The main risk with off-plan property purchases in Italy
Another in our series on the important issue of off-plan property purchases in Italy. Use our useful search tool to find our other articles on off-plan property purchases.
Investing off-plan is where a purchaser makes a commitment to buy a property from a developer that has not yet been built or is in the process of being built.
This type of investment can hide any number of risks.
The main risk is that if the developer becomes insolvent, the buyer may well end up out of pocket.
Guarantees for Italian off-plan property
Italian legislation provides a number of measures to protect buyers if the developer goes bankrupt. However, the onus is on the buyer to ensure that these protections are in place.
Guarantee on deposits
Law 122/2005 declares the obligation of the developer to offer a surety bond. This provides a guarantee to the buyer for deposits prior to the transfer of ownership of the property.
Furthermore, in accordance with art.1 of Law 122/2005, the developer must offer the surety bond at the latest when the preliminary contract.
All Italian off-plan property purchases must have a preliminary contract. A surety bond must be in place by the time buyers sign the preliminary contract. The developer must clearly reference the surety bond in the preliminary contract. If there is no mention of a surety bond, the preliminary contract is invalid unless, the buyer explicitly expresses that it should prevail.
According to article 2 of Law 122/2005 surety needs to be a bank, an insurance company or a financial broker authorised by the Bank of Italy. The surety bond guarantees the buyer repayment of all money paid as deposits.
In order to request an excussion of the guarantee, the buyer must first formally withdraw from the preliminary contract. A buyer’s written request to withdraw, together with evidence of deposit payments, is sufficient to activate the guarantee. Italian legislation stipulates that the surety provider should refund all deposits within 30 days.
Guarantee for building defects
According to art.3 of Law 122/2005 the surety bond also covers damages arising from building defects. This includes any damage the buyer discovers after signing the deed of sale.
Article 1699 of the Italian civil code covers building defects. The guarantee for defects has a statute of limitations of ten years from the finalisation of the building work in question.
Where the seller is a different legal entity from the developer of the property
The seller is legally required to request a copy of the surety bond from the developer and provide this to the buyer. This is part of the seller’s contractual obligations and must be referenced in the deed of sale.
If you are considering investing in off-plan property in Italy, our advice is to engage your own independent legal adviser. Bear in mind that a lawyer recommended by a developer or seller may have a conflict of interests in this matter so we advise you to choose your own lawyer. If you need any help, we are here to help.