Buying a property in Italy can be exciting, but the Italian property market can be confusing and complicated. It’s deeply set in the cultural ways of the country itself and different from what you may be familiar with.
Therefore, excitement can quickly turn into disappointment for foreign buyers, when they encounter the difficulties usually associated with this kind of complex legal transactions in Italy, a foreign language, a different tax and legal system and, more importantly, a different attitude to doing business.
First of all it is necessary to hire a real estate lawyer in Italy. You might brush this off as an unnecessary caution, but unless you’re an Italian property expert, you need someone who’s sole job is to represent your interests. You need someone who is bilingual and an expert with both Italian and international property law. Keep in mind also that Italian law provides for pre-contractual liability. In the event that you feel aggrieved by the seller’s unfair behavior, you can file charges to be reimbursed for expenses.
In our experience some clients turn to Italian’s real estate expert contacting our Firm once they have already signed a reservation agreement (Prenotazione) paying in some cases a small deposit to the agent, as a sign of serious interest in the property. This approach often became a problem if the buyers are not familiar with Italian as it is very difficult at this stage to renegotiate or modify general terms & conditions of the purchase according to the actual whish of the buyer.
Granted the above, a foreign buyer should be warned that in view of the legal, technical and practical difficulties involved in buying a property in Italy, it is highly advisable to seek the assistance of specialized Italian lawyers, at a very early stage, possibly before signing any document, or paying any deposit.
Real Estate Agent
Under Italian law, the real estate agent is paid a commission (Provvigione) both by the buyer and the vendor which is usually between 3% and 5% of the purchase price. It is possible to agree other legal arrangements, whereby the agent is paid by the buyer or the vendor only.
Frequently, in dealing with an Italian agent a foreign buyer will be required to sign a standard agency contract, which should carefully be considered before signature. This applies especially to the terms relating to the amount of commission and the time when it will become payable. As mentioned earlier, this or other documents offered for signature frequently include a “booking” (Prenotazione) for the particular property and the payment of a deposit.
Preparatory activities before buying a property:
In order to complete the purchase it will be necessary to carry out the following preliminary activities:
– Engage a geometra. A geometra is a surveyor and architect rolled into one. They make sure the property is up to code. You can instruct one yourself or take advantage of our in house-architects.
– Obtain an Italian Bank Account and Fiscal Code: You’ll need to open an Italian bank account, which you must do in person in Italy. You’ll also need an Italian tax code number (codice fiscale), which you can get at the Italian consulate in your home country or through an Italian tax office. This can take up to three weeks. Our lawyers will provide you with the necessary assistance during these steps.
– Drafting a Special Power of Attorney: If you won’t be able to attend the final completion it will be necessary to draft a special power of Attorney that allow your lawyers to represent you before the notary.
A special Power of Attorney is a written document in which one person (the principal) appoints another person to act on his or her behalf, by granting powers limited to specific matters, such as selling or purchasing a real estate property, handling some bank account or executing a limited partnership agreement.
A power of attorney may expire on a date stated in the document or upon written cancellation. Usually the signer acknowledges before a notary public that he executed the power, so that it is recordable if necessary, as in a real estate transaction.
– Obtain the Energy performance certificate (APE): Before final completion, the seller is required by law to deliver to the prospective buyer a copy of the applicable Italian energy performance certificate (Attestato di Prestazione Energetica or APE for short).
1. Letter of Interest and Negotiation
The letter of interest (LoI) is a non binding pre-contractual document signed by both parties to set out clearly and precisely the terms of negotiation for a property purchase. It is aimed to avoid any misunderstanding during the negotiation and allow both parties to carry out a due diligence on the other party.
For these reasons LoI has to be complete and precise, specifying clauses and information that will be included and binding in the following preliminary contract.
The LoI may be either unilateral or bilateral. It is unilateral when it is instructed by just one of the parties, such as the potential Buyer, without any direct negotiation with the Seller-Owner or, bilateral, when it is agreed and negotiated directly between the parties and undersigned by both, the buyer and the vendor.
Regardless of whether it is unilateral or bilateral, it may become binding on the parties’ intentions or not. For this reason it is necessary to insert specific clauses to avoid any misunderstanding regarding its binding or non binding nature.
2. Due Diligence
It is vital to acquire and carefully review the documentation and search reports needed to complete the purchase, or, at the very least, to have ascertained any legal and practical issues before completion.
It is compulsory for the vendor to inform the buyer of any material fact which may affect their decision to proceed with the purchase of that property. This documentation will also enable the buyer to carry out his searches to verify the actual status of the estate.
For this reason, before signing any contract, our Real Estate Team usually advises to conduct a survey of the property with the assistance of our surveyors and to carry out all the searches required to satisfy that:
- the property complies with the description;
- it is legally saleable;
- it is legally fit for human habitation.
It is important to be aware that in case the preliminary contract is signed before carrying out all the searches and acquiring the relevant documentation, the buyer may experience unexpected problems at a later stage when it could already be too late. Indeed, even if these problems are covered by the terms of the preliminary contract, the vendor could be unwilling to deal with them correctly or to return the deposit.
If any issues arises with the property at this stage, the buyer will be in a much stronger position with the vendor if no contract has already been signed nor deposit has been paid. On the contrary, it would be possible for the potential buyer to re-negotiate or simply walk away from the proposed deal.
3. Financing the Property Purchase
If the property purchase is completed with the assistance of a mortgage, it is essential to deal with all the necessary banking and legal arrangements before signing the contract.
It is possible to apply for a mortgage in Italy or from a lender in your home country registered to lend mortgage funds in Italy. In Italy bank mortgages cover most of the sale price of the property, and may be agreed in Euros, or any other foreign currency. Repayment may be fixed or by floating instalments.
If you wish to obtain a mortgage, either for the purchase or for possible renovation expenses, please note that the mortgage structure in Italy is very different to what you may be used to. In fact, while base rate may seem low (often as low as two percent) other charges will be applied. Set-up fees are higher due to less competition and it is unlikely that banks will lend you the whole property value. It is highly recommended to get an independent financial adviser on board before submitting the mortgage application. Our lawyers and accountants specialise in banking and financial matters, providing you with both, legal and financial assistance, to obtain a mortgage.
Before applying, it is advisable to budget for all the cost of a property purchase. Indeed, the buyer is responsible for paying the notary, the estate agent and the geometra fees, as well as any legal representative fees. The buyer is also charged with all sale and transfer of property fees.
Obviously, where an Italian property is already subject to a mortgage, it will be necessary to agree with the vendor that the existing mortgage will be paid off, and the corresponding entry on the Local Land Registry cancelled before completion of the acquisition. The assistance of a local real estate lawyer is required and the procedure may be expensive and time consuming. Alternatively, it is possible to agree with the vendor and the bank that the buyer will “take over” the mortgage (Accollo del Mutuo), in which case it is essential to check the state of the past repayments and the terms of the original mortgage agreement.
Other restrictive clauses may be included in the documentation submitted for signature to the buyer, such as limitations of liability, lack of any legal commitments on the part of the seller, etc. The presence of these one-sided clauses is usually shown by the request to sign the same document twice. This is a requirement of Italian law for unfair, unbalanced or unusual clauses, and should be a warning to the foreign buyer not to sign the particular document, without prior legal advice.
In the event that you decide not to pursue the purchase, the compromesso will be forfeited or the seller may seek legal action to enforce the purchase. On the other hand, if the seller backs out, he will be liable to pay double the amount you have given as deposit.
4. Preliminary Contract
The Preliminary sales agreement is a private agreement between the promisee buyer and promisor seller. This legally binding contract commits both parties to the transfer of ownership and to complete the purchase, paying the balance of the agreed price on a specified, future, completion date.
For this reason it is frequently called as preliminary contract (in Italian Contratto preliminare or Compromesso), as another final deed will be executed on completion of the acquisition.
It is a complex legal document, which should always be considered with the assistance of specialised Italian lawyers before signature, to avoid the pitfalls of the property market.
5. Notary, Final Deed and Completion
When all the arrangements have been completed and the preliminary contract agreed, signature of two identical original Preliminary Contracts should take place, both by the purchaser and the vendor before a notary.
According to Italian practice, usually the notary is chosen by the buyer although he acts for both parties. Indeed, notaries do not act on behalf of either the buyer or the seller and they are asked to be completely neutral.
The signature of the deeds of sale (rogito) before the notary, together with the negotiations and the preparation of the preliminary contract, is the most delicate stage of the whole purchasing process, especially if you do not speak Italian.
For this reason you will need the assistance of a lawyer throughout the following procedure:
- The original copy of the contract is read by the notary to double check that everything stated before is respected and to avoid any misunderstanding of the legal terms. Three copies of the contract are signed by both parties.
- The buyer is now asked to pay the eventual stage payment or the balance of the purchase price to the seller. A bank check (Assegno) or a cashier’s check (Assegno circolare) for the deposit will be handed over to the vendor, finalizing the formalities of this stage of the transaction. It is also possible to complete the payment through a bank transfer.
- In case one or both the parties are not able to attend the final completion, the deed can also be signed by a legal representative for each party executing a special Power of Attorney (PoA) which allows your solicitor or a trusted person to represent you before the notary.
- The original Italian energy performance certificate (Attestato di Prestazione Energetica or APE) needs to be attached to the final deed signed by the parties.
6. Transaction Costs
The round trip transaction costs include all costs of buying and then re-selling a property – lawyer and notary fees, registration fees, taxes and stamp duties, agents fees, etc.
There are different kind of taxes referred to a property purchase, depending on various factors. For example, different rates of taxes apply if the property is sold by a “private” seller or by a company. In case it is purchased as a “first home” (in Italian prima casa) a lower rate is applicable within certain requirements.
Our in-house tax consultants are ready to assist you and provide with the best advice on the fiscal regime applicable to the purchase of your property in Italy and any possible tax deduction.
As reported, agents fees are usually divided equally between buyer and seller ranging between 3% and 10%. It is advisable to always ask the real estate agency for their Ts&Cs before appointing them for your property search.
Notary fees depend on the sale price – a lower sale price equals a higher percentage which does not exceed 2.5-3%, usually.
Registration tax, payable upon completion, is 3% for a main residence. For non-residents it is increased to 7%, and for an agricultural property, it may be as much as 10%. Purchasers of new properties are exempt from such tax. However, they are charged with Italian VAT – 4% for a main residence, 10% for non-residents or a second home, and as much as 20% for a luxury property.
Land registry tax is also payable at a fixed rate of about €130 for a main residence, or 1% of the purchase price for non-residents.
Further costs to budget may be surveyor, architect or solicitor fees, the installation or connection of water (for new properties), electricity or gas, currency conversion costs (which can be minimised by using a professional company), and moving costs.
For a brief description of the transactions costs please have a look on the chart below.
|Registration Tax||3.00 – 7.00%||buyer|
|Land Registry Tax||€168 or 1%||buyer|
|Notary Fee||1% – 2.50%||buyer|
|Legal Fees||1% – 2% (+ 22% VAT)||buyer|
|Real Estate Agent’s Fee||1.5% – 4% (+ 22% VAT)
1.5% – 4% (+ 22% VAT)
|Costs paid by buyer||7.05% – 17.82%|
|Costs paid by seller||1.83% – 4.88%|
|ROUNDTRIP TRANSACTION COSTS||8.88% – 22.70%|