Dr Claudio Del Giudice
Rivington House
82 Great Eastern Street,
London EC2A 3JF
(United Kingdom)
Tel 0044 207 613 2788
Fax 0044 207 613 2799
For some time now the
Italian authorities have been trying to improve the transparency and reliability
of the property market. Few years ago, new legislation was put in place to allow
for the registration (trascrizione) of preliminary contracts, to protect
buyers involved in long term property acquisitions from dishonest vendors. At
the end of July 2005 a new raft of legislation came into force protecting buyers
of residential buildings sold whilst still under construction.
The wrong that this legislation is intended to remedy is basically the case of
an innocent buyer who exchanges contracts on a property still to be built /
being built and pays a substantial deposit, only to find some time later and
before completion of his acquisition that his vendor / builder is insolvent.
Typically there will be banks and other financial institutions who have lent to
the vendor / builder and have taken security over the very same property. In
such a scenario, our innocent buyer could frequently find that his property will
be sold by the banks or that the trustee in bankruptcy of the vendor / builder
will not complete / sell the property, and any funds previously paid are not
refunded.
A double whammy, in practice. To the loss of the dream property, the loss of the
deposit paid is also added. A complete catastrophe both for any buyer, which
could be even more shocking to foreign buyers unaware of the complex insolvency
legislation. It has been calculated that over 200,000 Italian families have been
suffering this fate in the last few years, in Italy. This has prompted the
Italian legislator into action.
The new legislation is complex, as it is a combination of enabling legislation
issued by the Italian Parliament last year, and delegated legislation which has
only been published last June.
Leaving aside the technicalities and complex definitions, this new legislation
provides that when a house is sold before it is actually built (off plan) or
still being built the vendor / builder must deliver to the buyer:
a) a bank guarantee (Fideiussione) covering all the sum paid before
completion of the sale and delivery of the property, upon exchange of contracts
(Compromesso stage). This bank guarantee must provide for the bank /
guarantor to pay the promising buyer, in case of insolvency of the promising
vendor / builder, within 30 days of request and upon delivery of all the
required documentation evidencing the sums paid the vendor / builder
b) a 10 year insurance policy (Polizza assicurativa indennitaria) for all
potential defects of the house / damages caused by its total or partial
collapse, including third party damages. This insurance policy will be due upon
completion of the acquisition (Rogito stage).
In addition this legislation now provides that a long list of detailed
information and technical documentation has to be included in any preliminary
contract (Compromesso) for a property under construction such as:
- a list of all planning permissions
- a full set of specifications of the building being sold
- a full list of all amounts and dates of any payment due
- full details of the bank guarantee (mentioned above)
- full measurements and maps of the building being sold
- full list of deadlines to complete constructions etc.
The drafting of the “Compromesso” frequently left to local agents, has
now become a technical and legally complex operation, which may well take some
time, and is probably better left to practising lawyers.
Very useful additional protection is also provided by this recent legislation.
Where the property under construction was delivered to the buyer before both
completion and the insolvency of the vendor / builder, then whether or not an
application for refund under the bank guarantee is made, the buyer may also be
entitled to a pre-emption right (Diritto di prelazione) over the
property. This right will enable the buyer, to acquire the building under
construction with priority over any other third party. If this is practically
possible, both the sums paid to the insolvent vendor / builder and the building
itself are safeguarded.
In addition where the house under construction is to be used as the main
residence of the buyer or a member of his family within 12 months of completion,
provided the correct market price has been paid, it will no longer be possible
for the trustee in bankruptcy of the vendor / builder to claim it back (Revocatoria
fallimentare) .
Finally this legislation provides for the setting up of a compensation fund (Fondo
di solidarieta` per gli acquirenti di beni immobili da costruire) to be
financed with a levy on local builders, aiming to compensate buyers who for any
reason have lost their property following the insolvency of their vendor /
builder. Although the funds available are likely to be limited at least in the
near future, this fund is useful additional protection for innocent buyers.
It has been calculated that this legislation will cause an increase in the price
of Italian properties as it will obviously require additional financial
commitments on the part of vendors / builders.
This legislation will also involve additional costs for all those buyers who
frequently declare a lower price in their Deeds of Sale (Rogito) in order
to evade Italian taxes payable on completion. However considering the risks
involved in losing the protection of this legislation and the other recent
legislation which is now increasing the control and supervision of Italian tax
authorities on this kind of transactions and on Italian properties generally, it
will be in the buyers` interest to comply with the relevant legislation.
At the end of the day, whatever taxes are payable on the acquisition of an
Italian property by a private individuals, Italy is still one of the few
countries where no capital gains tax is usually levied if the same property is
later sold five years after its acquisition and where effectively there is only
a 3% death duty tax payable instead of full blown inheritance tax. Really, as
the saying goes, you cannot possibly have your cake and eat it ....
Dr Claudio Del Giudice
Copyrights reserved, August 2005