European Mortgage Credit Directive. The Italian Perspective

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The European Mortgage Credit Directive creates a single mortgage market across the EU

In a previous article, we addressed the possibility of non-Italian nationals obtaining a mortgage to purchase an Italian property. This article explores the main provisions in the European Mortgage Credit Directive (EMCD). This came into force across all EU Member States in 2016.

During the global financial crisis of 2008, the EU launched a process to draw up prudential measures aimed at containing risk in real estate credit agreements. The  majority of sub-prime mortgage problems occurred outside the EU. Nevertheless, consumers within the EU hold significant levels of debt related to residential property. 

The EU process resulted in the introduction of the EMCD. The purpose of which is to create a single, harmonised residential mortgage credit market across the EU with a high level of consumer protection.

The European Mortgage Credit Directive is part of Italian legislation

Italy’s Council of Ministers through Legislative Decree no. 72 of 21st April, 2016 approved the EMCD, (2014/17/EU) known as Direttiva Mutui in Italian. The Directive then became a national law on 20th May, 2016 and has been in force since 4th June, 2016.

In Italy, Bankitalia, ensures enforcement and application of the EMCD.

The EMCD applies to credit agreements entered into with consumers that are secured by a mortgage, or equivalent security, on residential property. It is also applicable to credit agreements for the acquisition or a retention of property rights on buildings or land. Italian law defines a consumer as, ‘a natural person acting outside their trade, business or profession’.

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The European Mortgage Credit Directive impacts EU and non-EU residents alike

For example, a UK consumer takes out a Euro mortgage to buy property in Italy. However, their main income is derived in Pounds Sterling. 

In the first instance, because of the risks attached to borrowing in a foreign currency, the EMCD therefore provides for measures to ensure that consumers are aware of the risk they are taking.

If a credit agreement relates to a foreign currency loan, EU Member States must ensure that the consumer has the right to convert the credit agreement into an alternative currency. This will be subject to specific conditions. Additionally, EU Member States must ensure that there are other arrangements in place in order to limit exchange rate risks to the consumer.

Main provisions of the European Mortgage Credit Directive 

Standardised Information

The EMCD stipulates that information must be provided to consumers at the pre-contractual stage.

In Italy lenders provide pre-contractual information in a prescribed form, the European Standardised Information Sheet (ESIS), or Prospetto informativo europeo standardizzato (PIES)” in Italian. This is to assist consumers in comparing lenders and their products. Furthermore, additional information must be attached to the PIES. This includes the identity, status, capacity and remuneration of any credit intermediary involved in the application.

Creditworthiness

Lenders must conduct a rigorous assessment of the proposed borrower’s creditworthiness prior to granting credit. In Italy, this includes an assessment of the borrower’s income, expenses, financial and economic circumstances. In accordance with Central Individual Credit Register (CICR) regulations, Italy grants cross-border access to its creditworthiness databases. Lenders in EU Member States use these databases to assess a consumer’s ability to comply with the financial obligations for the duration of a credit agreement.

Code of conduct

Lenders and their intermediaries must act honestly, fairly, transparently and professionally. They must take into account the rights and interest of consumers.

Bankitalia has an obligation to protect these consumer rights. It ensures that Italian lenders and their intermediaries have an appropriate level of knowledge and competence regarding their credit products.

Once authorised in italy, a credit intermediary gains passporting rights to operate in any EU Member State.

Forbearance on foreclosures

EU Member States must adopt measures encouraging creditors to exercise reasonable forbearance before the initiation of arrears and foreclosure proceedings.

The aim is to encourage creditors to deal proactively with any emerging credit risk. In effect, this means ensuring that creditors have adequate measures in place so that they can exercise reasonable forbearance. Thus they can make reasonable attempts to resolve the situation through other means before initiating foreclosure proceedings.

Italian legislation prohibits foreclosure on a main residence. This is subject to the condition that this home is the only property the debtor owns. However, this is not applicable to luxury homes, such as a castle or villa.

The EMCD provides discretion about applying certain provisions

In Italy, prior to the conclusion of a credit agreement, the consumer has the right to a cooling-off period of at least seven days. This is in order to allow for comparison of different loan offers on the market. In addition, the cooling-off period aims to provide enough time to evaluate implications and make an informed decision. During this period of reflection and comparison, the offer remains binding on the lender. The consumer may accept the offer at any time.

While the EMCD permits consumers to repay their loan before the term expires, EU Member States may impose restrictions on rights to early repayment. Creditors may make a charge for early repayment to cover any losses directly arising from the repayment. In Italy, however,  in accordance with Bersani’s Decree, Law No. 40, 2nd April, 2007, a consumer cannot be charged for early repayment.

Finally …

If you are seeking a mortgage or loan for an Italian property investment, we would recommend you seek independent legal advice to ensure you receive fair treatment and protection.

De Tullio Law Firm specialises in Italian and international property law. If you need advice or help with matters related to a mortgage for Italian real estate property, please contact us for a free consultation.

 

You may also be interested in How to get a mortgage in Italy

Italian Notary

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What is the difference between an Italian notary and a lawyer?

International clients are often confused about the role of an Italian Notary. There is a mistaken belief that a public notary (notaio) performs the same function as a lawyer, solicitor or attorney (avvocato). This is not the case.

Public notaries emerged from the institution of scribes and scriveners. They were revered and knowledgeable public officials of the Roman Empire. These Notaries prepared and drew up fair copies of deeds and other legal documents. They endorsed these documents using the seal of the court and thus the documents became ‘public acts’. Eventually, Notaries gained the right to use their own official seals to give their acts public status.

In modern times, Italian notaries act on behalf of the Italian State. It is the Italian Ministry of Justice that appoints them. Because an Italian notary is an official of the Italian State, a document endorsed by a notaio guarantees its legal status.

On the other hand, a lawyer, is someone you engage to act exclusively on your behalf in a legal matter. Whereas a lawyer exclusively commits to protecting your interests, a notaio endorses acts, deeds and documents and collects taxes.

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A notaio is a qualified lawyer who works as a public officer for the Italian State. However, because an Italian notary is an official of the State, by law they must maintain impartiality in all transactions. A notary cannot therefore provide legal representation to any party involved. A notary can however provide advice if requested but, must protect parties equally.

An Italian notary prepares acts, endorses documents and collects tax for the Italian State

Notaries operate in every area of law including family, property, inheritance, asset, corporate, rural, local authority, and other areas. An Italian notary is present at all significant times in life which require a State document or tax payment.

A notary is empowered by the Italian State to endorse documents, agreements, contracts and other instruments by affixing a seal and signature.  In so doing, Italian Public Notaries officially witness the wishes expressed by the signatories and give a personal guarantee regarding the content and date of the instrument.

Although a notaio has public authority, the notaio operates on a self-employed basis. They are mostly paid by clients (not by the taxpayer) on the basis of a rate fixed by the Italian State for notarial services.

Regardless of whether a property is purchased from a private vendor or through a real estate agent, in accordance with Italian legislation, a notaio must oversee the sale. The notaio is responsible for receiving all legal documents pertaining to the sale, verifying their authenticity and drawing up the deed of sale – Atto di Vendita.

Often in Italy the vendor and purchaser use a single notaio for a property transaction. According to Italian law, it is the buyer’s legal right to appoint the notary public. We would advise that buyers choose their own notary. You should bear in mind that an estate agent and the vendor have a vested interest in selling a property. Using a notary recommended by these parties may therefore create a conflict of interest.

What is the specific role of an Italian notary in Italian property transactions?

The notaio may execute certain checks at the very end of the conveyancing process but, this would only be after the buyer has already paid substantial deposits to the vendor.

Checks might include each party’s rights to buy or sell the property, or a land registry search to see whether any third parties have a claim on the property. A notary may also search for any mortgages on the property or verify the presence at of planning permission. However, a notary public will not inspect the property to make sure it actually complies with planning permission.

The main role of the notaio therefore revolves around the exchange of contracts. This involves drawing up the deed of sale. This is based on input from the vendor and/or the estate agent and the preliminary contract.

At the signing of the deed of sale, an Italian notary first verifies the identity of parties involved in the transaction. Then the notaio reads the contract aloud to all parties. After all parties have signed, the notaio provides a copy of the deed of sale to both buyer and vendor and oversees the transfer of funds for the transaction. In addition, the notary ensures that the Italian State receives taxes and fees in full. Finally, the notary registers the new deed of ownership at the land registry.

Why would a buyer need an avvocato for a property transaction?

Although it is not a legal requirement in Italy, as they would in their home country, many buyers appoint an avvocato to make sure their best interests are served throughout the three-step Italian property purchasing process.

A buyer’s avvocato will conduct thorough due diligence, searches and detailed checks on the buyer’s behalf and provide legal advice throughout the Italian property purchasing process.

Having your own lawyer ensures you get:

– the best contractual terms and conditions on the property

– deposit protection

– efficient and smooth conveyancing

– no hidden surprises along the way or later

Finally …

If you are thinking of making a real estate investment in Italy, why not talk to us? De Tullio Law Firm can advise and guide you throughout your Italian property purchasing journey. We have over 55 years of experience working with clients on their Italian and cross border property, family and inheritance matters. Get in touch.


You might find our guide to buying property in Italy useful.
For more information about the Italian notary’s role in property transactions, visit the Consiglio Nazionale del Notariato website.

Estate Planning And Tax. Buying An Italian Property

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Tax and estate planning matters. Think long term when buying property in Italy


Owning a second home in your home country presents administrative and logistical challenges. However, at least that second home is within linguistic, tax and legal frameworks that are familiar to you. The challenges escalate with a foreign property. Italy is a popular choice for second home ownership. In recent years foreign ownership of Italian property has increased as people take advantage of favourable property prices.  If you are considering buying a property in Italy, you should carefully think through Italian estate planning aspects. In particular tax and succession matters.

You should always seek independent tax and estate planning advice, from experts in Italy as well and at home.

There are a number of tax issues to consider in Italy and in your home country. Any of the following may trigger a tax event in either or both your home country and Italy:

– Disposal of property or investments to fund the purchase of an Italian property.

– Transferring money to Italy.

– Associated property purchase tax (local equivalent of closing costs / stamp duty).

– Local service taxes on the running of the property.

– Income tax from letting the property.

– Estate and transfer taxes on the death of an owner.

– Capital Gains Tax on the transfer or sale of the property.

Income Tax

If you are resident outside of Italy, you may be liable to pay income tax on all income, regardless of where this arises.  For example, UK residents who generate an income by letting an Italian property will be subject to UK income tax on the rental income. There will also be a liability to pay tax in Italy. There may be some double taxation relief available. However, it is essential that prior to purchasing a second home and commencing any rental activity that you seek advice both at home and in Italy.

Capital Gains Tax

Foreign nationals who own a property in Italy may be subject to Capital Gains Tax at home. If the Italian property is not the owner’s main residence, when the owner sells or transfers the property title, there may be a tax payment on any profit. There will also be a liability in Italy.

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Inheritance Tax

Individuals who are domiciled, for example, in the UK are subject to UK Inheritance Tax (“IHT”) on their worldwide assets in the event of their death. UK IHT does not therefore just apply in respect of assets physically located in the UK if an individual is domiciled in the UK. In addition, Italian Estate Tax will apply to the entire net value of the decedent’s estate, including movable and immovable assets in Italy.

Italian estate tax rates depend on the relationship of the beneficiary with the deceased. Spouse and children: 4% of the estate value, with an exemption of EUR 1 million for each beneficiary. Siblings and close relatives (up to fourth degree of kinship): 6%. Each sibling is entitled to an allowance of EUR 100,000. Any other beneficiary: 8%, with no allowances.

There may be some double taxation relief available. Because each case is different, it is crucial to take advice before purchasing a property in Italy.

Estate planning. Make an Italian will

It is essential to take advice on the succession implications of owning a property in Italy at an early stage. Buyers should consult an Italian solicitor and a solicitor in their home country. A specialist estate planning lawyer will have experience of managing all aspects which arise with cross-border assets or estates.

Generally, succession to a property is subject to the law of the country where that property is physically situated. However, a 2015 EU Regulation known as, “Brussels IV”, makes it possible to nominate a jurisdiction to rule your succession. Even if your home country is not part of the EU, Brussels IV is still applicable to non-EU nationals who own assets in Italy.

It is wise to make a separate will in Italian, to ensure that your property passes to your chosen beneficiaries after your death in the most tax efficient way.

Based on Roman law, Italy has, “Forced Heirship” rules. These govern what portion close family members must receive from an Italian estate. Seeking professional advice is therefore essential to understand how these rules apply to your specific circumstances.

Even though having an Italian will is not a legal requirement, it can save costs, time and misunderstandings for those you leave behind. In addition, your local solicitor will wish to confirm that your home country will takes precedence in Italy. 

Finally …

People put off estate planning because they think they do not own enough, they are not old enough, it will be costly or confusing, they will have plenty of time to do it later, they do not know where to begin or who can help them, or they just do not want to think about it.

Estate planning should be an ongoing process, not a one-time event. You should review and update your plan as your family and circumstances change. This would include when you make an international investment.

At De Tullio Law Firm, we have over 55 years of expertise managing cross border succession and estate planning matters. We operate throughout Italy. Our firm is a full member of STEP, the world’s leading association for trust and estate practitioners.

Please contact us if you are buying or already own an Italian property and have any questions about your estate planning.

 

For more in depth information about Italian succession, you might find our Succession Guide useful.

 

Make an Italian Will if you own property in Italy

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Making an Italian will facilitates the Italian succession process


Do you own property at home and in Italy? If so, we would advise that you make an Italian will. If you are resident in Italy at the time of your death, Italian Inheritance law is applicable to your worldwide assets. Whereas if you were resident outside Italy, Italian inheritance law is applicable to assets in Italy. Either way, Italian law governs your Italian property.

Making an Italian will therefore facilitate the way forward for those you leave behind. It reduces translation costs and prevents potentially costly disputes and misinterpretations regarding your wishes. In addition, an Italian will also creates tax and administration efficiencies.

Isn’t making an Italian Will expensive? 

On the contrary, the cost of making an Italian Will is not excessive. It is a worthwhile expense to keep your affairs in order and save stress, time and expense after your death. 

Get Your FREE Guide to Planning Your Inheritance in Italy

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Can you make a DIY will in Italy?

It is possible to make an Italian DIY will. In a previous article, we have provided a simple template for this purpose.

However, if your circumstances are even slightly complex, you could be causing more problems than you solve. If you own assets in Italy and elsewhere, this is a more complex cross-border situation. If you make your own will, without legal assistance, it can lead to mistakes or a lack of clarity. You may even run the risk of your will being invalid.

Seeking legal assistance when making an Italian will is advisable 

If you have a number of beneficiaries, if you own assets in Italy and elsewhere, if you have residential or business connections in Italy, we would always counsel taking legal advice from a specialist Italian inheritance lawyer.

In Italy, couple cannot have a joint will. Each spouse or partner needs their own separate will. Therefore, you should seek advice if you live with someone, if you are married or in a civil partnership. Likewise you should seek advice if you have children from a previous relationship or step-children. The latter may not automatically be beneficiaries of your estate.

Wills, estate-planning and inheritance are serious matters. They touch many lives in many ways. If you die intestate – without a will, you have no say in what happens to your estate. Instead, the division of your estate will be determined by the law of the country (or countries) where your assets are situated.

In Italy, succession law is based on the principle of ‘Unity of Inheritance’. This principle differs substantially from common law. Essentially, you may find that Italian assets you own are not inherited by those who you wished and, the whole estate may not be passed on in the most tax-efficient way.

You should review your will periodically

Estate planning should be an ongoing process, not a one-time event. You should review and update your will as your family and circumstances change. This would include when you make an international investment.

Once you have written your will, you should review it regularly to make sure it reflects your wishes, especially if your life changes. 

Finally …

People put off making a will because they think they do not own enough, they are not old enough, it will be costly or confusing, they will have plenty of time to do it later, they do not know where to begin or who can help them, or they just do not want to think about it.

At De Tullio Law Firm, we have over 55 years of expertise managing cross border succession and estate planning matters throughout Italy. Our firm is also a full member of STEP, the world’s leading association for trust and estate practitioners.

Please contact us if you are buying or already own an Italian property and have any questions about making or reviewing a will.

 

You may also like Estate Planning And Tax. Buying An Italian Property.

Inheritance Law in Italy

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What are the principles of inheritance law in Italy?

Law n.218, 31st of May 1995 regulates the field of inheritance law in Italy. This law falls within the framework of international private law.

The national law of the deceased party at the time of death determines succession rules.

The Italian legislator adopted the principle of “unity of inheritance”. This principle differs substantially from the one adopted in other countries. Notably common law countries. Unity of inheritance makes a distinction between between movable and immovable assets.

If the deceased was resident in Italy at the time of death, Italian Inheritance law applies to the deceased’s worldwide assets.

Whereas if the deceased lived outside Italy, Italian inheritance law is only applicable to assets in Italy.

Movable assets

The law of the last domicile or last citizenship of the deceased party is applicable to movable assets.

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Immovable assets

The national law of the location of immovable assets is applicable. This is the so called, “lex rei sitae” (law of the country where the property is located). One of the most important consequences is that, if the deceased’s estate includes properties located in different states, the succession of each property is subject to the law of the country where the property is located.

Inheritance law in Italy regulates property succession

Italian conflict of laws considers the possibility that the national law of a deceased foreign national might defer to the law of another country. Such deferment is however, only effective if the law of the third State accepts the deferment. For example, if an English citizen owned a property in Italy,  succession will be regulated by the law of England and Wales. However, according to  the conflict laws of England and Wales, the law applicable to overseas property is“lex rei sitae”. In other words, Italian inheritance law is applicable to the Italian property.

The testator has the right to submit his succession to the law of the country where he resides. Such choice has to be formally expressed in a will and shall not be prejudicial to the rights that the Italian law provides for, “legittimari” or forced heirs. These are close members of the family who have the right to receive a fixed part of the estate. Whether the deceased had a will or died intestate, legally, the deceased’s spouse or registered partner and children for example must receive a portion of the estate.

If you own property in Italy, it is advisable to make an Italian will

It is highly advisable to make an Italian will in order to limit the consequences of  “testamentary succession”. This also applies where the deceased has not left a will, in such case the Italian law determines which relatives of the deceased have a right to succeed (primarily the spouse, the legitimate and natural children, and the ascendants).

Where there are no heirs, Italian inheritance law assigns Italian assets to the Italian State.

EU Regulation 650/2012 simplifies cross-border inheritance matters

Also known as Brussels IV, EU Regulation 650/2012 came in to effect on 17th August, 2015. The regulation harmonises succession rules in participating EU States, which is all of them except Ireland and Denmark. In an effort to simplify cross-border succession, the EU adopted a single, unified connecting factor – habitual residence.

Brussels IV provides an opportunity to elect a country law to apply to your succession

Brussels IV allows individuals to make an election for the country of their nationality to apply to the devolution of their entire estate. Or, where individuals have multiple nationalities, a testator may choose to apply one of these nationalities.

Testators do however need to take action. If you own a property in Italy, you can nominate a country law in your will. This is known as a Choice of Law codicil.

If you are in the process of making or reviewing your will, it is therefore worth considering including a properly drafted Choice of Law codicil to apply to cross-border inheritance. You need to carefully consider matters such as foreign matrimonial regimes, usufruct, tax consequences, joint ownership structures and other foreign proprietary rights with respect to your estate.

Another benefit of Brussels IV is the European Certificate of Succession (ECS). This allows heirs, legatees, executors of wills and administrators of the estate to prove their status. The certificate is then valid in all other EU Member States.

Brussels IV also provides potential benefits for non-EU nationals

Interestingly, there are also potential benefits for non-EU nationals resident in an EU Member State. Again, you need to make an appropriate Choice of Law in your will. For example, US nationals could nominate US law to apply to the succession of their property in Italy. An Australian with property in Spain could nominate Australian law. A Canadian citizen with property in France could elect Canadian law, and so on.

Finally …

Cross-border inheritance law is a complex matter. We recommend you seek independent legal advice regarding your personal situation.

At De Tullio Law Firm, we have over 55 years of experience managing cross border succession and estate planning matters throughout Italy. We are a full member of STEP, the world’s leading association for trust and estate practitioners. If we can be of assistance, please get in touch.

 

For more information about Italian succession and inheritance, you may find our Italian Succession Guide useful. You may also like to watch our info videos on the subject of Italian inheritance law.

 

Off-Plan Properties in Italy: Delivery Delays

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Late delivery: one of the risks in buying Italian off-plan properties

This article is part of a series about the risks of buying off-plan properties in Italy. To read more on the topic, please use our search tool to look for off-plan properties in Italy.

Significant delays in delivery of Italian off-plan properties is one aspect that investors report as being particularly irritating.

Developers and builders can be very persuasive. Whatever you do, don’t feel obliged to sign anything without first seeking independent legal advice.

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Penalty clause for late delivery of off-plan properties

Broadly-speaking, a penalty clause is a contractual provision which levies a monetary sum in the event of a breach of terms in the contract. It does not include any compensation payment for actual damages.

Buyers often try to insert a late delivery penalty clause into their contracts for off-plan properties in Italy. However, penalty clauses are generally unenforceable and ineffective under Italian law. 

Generally, the off-plan developer or builder draws up a contract. Often these are major companies. The buyer is therefore unlikely to be able to mutually agree a penalty clause. The agreement will therefore unilaterally favour the company.

The importance of a preliminary contract

The Preliminary Contract (Compromesso) is key in off-plan property purchases. If they are fortunate, off-plan buyers may manage to insert a penalty clause in the compromesso. This would see the refund of a buyer’s deposit. However, in accordance with binding terms of the contract, the buyer would still have to wait for the developer or builder to deliver the property.

Termination clause for late delivery of off-plan properties

A more effective legal safeguard would be to integrate an express termination clause in the compromesso. In effect, the termination of the preliminary contract would automatically occur – whether or not the buyer notifies the seller of the intention to terminate.

To make the clause enforceable and effective, the compresso must explicitly reference the length of delay.

If the seller exceeds the delivery date, either party can negotiate an extension and a new compromesso. Or, the buyer can claim a refund of deposits and/or any other advance payments.

Essential Term

Unfortunately, buyers of Italian off-plan properties sometimes sign a compromesso which promises more than it can deliver. Then, when delivery day arrives and buyers do not receive the keys to their property, the buyer discovers that the Italian law does not provide much protection.

If a compromesso does not include an express termination clause, the buyer can send the developer or builder a formal request to respect terms and conditions. Italian law calls this particular provision an, “essential term”.

The buyer’s formal request should warn the vendor that failure to respect terms and conditions will terminate the contract. The vendor must fulfil contractual obligations within a certain time, which cannot be less than 15 days.

Case law

In a recent court case, where the vendor had failed to comply with an, “essential term”, the Court of Vicenza (judgement n.187/2016) ruled that:

“whenever a delay is considered unbearable, it is possible to start legal proceedings against the builder, or the building company, and to obtain a refund of any advance payments. Furthermore but, only in the case of proven damages, the purchasing party can claim additional compensation”.

Either way, before taking legal action to resolve the situation and/or to make a claim for compensation for damages, an amicable settlement is always preferable. Because legal action through the Italian courts can take at least 5 years and can be very costly, an amicable settlement is likely to be quicker and more favourable. It is the route we would recommend.

Finally …

There are a number of risks involved in off-plan purchases. At De Tullio Law Firm, we are property law specialists. We are present throughout Italy. We would always recommend that you engage a lawyer you choose to ensure that you protect your interests. If the vendor recommends a lawyer, we would caution against it on the grounds of conflict of interest. Before signing any off-plan property-related paperwork, including a preliminary contract, you should seek independent legal advice. If you are unsure about any aspect of purchasing off-plan properties in Italy, we are here to help.

 

You may also be interested in Off-Plan Property in Italy: Insurance And Guarantee. You may also like to watch our info videos about Italian property law.

Italian House: Structural Issues. Where Do You Stand?

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I bought an Italian house then discovered big cracks in the walls 

According to your email, you have just moved into the Italian house you purchased three months ago. Unfortunately you have discovered some serious cracks in the living room and kitchen walls.

You immediately called in a surveyor (geometra), who has informed you that there’s a serious structural problem. In effect, the problem means the property is uninhabitable. You expect to receive a full written report from the surveyor within the next few days. 

What legal action can you take regarding the defects in your Italian house? 

In this case, you have a legal entitlement 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.

Article 1495 of the Italian Civil Code provides that the purchaser must take legal action within one year from the delivery date of a product. In your case this would be the date you signed the deed of sale for your Italian house.

In addition, you can only take legal action if you, the purchaser, have declared the defect to the vendor within 8 days of discovering the issue.

What does Italian case law say about latent defects in an Italian house?

A ruling by the Court of Caltanissetta in May 2016 stated that if a vendor hides serious structural issues from a purchaser, this constitutes a breach of contract.

Structural defects, such as big cracks in the walls, significantly reduce the value of real estate property and may even render the property uninhabitable.

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If a buyer discovers defects in an Italian property after signing the deed of sale, the buyer has the right to reverse the property transaction. This must however take place within the previously mentioned time frame.

Under Italian Civil Code, if the buyer and vendor cannot reach an amicable resolution, the buyer can institute legal proceedings against the vendor. This is with a view to obtaining restitution of the price the purchaser paid for the property. In exchange, the purchaser must return the property to the vendor.

The buyer has the right to rescind the transaction regardless of the cause of structural defects

In essence, a purchaser has the right to rescind the deed of sale either on the grounds of construction defects, namely the builder’s responsibility, or because of external factors such as subsidence.

This is valid even if the buyer had the property inspected by a surveyor prior to purchasing it. Structural defects are deemed latent. In other words, they are hidden or difficult to see with the naked eye. Therefore, even if a surveyor inspected the property, the defects may not have been visible.

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

Litigation is the traditional process for resolving legal disputes on civil matters

Litigation involves a party starting court action. The plaintiff or claimant is seeking a legal or equitable remedy. By law, a defendant must respond to the plaintiff’s complaint. If the plaintiff is successful, a court will find in the plaintiff’s favour.

In Italy, court cases are generally costly and protracted processes. We would advise you wherever possible, to settle out of court. Parties can settle at any stage. If the dispute cannot be resolved through negotiation, as a last resort, it will need to go to court.

Litigation is tried and tested with a vast body of case law. The court will impose a final decision that parties must respect. The outcomes of litigation are, without exception, legally binding and enforceable, while being subject to appeal.

Ruling by the Court of Caltanissetta

The case we previously mentioned, involved the purchase of a newly constructed apartment. Shortly after moving in, the new owners noticed some cracks on the walls and floors. They spoke to neighbours in their building and discovered that other neighbours had similar problems.

The owners got together and started a litigation 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 the deed 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 the vendors 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 a good – a mobile phone, a garment, a pair of shoes, or any other item including an Italian house or property – has to guarantee that the good has no inherent flaw. In effect, this guarantees that the item is fit for purpose.

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

Finally …

Italian contract law is complex. In the case of a litigation, the deed of sale is of great importance. It is vital that you understand the contractual terms and conditions. The deed of sale affects your options to make claims against the vendor. You should always seek independent legal advice when you purchase an Italian property. In order to avoid any conflicts of interest, this should be a lawyer who is not involved with any other parties (vendor, developer).

At De Tullio Law Firm, we have over 55 years of experience managing property transactions throughout Italy. 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.

If you are looking for more information about the Italian property purchasing process, please read our free Guide To Buying Italian Property. You may also like to watch our info videos about Italian property law.

A Home in Italy: Voices of Experience

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Having a home in Italy is a dream for many

Buying a home in Italy 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:

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.

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“Identify your reasons for buying a home 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 home in Italy, 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 home in Italy, 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 to help with buying a home in Italy.

Seek legal advice early on. 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 buying a home in Italy.

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 …

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.

You may also be interested in Buying property in Italy. You may also like to watch some of our info videos on Italian property, succession and family law.

Do You Have A Dormant Account in Italy?

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How does Italian law define dormant accounts?

According to Italian law, a dormant account contains a sum over €100 that has not been moved by the owner for a period of 10 years.

A dormant account may be with a bank or other financial institution and can be an account or financial instrument. This includes any inactive deposits in savings account books, bank accounts, postal accounts, shares, bonds and government securities.

Is it true that funds in a dormant account can be transferred into an Italian government fund? 

Rules establish that financial institutions can terminate contractual relationships dormant for 10 years or more with sums of at least €100. These dormant funds transfer to the Italian Ministry of Economy and Finance. Article 1 paragraph 343 Law 2005 n. 266 designates these funds for social purposes. 

However, before any sum devolves into the Italian Ministry of Economy and Finance fund, the owners of a dormant account must receive notification from the financial institution.

Thereafter, owners have a period of 180 days to reactivate the dormant account. Either owners can make a transaction or, they can notify the financial institution of their wish to continue the contractual relationship. 

Even if sums have transferred to the government fund, the account owner may still claim a refund. Owners of dormant accounts have 10 years to claim a refund.

Who is entitled to a refund? 

Provided that the ten year statute of limitation has not elapsed, owners of accounts or their assignees can claim a refund. The ten year statute of limitation starts from the date the financial institution transferred sums to the government fund, or the issuance of a banker’s draft.

How do you get a refund?

First, you will have to prove you are the owner or beneficiary of a dormant account. In order to do this you will need to visit the Consap website. This system will ascertain if a dormant account exists according to the data you provide and permit you to download a refund form, which you will need to fill.

Where you have inherited a dormant account, you will need to provide a self-certification document, which will be verified by Consap.

Owners of dormant accounts should check the Consap website for details or they can send their application to:

Consap S.p.A.

Rif. Rapporti dormienti

Via Yser, 14

I-00198 Roma

or via e-mail to rapportidormienti@consap.it

Claimants will need to supply proof of their right to a refund. The type of documents will depend on personal circumstances. These may include:

– Copy of identity card or other ID of the applicant entitled to refund.

– Copy of fiscal code of the applicant entitled to refund.

– The account owner’s death certificate.

– Copy of savings passbook or of a bank statement.

– Statement attesting heir’s entitlement.

– Statement of termination of contractual relationship by the financial institution.

– Notification of transfer to the government fund.

After verifying entitlement to a refund, Consap will transfer payment through methods such as a bank transfer or a banker’s draft.

What if you have moved or haven’t received bank notification about a dormant account?

First, you should contact the financial institution you think may hold an account to ascertain if you are the owner of a dormant account. Secondly, you should notify the financial institution regarding any change of residence. In effect, notification of a change of residence is sufficient to reactivate a dormant account.

I’ve received a letter from the bank but, the dormant account owner has passed away. 

In this case, it is important to remember that not only the owner of a dormant account can reactivate it. An executor can also do this. If there is no executor, beneficiaries should notify the financial institution of their entitlement to succeed to the deceased’s account. Beneficiaries should present the owner’s death certificate with Italian probate and succession documents.

What if there is more than one dormant account at the same bank?

Owners don’t have to reactivate all their dormant accounts. Reactivating one account is sufficient. For example, if there is a dormant current account and a dormant deposit account, reactivating one will make both active.

Finally …

For more in-depth information about Italian succession, you might find our Succession Guide useful.

At De Tullio Law Firm, we have over 55 years of expertise managing cross border property, succession and estate planning matters throughout Italy. Our firm is also a full member of STEP, the world’s leading association for trust and estate practitioners.

If you would like to discuss anything, you can reach us here for a free consultation.

Buying Italian Property. Advice for Expats

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If you are buying Italian property, never sign any paperwork without fully understanding the implications

The most important piece of advice for expats buying Italian property is that they should never sign any paperwork without getting it checked.

If you don’t fully understand all the legal implications of paperwork, your signature could result in potential financial and/or legal problems. In addition, your signature may negate any possibility of complaints at a later date.

We would always recommend that you use an experienced, independent property lawyer to safeguard your Italian purchase. A surprising number of expats buying Italian property don’t use a lawyer. Instead, they take a DIY approach or use someone unqualified such as the estate agent or vendor. It is not uncommon that this ends up being a stressful and expensive mistake.

Get Your FREE Guide to Buying Property in Italy

Our PDF guide covers every aspect of the buying process so you're ready to purchase with confidence

Download now

Expats buying in Italy may encounter language barriers

If you are not a fluent Italian speaker, it’s important to engage a lawyer who speaks your language. This ensures you not only have crucial legal advice but also a someone who can act as a legal translator. As previously mentioned, the issue of signing paperwork is critical. Expats should only sign documents that they fully understand, which may mean that documents need translating. In fact, when you complete the purchase, the Italian notary may require a translation of the deed of sale. In addition, you may also have to engage an interpreter at completion. However, if you have a lawyer who speaks your language, this will not be necessary.

In order to avoid conflicts of interest, the lawyer should be independent of the estate agent and/or the vendor.

Make sure your lawyer has a license to practice. In other words, your lawyer should be a member of the Italian Bar Association. The lawyer should also have public liability insurance.

Estate Agents

It is worth bearing in mind that regardless of how charming and friendly an estate agent is, at the end of the day, an estate agent is a sales person working on a commission from the sale of the property. They are not qualified to provide legal advice and do not conduct due diligence on properties. The base their sales information on what the vendor tells them.

An estate agent may ask you to sign an agent’s brokerage contract, which could include up front fees.

Make sure that your estate agent is from a reputable company. Italian estate agents must register with their local chamber of commerce. They should have a certificate issued by the local town hall as proof of their professional registration.

Surveys

Many expats buying Italian property decide not to invest in the knowledge and expertise of a professional surveyor.

Construction quality varies hugely in Italy and you cannot know everything about a property just from viewing it with the vendor or estate agent. Buyers should ensure the property they want to purchase is actually worth the money they are paying. This means checking there are no fundamental problems. Amongst other things, structure, planning, zoning, ownership and geological location.

Certificate of Habitability

It’s also surprising how many expats buy a property that has neither electricity nor water connections. If a property has no utility connections, it may indicate a problem. It suggests that the property may not have a Certificate of Habitability. If this is the case, the property may never gain mains utilities despite what the vendor or estate agent claims. When it comes to reselling the property, later on, it is likely to be a struggle to find a buyer.

Buying an Italian off-plan property

Expats should exercise caution if buying an off-plan property. There are many risks entailed with buying Italian off-plan property. One of the major risks is that a developer becomes insolvent during the build. Never make large payments as a deposit to secure what appears to be a dream home.

Ensure, amongst other things, that the developer or building company has a building licence for the property before parting with any cash. Don’t be afraid to ask the property developer about their portfolio, their history of delivering quality buildings, on time. Ask for references. If you are buying a resale property, check that there are no hidden fees or legal complications.

Take your time. Don’t be rushed

When buying a property in Italy, don’t rush into a purchase and, never buy a home on impulse. Think long term. Always assess the pros and cons, research the area and understand all the present and future legal and tax aspects.

Familiarise yourself with the process of buying Italian property

Because the process of buying a property in Italy can move quickly and expats should be prepared for the purchase completion taking between four to eight weeks on average.

The purchasing process in Italy is completely different to the UK, the USA and many other parts of the world. First, the buyer makes an offer on the property. If it’s accepted, then the buyer and vendor will sign a reservation offer and the buyer will pay a small deposit. Second, the buyer and seller will sign a preliminary contract at which point the buyer will pay another deposit, usually a minimum of 10% of the sale price. Finally, at completion, the new owners pay the balance of the sale price, along with other costs and taxes.

It is important that expats appreciate all the financial and legal implications of each stage of the process.

Finally …

For over 55 years, De Tullio Law Firm has been providing international clients with independent legal advice. We offer services in all the major fields of Italian law. Our particular expertise is in cross-border real estate, family law and inheritance matters. If you would like more information, or you need advice and support with your Italian property purchase, please get in touch with us.