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Italian legislation for the protection of buyers


For some time now the Italian authorities have been trying to improve the transparency and reliability of the real estate 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 complete catastrophe both for any buyer, which could be even more shocking to foreign buyers unaware of the complex insolvency legislation. 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, and delegated legislation which has only recently been published.

Leaving aside the technicalities and complex definitions, this new legislation provides that when a house /  property is sold before it is actually built (off plan) or still being built, then the vendor / builder must deliver to the buyer:

a) a bank guarantee (Fideiussione) covering all the sums paid before completion of the sale and delivery of the property, such as the legal deposit usually paid upon exchange of contracts (Compromesso) etc. This bank guarantee must provide for a bank / guarantor to refund 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 building 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).

In addition this legislation now provides that a long list of detailed information and technical documentation has to be included / reported in any preliminary contract (Compromesso) for the sale of an Italian 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” has now become a technical and legally complex operation and is better left to practising Italian 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.

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.

At the end of the day, 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.


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