Is the future of Airbnb in Hungary boxed into a corner?

While few would have predicted it just a short while ago, Airbnb's rapid expansion in the Hungarian short-term rental market may soon come to a halt. The reasons include new legal developments and a changing investment environment.

Airbnb has come under fire from market participants, who claim that the accommodation-sharing site does not have to deal with the same regulations as its competitors, i.e. hotels. Some investors are disappointed with Airbnb, either because their property was damaged or simply because the company did not fulfil their expectations. But the loudest criticism comes from neighbours, condominiums and communities.

In response, some municipalities, especially those in the inner districts of Budapest, have adopted stringent regulation applicable to Airbnb. One of the most popular districts, the Eighth District, amended its local townscape regulation. Pursuant to the amendment, unless a local condominium's bylaws explicitly allow the registered use of a given unit to be changed from "residential" to "temporary accommodation", such a change is not permitted. This may present a significant obstacle for Airbnb hosts, as in the absence of explicit permission in the bylaws, they may not be able to start their Airbnb business.
More and more condominiums are amending their bylaws to make Airbnb activity subject to notification of the general meeting of the home owners in the condominium or even to completely prohibit it. While prohibition may seem harsh and unlawful, the recent case law of the Hungarian Supreme Court has confirmed its legality.

The Supreme Court found that a condominium may prohibit or restrict other uses of units to ensure uninterrupted residential use. However, the general meeting of home owners in a condominium, as a quasi-authority, may not impose sanctions or penalties for breach of the bylaws or a resolution of the general meeting. Therefore, a general meeting of home owners in a condominium is not entitled to impose a fine on an Airbnb host, if the host failed to follow a bylaw or a prohibition instituted by the general meeting. To enforce compliance with the prohibition or restriction, the condominium may sue an Airbnb host. This may lead to a lengthy legal procedure during which it may be difficult for the condominium to prove that a certain unit was used for Airbnb purposes. The actual enforcement of a final court judgment prohibiting Airbnb activity may also be difficult. A bailiff will have to carry out an on-site investigation to determine the discontinuation of Airbnb activity. If the bailiff finds that an Airbnb host continues its activity despite the final court judgment, he will draw up a report and submit it to the court. The court may impose fines of up to HUF 500,000 (approx. EUR 1,500) on infringers.

A resolution of a condominium's general meeting does not have retroactive effect according to the respective case law of the Hungarian Supreme Court. Therefore, a host who started leasing his apartment through Airbnb before the adoption of a prohibition resolution may not be restricted or prohibited from continuing such services.
In light of the foregoing, a highly effective restriction on Airbnb or similar activity is not available to condominiums. However, a condominium can raise substantive impediments to investors, which alongside other regulatory requirements, may make this type of investment less attractive.

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This article was up to date as at the date of going to publishing on 10 December 2018.