Legislation issued in September 2014, currently in force and yet to be confirmed by the Italian Parliament, has introduced a new way of buying a property in Italy.

“Rent to Buy” agreements or more specifically “Contratti di godimento in funzione della successiva alienazione di immobili ” enable potential buyers to immediately access Italian properties they wish to acquire, without payment of the full sale price and without need of a mortgage. The vendor provides financial assistance, by agreeing to receive periodical payments / rent for a number of years, rather than the outright sale price. At the end of the agreed “rental” period the tenant / buyer will either have an option to buy the property, or will have to complete the acquisition, at a reduced / discounted purchase price.

The buyer/ tenant will benefit if they cannot obtain the finance necessary to immediately buy the property they wish to acquire, or if they need to buy a property before selling another or, quite simply, will get practical credit terms from their vendor which are more favourable than they could otherwise obtain.

On the other hand, this new contract will also benefit vendors / landlords, who will stand a greater chance of selling their unsold properties and will immediately receive some form of financial return, even if it is not the full sale price. In a depressed property market these are valuable benefits.

Similar informal agreements have been used in the past in Italy, however the lack of specific legislation made any such arrangement, which could not be registered at the Italian Land Registry, very risky for both parties. Without registration, a dishonest vendor / landlord could sell the property to third parties at a later stage or mortgage it or, quite simply, go bankrupt with devastating effects for the buyer / tenant.

The main advantage of this new legislation is that it will now make it possible to register (Trascrivere ) these “Rent to buy” contracts at the Italian Land Registry. Such entry at the Land Registry will bind all third parties and will protect the buyer / tenant`s interest in the property. However, registration at the Italian Land Registry will require these contracts to be made by notarial deed and this will add to the costs.

Registration at the Land Registry will be valid for a period of up to 10 years, so this is the maximum, safe, extent of the rental period of this  new contract. During the rental period the general provisions relating to the Italian real estate contract of “Usufrutto ” will be applicable. This new contract will not be generally applicable to properties which are subject to mortgage “Ipoteca “, unless special steps are taken to make it possible or the mortgage cancelled.

“Rent to buy” is totally different from ordinary tenancy agreements (Locazioni abitative) which under Italian law are subject to extensive, detailed legislation and heavy limitation and restrictions. Italian rent control legislation will not be applicable to “Rent to Buy“.

At the commencement of the contract the buyer / tenant is required to organise and pay for an inventory and also to pay a deposit to the vendor / landlord .

Ordinary day to day expenses and maintenance costs of the property will be payable by the buyer / tenant while the vendor / landlord will pay for extraordinary, significant maintenance and expenses. Where these significant charges are incurred in the rental period, the buyer / tenant will have to pay interest on the funds invested by vendor / landlord in addition to the rent / periodical payments due under the contract.

If the tenant / buyer fails to pay rent for more than 20% of the agreed, overall total rental amount, the contract will terminate. In this case the vendor/landlord will be entitled to keep the rent / periodical payments collected as liquidated damages. If, on the other hand, the vendor /landlord will be in breach, he will have to return to his buyer / tenant all the rent / periodical payments collected with interest at statutory rates (Interessi legali ).

Unfortunately, this legislation does not provide a complete regulation of all possible issues raised by this new contract.

For example, there are no specific provisions as to how the parties to this contract will be taxed. Also, it is not clear which procedure will be applicable if the vendor / landlord wishes to repossess his property, because of a breach of the buyer / tenant.

According to the Italian press, the use of this new contract, “Rent to Buy” is fast growing in Northern and Central Italy. It is mainly used by professional builders and applied to new / restructured (small residential) properties.

Notwithstanding this new legislation, there are still risks and uncertainties associated with this new contractual instrument, at this stage. Confirming legislation yet to be issued by the Italian Parliament will probably deal with the main outstanding issues. For the moment, however, “Rent to buy” at your own risk.

Avv. Claudio Del Giudice – 30.10.2014 copyrights reserved.