The Summer of Pre-emption – When the Public Decides

For the VIDEO PODCAST version of our blog, click HERE!

The right of pre-emption is a well-known and long-standing legal institution – but it rarely comes under the spotlight as much as it has this summer. The essence of the right of pre-emption is simple: it allows a pre-designated party – such as the state or a municipality – to step into the position of the original buyer in a planned sale and purchase agreement and to acquire the offered asset (e.g. real estate or a business share) under the same conditions.

However, the summer of 2025 has brought new dimensions to the right of pre-emption: while municipalities would exercise this right in the name of protecting local communities, the state has essentially been given a general right to intervene in ownership changes of domestic companies – especially when foreign parties are involved. In this article, we explore these two fresh dimensions of the right of pre-emption.

Municipal Right of Pre-emption as a New Tool of Identity Protection

On July 1, 2025, the so-called "Municipality Protection Act" entered into force, allowing municipalities to introduce restrictive measures via local decrees and establish a right of pre-emption over residential properties – in the name of protecting the local community. The goal is to limit "in-migration," particularly in smaller municipalities: if the conditions set by law are met, the municipality, an owner of an adjoining property, or a local property owner of at least five years may exercise the pre-emption right and step into the contract in place of the original buyer.

Under the law, an "in-migrant" is defined as a natural person who does not own real estate, have a registered permanent or temporary residence in the town, and wishes to acquire property or establish residence there. The regulation applies to real estate sales between individuals, with exceptions for inheritance, gifts, transfers between relatives, and certain property types (e.g., agricultural land). It is important to highlight that the law only applies to natural persons, meaning no in-migration restrictions can be imposed on companies.

Although the law has already entered into force, most municipalities have not yet adopted a decree on the exercise of the right of pre-emption or on the other instruments provided by the Municipality Protection Act (e.g. settlement contribution). One possible reason for this is that the government decree containing the necessary implementing rules has not yet been published, so municipalities are presumably waiting to adopt local regulations until its issuance. The only exception to this is the Municipality of Mezőkeresztes, which adopted its local decree restricting settlement and introduced the municipality’s right of pre-emption already at the end of June, prior to the Act’s entry into force.

Companies Are Not Exceptions

Although the above practice does not apply to companies, the legislature has ensured that the corporate world doesn’t enjoy an undisturbed summer either. From the end of June 2025, the state has acquired a right of pre-emption over Hungarian companies operating in certain strategic sectors if a foreign investor seeks to acquire a stake in them.

During the COVID period, a government decree came into effect in December 2022 granting the state the power to prohibit foreign investors from acquiring stakes in companies operating in designated strategic sectors.

That decree was amended by a new government regulation effective from June 25, 2025. It now provides the state with a general right of pre-emption in all strategic sectors when a stake – minority or majority – in a Hungarian company would be sold to a foreign buyer (previously this right existed only in the electricity sector). Another change is the substantial extension of the administration deadlines for notification procedures – in extreme cases, they can now take 4–5 months.

In practice, if a notification procedure ends with a prohibitive decision, the state – through the National Asset Management Inc. or another designated entity – can exercise its right of pre-emption within 90 days of receiving the decision. It is important to note that the amendments apply to ongoing cases as well. According to government communications, if a prohibitive decision is issued and the state wishes to exercise its right of pre-emption, the seller must accept this and conclude the transaction with the state.

Previously, under Government Decree 561/2022 (XII.23.), the legislature already defined the strategic sectors broadly. In addition to energy, logistics, and finance, companies in many other areas also had to notify the government if a foreign investor sought to acquire interest. The newly introduced right of pre-emption is thus being embedded in an already highly controlled system regarding foreign acquisitions.

However, the amendment introduces new legal uncertainties and may significantly impact the preparation of acquisitions, restructurings, and investments – especially if a foreign actor appears on the buyer side, even indirectly. This regulation also provides the state with a tool to gain stakes in strategic companies while bypassing the costly preparatory stages of transactions – such as due diligence and contract negotiations. The current situation therefore demands increased caution and forward-looking contractual planning from all parties involved.

At the same time, there is some reassurance in government communication that this new regulation is only temporary: as of August 19, the previous provisions will be reinstated, meaning that the pre-emption right and extended administrative deadlines will no longer apply.

Closing Remarks – A Reinterpretation of Ownership?

Although this article addresses two seemingly unrelated issues—one concerning the real estate market and the other corporate acquisitions—they share a common feature: in both cases, the government has turned to the right of pre-emption as a key policy instrument. This parallel raises important questions: are we witnessing the emergence of a new governmental tool that could spread to other areas as well? An overly broad application of the right of pre-emption risks distorting market mechanisms. In the real estate sector, it may dampen transactions, increase uncertainty, and consequently push prices higher; in the corporate sphere, it could damage the country’s investment reputation and long-term competitiveness. While the government has communicated that the corporate right of pre-emption will be phased out in mid-August, there is no guarantee it won’t return—perhaps not under the same legal basis, but in another form. This is precisely why continuous and meaningful professional dialogue is essential—before the right of pre-emption transforms from a tool for "public decision-making" into a byword for uncertainty.