A few more thoughts on the new electronic land registry

Last week, I summarised the most important changes introduced by the new electronic land registry that will affect my clients’ lives. In today's post, I will also focus on the electronic land registry, but this time I will look at the new rules from the perspective of how they affect parties to a transaction when they are abroad and cannot or do not want to appear in person before an attorney in Hungary.

For the sake of clarity, I will illustrate the new rules with a practical example. My analysis is based on the final rules, so I will not apply the transitional rules (i.e. the temporary enabling of paper-based procedures) which are introduced for an indefinite period.

In my practical example, a US citizen living in Wilmington, Delaware, USA, wants to buy an appartment in Budapest. He does not want to travel to Hungary to sign the contract, so he authorises a Hungarian citizen living in Veszprém, Hungary. The seller of the apartment to be purchased is a Hungarian citizen living in Florence, Italy. The seller has a so-called client gate (in Hungarian: Ügyfélkapu) and a Hungarian e-Identity Card (in Hungarian: “e-személyi”). He does not want to travel to Hungary to conclude the contract either.

Under the current rules, such a transaction can easily be carried out without either party travelling to Hungary, going to a notary or a foreign lawyer: the document signed abroad, be it a power of attorney or the sale and purchase agreement itself, is printed out by the contracting party, mailed to the attorney, the attorney identifies the contracting party by remote identification, the client recognises the signatures on the document presented by the attorney as his own, and the attorney countersigns the document in the absence of the parties, thus making the documents suitable for use in the land registry procedure [see Section 44 (7) of the Act on the Activities of Attorneys-at-law].

Under the current rules, an alternative to remote notarisation is for the client to have the signature on the documents authenticated by a Hungarian consulate, or if the document containing the signature is certified by the local notary and is Apostilled by the authorised bodies.

How simple is it? Neither contracting party needs to appear before any authority, official body or lawyer if they opt for remote countersignature, all they need is a printer and a post office or courier service. By comparison, the new Land Registry Act - once again in the name of simplification and digitalisation - will turn everyone's life upside down.

Below, I set out, document by document, how the new procedural law will make certain documents usable if they are signed abroad. I will not discuss all the documents that need to be signed during the procedure, but only describe the conditions for signing the power of attorney for the transaction, the power of attorney granted to the attorney and the sale and purchase agreement.

1. Power of attorney for the transaction

In our example, a foreign national (American) living abroad is the buyer and he authorises a Hungarian citizen living in Hungary and residing in Veszprém to represent him in the conclusion of the sale and purchase agreement.

Authentication of signatures abroad

Article 39 (1) of the new Land Registry Act (Act C of 2021 on the Land Registry) stipulates the following:

"Section 39 (1) If the private document was issued abroad, the signature of the declarant shall be authenticated by the Hungarian diplomatic authority abroad, save for the exceptions specified in paragraphs (2) and (3), or the authentication by a foreign body entitled to authenticate the signature shall be authenticated by the Hungarian diplomatic authority abroad (diplomatic authentication or over-authentication). (…)

(3) No diplomatic authentication or over-authentication of a private document issued abroad is required if the document has been provided with an Apostille or if the authentication or over-authentication is otherwise exempted by a binding legal act of the European Union, an international agreement or reciprocal practice.”

The above provisions are almost word for word identical to the provisions of the current Land Registry Act, but there is one difference: the new procedural law lacks the provision of the current law which states that a different provision of another law is an exception to the rules set out in paragraph (1) above (authentication, over-authentication).

In practice, the wording referring to the different provision of the law is of great importance, since it is the basis for invoking Section 44 (7) of the Act on the Activity of Attorneys-at-law, cited above, which states that "[a] document countersigned by an attorney-at-law but signed by the parties abroad does not require diplomatic authentication or over-authentication or an Apostille certificate to be fully effective." So, as things stand, this exception rule will no longer apply to land registry procedures once the new procedural law enters into effect, leaving clients with the often highly bureaucratic, lengthy and expensive procedure of going to a notary public / diplomatic mission or consular office.

To give an idea of the costs involved, here are a few examples from different countries/states: paper Apostille in the UK at £45 per document, in Hamburg at €25 per document, in California at $20 per document and in Delaware at $30 per document.

Continued in Hungary

One would think that the series of authentications and the mailing to Hungary would end the suffering of the unfortunate power of attorney, but that is not the case. The new procedural law even requires the power of attorney to be "recorded" on an electronic form in the electronic land registry system. And who is entitled to record the power of attorney on the form? Inexplicably for me, it is not the attorney who drafts the documents, who has access to the electronic land registry system, but - lupus in fabula - the notary. Although the attorneys' long-standing fear that the legislator wants to deprive them of the privilege of being involved in real estate transactions, which is also granted to notaries, does not yet seem to have been confirmed, the notary lobby seems to have succeeded in ensuring that notaries cannot be circumvented in future when signing a power of attorney abroad.

The new procedural law on mandatory notarial involvement puts it this way:

“Article 40 (5) A power of attorney issued abroad concerning a right or fact that can be registered regarding a real estate may be used in the land registry procedure if it has been recorded by a Hungarian notary public in an electronic form with the content and in the manner specified in the Government Decree issued on the basis of the authorisation of this Act.”

The Implementing Regulation of the new Procedural Act stipulates that the notary public shall record the information on the above-mentioned form in non-contentious proceedings. Article 36/R of the Act on Notarial Non-Contentious Procedures, which will enter into force on 15 January 2025, provides for the newly introduced non-contentious procedure for recording the power of attorney in the land registry system. According to this provision - and now hold on to your hats, dear readers - only the notary in whose jurisdiction the authorised representative is domiciled or resident is competent to perform this procedure. So, in the present case, since the authorised representative is a resident of Veszprém, only notaries in Veszprém can act in the case which has nothing to do with Veszprém other than the residence of the authorised representative, and otherwise data must be entered in a nationwide electronic system.

To summarise, the following "quick and easy" way to sign a power of attorney abroad in the example under review is therefore possible instead of the well-established remote countersigning:

(i) the authorising person in Wilmington prints out the power of attorney in, say, 4 copies (2 originals for the land registry, 1 copy for the seller and 1 copy for the attorney); then

(ii) signs them before the local notary public, who notarises the signatures of the powers of attorney; then

(iii) the authorising person must apply for an Apostille certificate for all documents (at a cost of $30 per document), in our specific example, from the Delaware Division of Corporations (turnaround time is about 2 weeks); then

(iv) mail the entire package to his attorney / the authorised representative in Hungary; and then

(v) the attorney / authorised representative has to take the documents to the notary in the place of residence of the authorised representative, in this case Veszprém (!), where the notary will record the power of attorney in the system, obviously for an extra fee.

I would like to raise the attention, that neither the new procedural act nor its Implementing Regulation refers to the fact that the provisions of Section 44. § (7) of the Act on the Activity of Attorneys-at-law regarding remote countersigning could replace the procedure for authenticating the signatures on a document issued abroad, so even if the countersignature of the power of attorney by an attorney-at-law complied with the above provision of the Act on the Activity of Attorneys-at-law, in my interpretation the notary would not be able to record the power of attorney thus countersigned in the real estate registry system, without which the authorised representative would not be entitled to sign the sale and purchase agreement on behalf of the buyer.

But all this can be avoided if the signatory has an eIDAS-compliant electronic signature or a Hungarian e-Identity Card?

Well, yes, it is possible to use electronic signatures in the land registry procedure, but the new procedural law requires the signatory to be present in person before a third party in the case of electronic signatures in general (both in Hungary and abroad), even though, in my view, the very essence of an electronic signature would be that no third party is required to verify the signatory's identity and the date of signature.

Under the Implementing Regulation of the new procedural law, a power of attorney may be signed abroad by electronic signature only if the authorising person appears before a foreign lawyer as defined in Section 115 (2) c) of the Implementing Regulation and the foreign lawyer indicated therein assists in the signature.

2. Power of attorney for the attorney-at-law

Just to make the story even more complicated, the new procedural law provides for a completely different set of rules for the power of attorney granted to the attorney-at-law (i.e. a power of attorney signed by all parties concerned granted to the attorney to act as legal representative before the land registry) compared to the power of attorney for the transaction.

As I mentioned in my post last week, the new Land Registry Act rules will allow the parties to sign a power of attorney granted to the attorney-at-law in the following ways:

• by e-Identity Card, a tool that allows the generation of an electronic signature,

• by means of qualified electronic signature or advanced electronic signature based on qualified certificates, which is practically an electronic signature card, and

• by presenting themselves in person at a government office or, in some cases, at a consulate for signatures abroad.

As I indicated above, signing with an e-Identity Card or electronic signature card is possible only in person before a notary public, an attorney or an in-house counsel and a few other authorised persons.

And what rules apply if the signatories wish to sign the power of attorney for the attorney-at-law abroad?

The signatory of the power of attorney can go to a lawyer abroad

The Implementing Regulation of the law stipulates that if the signatory wishes to sign the power of attorney electronically abroad, he or she may appear in person before

"a European community lawyer, an employed European community lawyer or a foreign legal adviser authorised to practice as a lawyer in the country concerned, in cooperation with the attorney-at-law" [Implementation Regulation § 115 (2) c)]

for the purpose of signature. This is all well and good in theory, but of course foreign lawyers do not work for free either, so the legislator is imposing another unnecessary cost on the signatories of the power of attorney. Not to mention that I would be honestly surprised if every Hungarian attorney dealing with real estate transactions would have the contacts to find foreign colleagues to assist in similar cases.

The signatory of the power of attorney can go to the Hungarian diplomatic mission abroad

The Implementing Regulation allows those, but only those, who do not have either an e-Identity Card or an eIDAS-compliant electronic signature to sign the power of attorney at the Hungarian consulate, if signing abroad. There is of course no consulates in every city. So our example buyer in Wilmington would have to travel to New York, nearly 200 kilometres away, to have the power of attorney notarised, and our seller would have to travel to Rome, 280 kilometres away. At this point, the buyer wonders if it would have been easier to travel to Hungary to close the deal.

The question arises as to what happens when, as in our example, the buyer does not have the appropriate electronic signature equipment and the seller does. In such a case, can the buyer go to the Hungarian embassy or consulate to sign the power of attorney, but the buyer cannot? How does this relate to the fact that under the new Land Registry Act they have to give a power of attorney "unanimously"? Or in such a case, will there be two copies of the power of attorney, one with only the buyer's signature and the other with the seller's signature?

Thus, in addition to the fact that the new procedural law makes the obligations of the contracting parties in the event of signature abroad much more onerous, I believe that the legislator has not provided a satisfactory answer to the above questions, which, in my opinion, creates serious legal uncertainty.

3. Sale and purchase agreement

The sales and purchase agreement cannot be signed in the same way as before. Here again, the already cited Article 39 of the Land Registry Act will apply, i.e. if a contracting party wishes to sign the contract without appearing before a attorney, he or she will need a notarial signature authentication and an Apostille certificate or will have to use diplomatic authentication or over-authentication services. In this case, the only difference compared to the power of attorney described above is that there is no need to appear before a notary public in Hungary and the attorney will be entitled to convert the paper document into an electronic document (basically to scan it).

Surprisingly, neither the Procedural Law nor the Implementing Regulation mentions the possibility to sign the contract itself (in this case the sale and purchase agreement) by electronic means. The Land Registry Act (§ 35(2)) only mentions the possibility of electronic signature in the case of a private document issued domestically, so in my interpretation, the possibility, which is available for both a power of attorney for the attorney-at-law and a power of attorney for the transaction, is not given for a sale and purchase agreement.

4. Summary and conclusion

As can therefore be seen, the life of both the client and the attorney will become more complicated with the entry into force of the new land registry rules if the contracting parties wish to sign the deeds of the transaction abroad, since, on the one hand, the range of documents to be signed will be extended, and the formalities for signing them may differ from one deed to another, and the client may have to appear at different places for signing each document (e.g. consulate, foreign lawyer, notary public). In addition, the new rules will impose high costs on clients, as notarisation and Apostilles are expensive, but diplomatic authentication and over-authentication are also costly.

I consider it a serious problem that the legislator is eliminating, with the stroke of a pen, the extremely cost-effective and flexible possibility of remote identification and remote countersigning in the land registry procedure.

In addition, I am also very concerned that, as a general rule, the signing of a power of attorney abroad is only possible in front of a foreign lawyer, and that the possibility of signing at the Hungarian consulate is only given if the signatory does not have the possibility of signing electronically. This latter rule will, in my view, cause serious damage to the interests of small law firms and sole practicioner attorneys, who typically have less of an international network and will therefore find it more difficult to find a cooperating European community lawyer or foreign legal adviser for this purpose.

Overall, I therefore believe that if the legislator really wanted to simplify the procedure with the new land registry, it has missed the mark because, as I have shown above, the procedure will only become more complicated if the legislator does not change the rules in time. I trust that the criticisms from the practitioners will be heard, that we will receive reassuring answers and that the legislator will make the necessary changes to the rules to ensure that signing abroad is not rendered impossible.

As this is a new law, there is no established practice, so it is possible that other legal practitioners may have a different understanding of certain rules. If a colleague has a different interpretation of any of the provisions, please let me know.