Italian Property Law: Property Defects Case Study

I bought an Italian property then discovered big cracks in the walls. Where do I stand from a legal point of view? 

Italian Property Law: Property Defects Case StudyYou moved in to the Italian property you purchased three months ago and discovered some serious cracks in a wall. Then you immediately called in a surveyor (geometra), who has informed you that there’s a serious structural problem. You expect to receive a full written report from the surveyor within the next few days. 

In this case, you are entitled to dispute the legality of the deed of sale (atto di vendita). However, you will need to take prompt action.

According to Italian Civil Code Sales Contract Law, the vendor is only liable for a short period. Art. 1495 of the Italian Civil Code provides that legal actions must be brought by the purchaser within one year from the date which a product was delivered – in your case the deed of sale for the property – and actions can only be brought if the purchaser has declared the defect to the seller within 8 days of its detection.

Italian Sales Contract Law is complex. I would advise that you engage an independent lawyer, experienced in Italian property law to help through the legal process.

Italian case law – structural defects in properties

According to a ruling by the Court of Caltanissetta in May 2016, if a vendor is deemed to have hidden serious structural issues from a purchaser prior to the completion of a property sale, this constitutes a breach of contract.

Structural defects, such as big cracks in the walls, significantly reduce the value of real estate property. If defects are discovered by a buyer after signing the deed of sale, the buyer has the right to reverse the property transaction, within the above mentioned time frame. Under Italian Civil Code, if the buyer and vendor cannot reach an amicable resolution, out of court, the buyer can institute legal proceedings against the vendor with a view to obtaining restitution of the price paid for the property in exchange for the return of the property to the vendor.

The property buyer has these rights regardless of the cause of structural defects. In essence, the deed of sale could be rescinded either on the grounds of construction defects, namely the builder’s responsibility, or because of external factors such as the consequence of subsidence of the site upon which the property stands.

In addition, a deed of sale can be rescinded even if the buyer inspected the property before signing the deed, and felt it conformed to expectations. Irrespective of whether or not the buyer engaged a surveyor to check for any structural problems during due diligence; structural defects are deemed latent, or to be precise, difficult to see with the naked eye. Therefore, even if a surveyor inspected the property, the defects may not have been visible.

However, it should be pointed out that patent defects, those that are easy to see or visible, such as a window that does not close properly, or partially removed tiling, would not entitle a buyer to rescind a deed of sale.

Litigation is the traditional process for resolving legal disputes on civil matters. It is used where the party starting an action – the plaintiff or claimant, seeks a legal or equitable remedy. A defendant is required to respond to the plaintiff’s complaint. If the plaintiff is successful, judgment will be given in the plaintiff’s favour. A party can make an offer to settle at any stage, but the dispute cannot be resolved through negotiation, it will be heard in court.  Litigation is tried and tested with a vast body of case law. The court will impose a final decision that parties are obligated to respect. The outcomes of litigation are, without exception, binding and enforceable, while being subject to appeal. Litigation is likely to be lengthy and expensive.

Returning to the ruling by the Court of Caltanissetta. Following the purchase of a newly constructed apartment, the couple who had purchased it, noticed some cracks on the walls and floors. The couple spoke to neighbours in their building and discovered that other neighbours had the same problems.

The owners got together and instituted a class action against the vendors. The plaintiffs were seeking reversal of their purchase contracts and compensation for damage. The plaintiffs accused the vendors of deliberately hiding the real condition of the properties. For their part, the defendants claimed the buyers had seen the properties before signing deeds of sale.

However, the purchasing parties had only noticed, “a few little holes”, maintaining that, “the real problem hadn’t yet emerged.” Despite the defendants’ declarations, the court ruled that they knew the true state of the apartments because they had participated in a meeting at the Town Hall’s Technical Office, to discuss geological issues related to the site.

The court ruled in the plaintiffs’ favour.

Vendor’s duty

Anyone who sells goods – a mobile phone, a garment, a pair of shoes, or any other item including property real estate – has to guarantee that the good has no inherent flaw (cracks, holes, etc.); that it is fit for purpose.

The Italian Civil Code states that a vendor of any item must guarantee that the item has no faults, which would make it unusable or unsuitable for its intended use, or would significantly reduce its value.

In this case, the property presented defects which could cause instability. That would entail a huge risk for the new owner’s safety.

In conclusion

Selling an uninhabitable property implies that the buyer is entitled to rescind the contract with the vendor. It should be noted that all defects must be considered serious irregularities which render the property uninhabitable for this.

In case of a dispute, the deed of sale is of great importance. It is vital that you understand exactly what the terms and conditions of the contract are. This affects your possibilities to make claims against the other party. You should always seek independent legal advice when you purchase property. Therefor someone who is not involved with any other parties (vendor, developer). Your own lawyer will go through all legal documents pertaining to the sale before you sign anything. 

Finally …

If you are looking for more information about the Italian property purchasing process, please read our free Guide To Buying Italian Property. We are always pleased to hear from our readers. If you have a question that you would like us to answer, please get in touch with us. 

A Home in Italy: Voices of Experience

Having a home in Italy is a dream for many. It is also a major investment. There are many aspects that need careful consideration before taking the plunge: buying structures, tax and inheritance to name but a few.

If you are considering buying a property in Italy, think long-term. Make sure it’s for the right reasons and that you have done your research absolutely thoroughly. We asked some of our clients who own Italian property, what tips they would give to prospective buyers in Italy. Here’s a selection of what they said:

A Home in Italy: Voices of Experience

If you think an Italian property is potentially an easy, passive income generator, think again

To be a success, you will need to work hard to create, market and operate an attractive holiday rental business. If you need to borrow money to finance the purchase of your Italian holiday property and you already have a mortgage at home, you’ll have two debts to service and in reality, your rental income may not cover repayments for your Italian property.

Remember too, that all the maintenance and running costs will be your responsibility and unless you are living locally, you will probably need a management company – or very understanding local friends – to deal with the property on a day to day basis for you.

“Identify your reasons for buying real estate in Italy …

… for example: are you looking at retirement, relocation, holiday home or a buy-to-let investment? Always use a licensed, unbiased real estate agent who can work with you to achieve your objectives. Don’t feel pressurised to buy. Take your time – it took us over five years before we committed to our purchase”.

“Ask lots and lots of questions

When choosing a holiday home, the priorities are about personal preferences, choices and taste. We bought our property for investment purposes, which is totally different. When you are buying a property for buy-to-let purposes, you are starting a business so you need a plan. There are so many things to consider: exit strategies, growth forecasts, potential rental incomes, neighbourhood, property taxes, amenities, infrastructure, transport and future developments in the area. This is where it pays to get professional advice and second opinions from good real estate agents, lawyers and financial advisors”.

“Get your sums right. What can you really afford?

It’s not just about the cost of buying a property, you might need to add renovation costs or there may be extra costs for shared areas. Not to mention running costs. Investigate and understand the Italian property market. It’s totally different to the US property market. When it comes to selling your property later, even if it’s a really attractive proposition, you need to understand that it’s not likely to get sold fast.”

“Bring in the professionals.

Seek legal advice. Use your own independent English-speaking solicitor, who has absolutely no links to your seller, estate agent or developer. Do not sign anything prior to your lawyer’s review. Do not make any money transfers until they have been checked and signed-off by your lawyer. If anybody uses terms like capital growth or rental yields when viewing a property, be very sceptical. Ask to see evidence. Before deciding whether it’s a good buy, factor in all the likely costs, taxes and above all, don’t forget maintaining the property and managing the rentals. Think carefully about the pros and cons of different ways of buying the property and check for the best deal on mortgages and currency”.

“Viewing the property at different times of day is important.

For example, we viewed a property during afternoon siesta and it seemed perfect … a really attractive property in a quiet location. But, when we revisited the place another day around mid-morning, we discovered we could hear the loud rumble of traffic on a nearby main road. Consult a good property lawyer before making any final decision. Many lawyers will offer a free consultation to discuss your general situation. Ensure you double-check everything with your lawyer and a tax advisor before making any decisions. The person at the local bar or the village shop might know a thing or two from experience, but those experiences shouldn’t inform your decision-making.”

“Research is key.

When we were researching properties online, the maps on website listings were not always 100% accurate and showed the nearest village rather than the property itself. This is for safety reasons as houses used as second homes are often empty for long periods of the year and can become targets for burglars. Contact the estate agent and get coordinates for a satellite view of the property and surrounding area. Study it closely. In many parts of Tuscany, for example, it’s difficult to find a country house within walking distance of a village. It means that you, or your rental guests, will have to drive to the nearest shops, bars and restaurants.”

“Understand the rules regarding Italian tax …

… so that you know what you are in for. Remember that when purchasing property in Italy, you need to take into account agents’ commission, notary fees, and registration fees as well as future property tax and other costs. If you are planning to live in Italy, find out about residency rules. Have your financing in place and get a good international residential conveyancing lawyer.”

“Always negotiate on the price …

… use a reputable real estate agency and engage an Italian lawyer. Never part with any money unless you have the express approval of your lawyer. If, like us, you are buying off-plan or during construction of a new build, getting independent legal advice is even more important. Your lawyer will make sure that all the necessary contractual, bank guarantees and insurances are in place to protect you if something goes wrong like the completion of the building does not occur on time.”

“Get a good lawyer to represent you in the purchase.

If possible agree legal fees up front. Find a reputable estate agent to assist you in your property search. But don’t rely on the agency to put together contracts and handle the conveyancing. Make sure your professional team speaks your language. Make sure that they fully understand your requirements and that they don’t waste time showing you properties or areas that don’t match your brief. Ensure that you fully understand all the costs, taxes and fees involved with the purchase. It can impact hugely on your budget. Always instruct a surveyor to carry out a survey to ensure that there are no structural, planning, zoning or geological issues with the property. Take your time. Don’t rush into the first deal presented to you. If it sounds too good to be true, it probably is. Take a step back and get a second opinion.”

“Start by asking yourself: how easy it’ll be to sell this property should you need to?

Location, location location! If you want to make money, this will only actually materialise when you rent or sell the property. Until then it’s all just a theoretical paper profit. If you are looking at the property as an investment, think about the property. Why would people want to rent it? Why would people want to buy it from you? The reasons will tell you whether the property is likely to be a good investment.”

Finally …

Buying a holiday home requires careful thought and long term planning. De Tullio Law Firm has been guiding overseas buyers with their Italian property investments for over 55 years. If you need any advice about buying or selling a property in Italy, if you need an independent second opinion or, if you would just like to discuss your options with a specialist we are here to help

Italian Tax Law: High Net Worth Individual Tax Regime

What is Italy’s high net worth individual tax regime? 

What is Italy’s high net worth individual tax regime?  On 9th March, 2017, Italy introduced a high net worth individual tax system. On 9th March, 2017, Italy introduced a high net worth individual tax system. 

Pursuant to article 24 bis of Italy’s Budget Bill, a codicil introduced an annual fixed €100 thousand forfeiture substitutive tax rate for foreigners, including EU citizens, who decide to move their residence to Italy irrespective of the level of an individual’s income. 

Individuals with tax residency in Italy will be taxed on a worldwide basis, i.e., on their income wherever it is generated. No exceptions to this general rule are permitted. However, tax will not be due on the value of real estate and financial investments located abroad.

Individuals need to apply for the high net worth individual tax regime

According to the bill, benefitting from the high net worth fixed tax rate is neither an automatic right nor an obligation – it is a choice.

Individuals electing to take advantage of the fixed tax rate option, will have to file an advance application with the Italian tax authorities, the Agenzia delle Entrate, which decides whether or not to grant the forfeiture substitutive tax rate to individuals. Decisions will be based on investigations with tax authorities in the individual’s country of origin and checks that the individual has not previously been tax resident in Italy.

The option can be extended to the individual’s family members provided they also meet the conditions of tax residency in Italy and previous no previous Italian tax residency. In this case, each family member included in the option will also be subject to a yearly forfeiture substitutive tax on non-Italian sourced income but, at a lower fixed amount of 25,000 Euros.

If the Agenzia delle Entrate accepts an individual’s application, the option expires after 15 years. It is revocable at any time but, if revoked, it cannot be restored.

After the 15 year residence period, the fixed tax rate will no longer be applicable. The individual will thereafter need to decide whether to continue to be a resident of Italy. Should an individual continue to live in Italy as a resident, standard tax rates will apply.

Italian Visa for investors

The Budget Bill also introduces a “visa for investors”. This means that any foreign national bringing a capital of at least €1 billion into Italy, and investing it within three months of arrival, will automatically be entitled to a two-year residence permit.

Finally …

Should you need help to understand your personal tax situation, please Get in touch or seek advice from a qualified accountant registered with the ODCEC, the Italian professional accounting association of certified public accountants, auditors and advisors.