According to investment plans announced this summer, the government is preparing to implement large-scale road and railway construction projects over the next ten years. These public infrastructure developments will significantly impact the country's transportation network, ultimately affecting the national economy. However, the developments have a rarely discussed but also important consequence: the expected increase in expropriation cases.
What is Expropriation?
Expropriation allows the state to lawfully acquire privately owned property – even if the owner does not wish to sell it. Since expropriation is an exceptionally powerful legal instrument, the state is only permitted to use it under strict conditions. One such condition is that expropriation may only be carried out in exceptional cases and strictly for a public purpose (for example, the construction of a new highway or bridge). Another key safeguard is that the property may only be taken upon the payment of full, unconditional, and immediate compensation.
How Much Compensation Is the Owner Entitled To?
In practice, it is often unclear how much compensation the owner should receive for the property taken through expropriation. At first glance, the answer seems straightforward: the owner should be paid the price they would have received if the property had been sold under normal market conditions. This ensures the owner suffers no loss but also gains no profit from the expropriation.
However, determining the market value of real estate is not as simple as, for example, valuing a publicly traded stock, where the current price is always known. Price assessment has become particularly challenging in the inflationary environment of recent years, which has led to rapidly increasing real estate prices.
How Is Compensation Calculated in an Expropriation Procedure?
In the expropriation proceedings, the amount of compensation is determined by the authorities – with the assistance of an expert – by comparing the purchase prices of other properties with similar characteristics. However, this method raises several issues.
One major difficulty is that in reality, there are no identical properties. Therefore, it must be decided which properties are “similar” enough to be used for comparison and which differ too much to be considered relevant. Factors that may help in making this determination include the zoning classification (e.g., suburban residential area or holiday home area), the availability of utilities, the characteristics of the plot, or the technical specifications of any buildings on the property.
Another important question is which data the authority uses for the comparison. According to guidance from the Hungarian Supreme Court, the market value at the time of expropriation is decisive. This means only current and up-to-date data may be used; data from several years ago may not be relied upon.
The actual valuation is carried out by a court-appointed expert, typically a judicial real estate appraiser. However, it is important to note that the amount stated in the expert opinion can (and sometimes must) be challenged, as even the expert may not have access to all the specific parameters of the property.
As a result, the estimated market value of the property can vary within a wide range. Since the calculation of compensation is not straightforward, it is rare for both the property owner and the expropriating entity (the state or local municipality) to be satisfied with the final amount. Both parties may challenge the authority’s expropriation decision in court.
Expropriation Litigation
If the property owner is dissatisfied with the amount of compensation awarded, they may initiate an administrative lawsuit against the authority that issued the expropriation decision (the government office). In such a case, the owner acts as the plaintiff in the proceedings.
It is also possible that the owner is satisfied with the amount awarded, but the expropriating entity (the state or local municipality) believes the property is worth less than the amount it has been ordered to pay. In this case, it is the expropriating entity that brings the claim against the authority’s decision. The owner is not required to participate in this lawsuit, but they may join as an intervener. In this position, the owner can assist the authority in defending the compensation amount determined in the expropriation decision.
These types of cases often feature an unusual dynamic: the property owner typically has a stronger interest in defending the authority’s decision than the authority itself. Therefore, it can be especially important for the owner not to remain a passive observer, but to participate actively in the proceedings and assert their interests effectively during the judicial review. This is the only way to defend the amount of compensation.