The Italian sales process and possible issues for vendors
When selling property in Italy, certain legal issues need serious consideration. Due to differences in legal systems, a real estate transaction in Italy can appear like a difficult and protracted process for foreign investors.
The Italian law is complex. If you don’t fully understand how it works, you may expose yourself to risks. Considering the high stakes involved in a real estate transaction, you should seek legal advice. You should always choose your own lawyer to avoid possible conflicts of interest.
Selling property in Italy is organised in three stages:
1. Marketing and Reservation offer
2. Negotiation and signature of the preliminary contract
3. Completion of the sale
The first stage is to put the property on the market
Vendors can market a property themselves or through an estate agency
If you are considering appointing an Italian real estate agent, it is important to ensure that the agent is qualified and registered with the local Chamber of Commerce. Registration not only guarantees the professional qualification of real estate agents but also ensures they have professional indemnity insurance.
Unregistered estate agencies could be liable to prosecution for carrying out a reserved activity. This carries the risk of fines and other penalties such as not being entitled to commission fees. The agent is in fact, usually paid a commission (Provvigione) both by the buyer and the vendor. Such a commission is negotiable but generally equivalent to 3% of the sale price.
Frequently, real estate agencies require foreign nationals to sign their standard terms of engagement. These need careful evaluation before signing. It is of course key to assess terms and conditions of the brokerage fees. In addition, however, it is important to understand minimum sales price, duration of the mandate and its exclusivity.
If a potential buyer chooses your property, they would generally sign the first legally binding document called a, “reservation offer”. If you accept the offer, you need to sign off on it and return it to the buyer. In addition, the buyer should pay a small deposit. The reservation offer effectively removes the property from the market for a period of time.
During the period the property is off the market, the buyer should start the legal due diligence process. This means carrying out checks and searches. It should include surveys, planning and local authority (Comune, Building and Land Registry) searches. Checking local planning, zoning and building regulations is also important.
Amongst others, the buyer will want to ascertain the following points prior to moving on to the next stage of the purchase process.
– The property exists. It is as in the description and, the seller has the legal right to sell the property.
– There are no mortgages/charges or any third party rights or other undisclosed encumbrances affecting the property.
– The property complies with all local planning, zoning and building regulations. Or, where relevant, building plans have consent from the Local Authority (Comune).
– The property is fit for human habitation, unless selling to reconstruct. A certificate to this effect (Certificato di abitabilità) should be available.
– The seller has complied with all the relevant Italian tax legislation by lodging tax returns and paying income tax (Imposta sui Redditi), which may have been due in the previous tax years. In default of this requirement, the property may legally be unsaleable. If the vendor is a trader or a company, they should not be bankrupt (Fallito), and no application to this effect should be pending against them.
– Where the property is in an apartment building (Condominio), all service charge payments should be up to date.
The second stage is negotiating and signing a preliminary contract (Compromesso)
When selling property in Italy, the vendor must ensure that all the statements contained in the contract are true to the best of their knowledge. This means full disclosure regarding the property. Any specific enquiries raised by the buyer must be addressed truthfully.
Preliminary contract deposit
Generally, signing a preliminary contract entails the buyer paying a deposit. This can range between 10% and 30% of the sales price of the property. The implication of such a payment is that in the event the purchaser subsequently backs out of the preliminary contract, the purchaser will automatically lose the whole deposit. Should the seller breach the preliminary contract by backing out, they are required to refund the buyer double the amount of the deposit. In addition, further sums may be payable, if there is proof that damages exceed the amount of the deposit.
Italian law states that both parties to a prospective transaction must act in good faith
Prior to signing a preliminary contract, the seller must provide the buyer, or their legal advisers, with copies of all documentation relating to the property. In addition, the seller must inform them of any material fact which may affect the decision of the buyer to proceed with the purchase of the property.
It is important to ensure that the property complies with all applicable planning and building regulations. Any breach of this legislation may result in the rescission of the purchase contract and heavy penalties. Where the seller has applied for a planning amnesty (Condono Edilizio), the prospective buyer should receive copies of the relevant documentation.
Certificate of habitability
Note that before or at the latest upon completion, the seller must produce the property’s certificate of habitability (Certificato di abitabilità). The local municipality is responsible for issuing a certificate. It confirms compliance of all the systems installed in the property with Italian law and in respect of the relevant health and safety regulations. This certificate is mandatory. It goes without saying that it is, therefore, advisable for the seller to obtain this certificate prior to signing a preliminary contract and payment of the relevant deposit. Otherwise, the seller may run the risk that the transaction falls through. This would put the seller in a position of breach of contract.
To avoid possible claims and penalties, should a certificate of habitability not be available on exchange of contracts, the seller should disclose the issue prior to signing a preliminary contract and the contract should state either that the buyer is renouncing receipt of the certificate of habitability or alternatively that completion of the purchase is conditional on the seller obtaining this certificate.
If the property is subject to a mortgage, the seller has a duty to redeem the same and cancel the corresponding entry on the Local Land Registry before completion of the sale. If the buyer is purchasing the property using a mortgage, it is advisable to finalise all the arrangements before signing a preliminary contract. However, this process may become expensive and protracted for the prospective buyer.
Pre-emption rights when selling property in Italy
Particular care should be taken if the sale is a villa or land with statutory farming pre-emption rights (Prelazione agraria) by owners or tenants or immediate neighbours in agricultural areas in Italy. According to Italian law, farmers, tenants and neighbours are entitled to be notified of a proposed sale of a property to third parties. They have first option on buying agricultural land in their immediate neighbourhood. Therefore, immediately before, or if this isn’t possible, after signing the preliminary contract, it will be necessary for the seller to serve a copy of the contract on all parties having pre-emption rights, so that any person with an interest can declare within the statutory term (usually 30 days).
It is important to ensure full compliance with this legislation. A breach of statutory farming pre-emption rights may result in a claim on the property. Anyone making a claim can do so up to a year after the sale. This in turn, would give the buyer a legal claim against the seller.
Breaches can have serious consequences
Essentially, at this stage, the seller should disclose any breaches pertaing to the property as well as proof of remedial action. This includes any missed tax payments and outstanding breaches or notices from relevant authorities.
These are just some of the points to take into consideration, but there are many others. All have potentially serious consequences for the vendor. It is therefore important that the vendor acts in good faith. A claim for damages based on misrepresentation is just one of the consequences that the seller should aim to avoid.
Selling property in Italy. The third stage: completing the sale
This usually takes place in the offices of a notary (Notaio). In Italy, vendors and purchasers often use the same notary, but you are perfectly within your rights to have your own notary.
A notary must oversee completion of Italian property transactions
Italian Notaries are officials entrusted by the law to transfer the legal title of an Italian real estate. They have a duty to correctly draft the Deed of Sale (Rogito), to ensure its proper execution and registration. In addition, on behalf of the Italian State, they collect payment of all Italian taxes ancillary to the completion.
While notaries are qualified lawyers, Italian law prohibits them from acting on behalf of any of the parties involved in a transaction. They must remain impartial. Only your own lawyer may offer legal advice to protect your interests.
Before completion the vendor should provide the Title Deeds. This could be the Purchase Deed, or the Italian Inheritance Tax Return lodged with the tax authorities. The vendor will also need to produce all the relevant documentation pertaining to the property. This includes for example, planning and building licenses. And, if the sale is of a building, rather than land, an Energy Performance Certificate and a certificate of Habitability.
All parties have a legal duty to provide the notary with information regarding the sale price and the appointed estate agency. This information will appear in the Deed of Sale, in the form of a solemn affirmation under oath (Dichiarazione sostitutiva di atto di notorietà). If this information is missing, incorrect or incomplete, the parties risk a harsher form of taxation on the sale of the property, plus substantial fines.
If the vendor benefits from “prima casa” (first home) fiscal reductions, there will be a penalty to pay if resale takes place within five years of the original purchase. The seller can however avoid penalties if they buy a new residential property in Italy within one year of the sale.
Following completion, the seller may be subject to Italian capital gains tax. However, no tax is usually levied if the vendor has owned the property for more than five years.
As a general rule, it is wise to familiarise yourself with the legal framework regulating international property sales. If you are thinking of selling property in Italy and would like more detailed information, you might like to read the full version of our Selling Italian Property Guide.
For over 55 years, De Tullio Law Firm has been providing international clients with independent legal advice throughout Italy. We are specialists in cross border property, inheritance and family law.
If you are in need assistance selling property in Italy, we are here to help. We can guide you through the whole process or even organise the whole process on your behalf. Get in touch with us for a free preliminary consultation.