Within a few weeks the covid-19 emergency has escalated from a relatively limited Far East problem into a world pandemic. Every country has been affected, unfortunately, Italy appears to be one of the worst affected.
In the face of the escalating casualties, Italian authorities have issued progressively more restrictive legislation culminating in a Decree issued on 22.03.2020 which:
- Suspends all commercial, industrial and productive activities with very limited exceptions
- Substantially limits professional work and assistance
- Restricts movement of persons, whether by private or public transport, outside the district of residence / place of actual presence.
These measures are currently expected to stay in place until the 13th April 2020. This emergency has serious effects on all pending Italian property transactions.
Normally in a property transaction buyer and seller exchange contracts – preliminary contracts – (Compromesso ) first. With this contract, the buyer pays a deposit and both parties agree to complete the sale, with a notarial deed (Compravendita ) on a stated future date. Problems will arise where the recent restrictive legislation came into force between exchange of contracts and the completion of the sale. Because of the emergency covid-19 legislation, it will not be possible to complete on the agreed date.
Will the buyer or seller be in breach of contract under the general law? Will the seller be able to forfeit the deposit and put the property back on the market?
It may not be possible to complete the sale for several reasons. It may not be possible to meet in the Italian notary`s office. The bank that agreed a loan/mortgage may take longer than expected to provide the funds / finalise the documentation. The foreign buyers or sellers will be unable to travel to Italy to personally attend to the completion of the real estate transaction.
It may not be possible to organise the required certificates, nor the interpreters, translators or even any Italian Power of Attorney (Procura ) in time for the completion date originally agreed. The reason is clear and as a matter of common sense neither the buyer nor the seller can be blamed.
In these cases, where the property transaction is subject to Italian law, a few legal provisions will come to the assistance of the parties unable to complete, even if there are no specific clauses in their contract.
- Under Italian law the parties to a contract are required to conduct their affairs / perform their contracts in good faith. The covid-19 pandemic is well publicised and known. Any party to a preliminary contract who tried to gain from the current situation and blame the other for a delay in completing the sale, would not be acting in good faith. The Italian Courts are unlikely to entertain such a claim. Parties to a preliminary contract are expected to make reciprocal concessions, with a view to performing the contract when reasonably possible.
- There are then specific provisions that come into operation in the present circumstances, whether they are referred to in the contract, or not. Under Italian law a party is excused for failing to comply with his obligations, if it is not possible for him to do so. The legal technical term is “supervening impossibility” (Impossibilita` sopravvenuta ). If it is temporarily impossible to perform a legal obligation, the party who should comply is excused for the delay. If it becomes totally impossible to comply, at any future date and for ever, the debtor / the party who is supposed to comply is excused altogether.
- Other legal provisions which apply to all commercial contracts and can apply even if they are not expressly referred to in the document. The Italian Civil Code provides that if a contract cannot be performed by either party, then that party is released from his obligations under the contract. He must return any consideration received to the other party. The other party cannot insist on requesting an impossible performance of the contract.
- A further defence is expressly provided to all parties affected by the recent emergency legislation. Under a Decree Law issued on 23.02.2020 to contain the spread of covid-19, any compliance of a party with the recent emergency measures, which results in the delayed or omitted performance of a contract, is to be considered as a defence. This will apply when assessing the liability of a party for breach of contract or the application of forfeiture or other penalties. Not surprisingly you cannot be penalised for complying with the law.
- Finally, where the party affected is an Italian company or commercial enterprise it is now possible to apply to the local Companies House (Camere di Commercio ) for a “Force majeure certificate” (Certificato di forza maggiore ) both in Italian and in English which will certify the current covid-19 emergency and the legal inability of the party affected to perform the contract to anybody who may be concerned.
What should be done if the covid-19 /recent emergency measures affect performance of a commercial contract?
The parties should negotiate alternative arrangements in good faith.
Frequently it will be a matter of simply delaying the completion of the sale to a future date.
At this stage, it may not be possible to agree a definite future date, because no-one can predict when normality will be restored. However, it would be advisable to consult your Italian lawyer and organise a written, signed record of the new arrangements between the parties, to prevent any misunderstanding at a later stage, when normality will be re-established.
As was stated in Latin, long ago “Ad impossibilia nemo tenetur” (None can be kept to impossible commitments).
Dr Claudio Del Giudice – 02.04.2020 copyrights reserved