hungarian land policy: • Unit • Against fragmentation • Competence • Family Fideicommissum - The essence of a fideicommissum; the founder excludes a certain part of the acquired property from the general succession rules, for which he determines a special succession regime, and in addition prescribes its undivided succession, and also places it under the prohibition of alienation and encumbrance. - The institution of the family fideicommissum originated in Roman law. Hungary: Act IX of 1687. - It fitted perfectly into the tied estate system of medieval Hungary. - The purpose of the creation of fideicommissum: was to exempt large estates from free transfer. Thus, the special succession rules were used to protect the unit of the holding. - The most important element of a fideicommissum is the asset that forms its subject, since keeping it together and passing it down within the family through generations means the family's well-being. The most typical of these assets is land, which is usually the subject of the fideicommissum together with other related elements (e.g. economic equipment). Termination Of Tied Estates - It was the 5200/1919. Decree of the Council of Ministers that prohibited the establishment of new fideicommissum. - Act XI of 1936: the reform of the fideicommissum became law. The act freed the affected assets except for a few cases from the limitation of the fideicommissum. - This act made it possible to create a smallholding of fideicommissum and a tied succession system to protect smallholders and prevent the fragmentation of estates. - The act also formulated some restrictions on the smallholder of fideicommissum, as only those who engaged in farming as a profession could be a smallholder of fideicommissum. But the Hungarian peasantry was averse to this legal institution, and preferred to remain with traditional estates, not taking advantage of the opportunity to establish a smallholding of fideicommissum. Current situation in Hungary - Typical during the regime change, that farmers who acquired land ownership as a result of agricultural land auctions, established agricultural holdings → farming - Now reaching retirement age - Considering transferring their farms - But: the process of this without special rules is extremely difficult. (reasons: land transfer regulation, not coherent agricultural succession regulation) - It is necessary to facilitate the change of generations and reduce the administrative burden of the transfer of agricultural holdings. - New legal instrument: the farm transfer contract New Legal Institution - Farm Transfer - Act CXLIII of 2021 on the Transfer of Agricultural Holdings - in force from 1 January 2023 - The purpose of the act is to facilitate the transfer of the farm as a unique set of assets to the next generation as a result of agricultural and forestry activities carried out with the participation of family members, the joint use of their resources and the result of their work for their common prosperity. - Inter vivos - Facilitates generational change - The basic aim is to facilitate the transfer of ownership of the holding within the family through regulation. - The main aim of this Act: to lighten the administrative burden. Farm - Serving the operation of the farm, • aa) agricultural and forest land, including farmstead, owned or used by the transferor of the holding, • ab) other immovable properties owned or used by the transferor of the holding necessary for carrying on agricultural and forestry activities, • ac) movable properties owned or used by the transferor of the holding for carrying on agricultural and forestry activities, in respect of which the transferor has the right to organize production and with the exception of production of seed for hire, hired breeding, hired fattening and the keeping of exposed animals the right to use the results of production, • ad) rights in rem in respect of agricultural and forestry activities belonging to the transferor of the holding, • ae) a share in the assets of a business association related to the agricultural and forestry activities carried out on the holding, a share in a cooperative society, a corporate interest in an association of forest holders, and • af) rights and obligations relating to the assets set out in points (aa) to (ae). Farm Transfer Contract - 4 types of contract: • Farm transfer sale contract • Farm transfer gift contract • Farm transfer maintenance contract • Farm transfer life-annuity contract Parties - Farm transferor - Farm transferee - Limited - Both the transferor and the transferee must be primary agricultural producers or individual entrepreneurs engaged in agricultural and forestry activities. - Transferor: who has reached the age-limit for retirement or will reach it within 5 years from the conclusion of the contract - Transferee: under so years of age; at least 10 years younger than the transferor; must either (a) be in the chain of relatives defined in the Family Farms Act with the transferor or (b) have been employed or have been in other employment relationship with the transferor for at least 7 years - One person can be the transferee - Possibility: a cooperation period: - • When the transferor and transferee jointly operate the farm, • For a maximum period of 5 years. The transferee replaces the transferor in the civil law contracts relating to certain elements of the farm, as defined in the farm transfer contract, without the consent of the third party remaining in the contract. - The transferee shall, by means of the farm transfer contract, replace the transferor as the holder of any prior authorization required for the pursuit of the economic activity related to the farm, as defined in the farm transfer contract, provided that they comply with the legislation laying down the conditions for pursuing that activity. Act CXXIII of 2020 on Family Farms - The family farm of primary agricultural producers is a production community established by at least two primary agricultural producers, who are relatives of each other, having neither legal personality nor assets separate from those of its members, within the framework of which the primary agricultural producers conduct their agricultural activities collectively on their own farms, based on the personal contribution of all members and in a coordinated manner. - Family Farm: farm transfer family farm meets the conditions (with the transferee as well) Conclusions - Nowadays: Farm transfer: it is possible to transfer a partial farm, but the transferor cannot continue agricultural activity afterwards, he will be deleted from all registers (farmers, primary agricultural producers) → how will the unit of the farm be developed in the future? By contract, inter vivos, free to transfer, the transferor is free to define what belongs to the farm within the legal definition. Typically within a family. Reduction of administrative burden. - In the past: fideicommissum: tied estate, with predetermined order of succession restricts free disposal of ownership, hinders transfer of property. But keeps holdings together, in the family. - →It would be difficult to apply in the current Hungarian legislation, but the idea of having a specific succession regime for agricultural holdings should be pursued (currently the agricultural succession regime is not coherent and is designed for land). - In addition, keeping the existing, well-functioning farms together, either between living persons or in the case of death, could be a worthwhile objective from an economic point of view.