Real Estate Law in Italy

The Italian legislator has improved significantly–the legal rules applicable to the acquisition of real estate assets (the assets), following the rationale that the sale of an asset is not only a private transaction between seller and buyer, but it also constitutes an opportunity to check of the legal compliance of the asset with public laws.

For this reason, while the Italian Civil Code remains the main source of law for the protection of the private interests of the parties (e.g., the right to damages in case of defects of the asset sold), new laws have been approved to ensure legal compliance of the asset with public interests and to impose the utmost transparency. The main laws, which aim to impose the delivery of documents or information in the real estate contracts of sale are:

• Testo Unico Edilizia n° 380/2001 which requires the seller to disclose to the buyer – in the notarial deed of sale – all Urbanistic Authorizations obtained for the construction of the asset; this so-called Urban Declaration (Dichiarazione Urbanistica) is aimed at informing the buyer on the urban status of the asset sold;
• Legislative Decree n° 122/2010 which requires the seller to provide the buyer with the Cadastral Compliance Certificate (Attestato di Conformità Catastale), i.e., a declaration confirming the compliance between the physical status of the asset and its cadastral description at the Catasto, for tax purposes;
• Legislative Decree n° 195/2005 introduces the compulsory delivery by the seller to the buyer of the Certificate of Energy Consumption (Attestato di Prestazione Energetica), in order to increase
  transparency on the actual energy consumption
  of the asset;
• Law 4 August 2006 n° 248 mandates the disclosure of (i) the registration number of the real estate agent – if any – involved in the transaction (to prevent the abusive exercise of this profession), and (ii) the bank references of all the payments made to the seller, for anti-money laundering purposes;
• Legislative Decree 20 June 2005 n° 122 regulates the entire process of sale by a construction company to private consumer, of an asset “under construction”, in order to protect the non- professional buyer; and
• Legislative Decree 22 January 2004 n° 42 (Codice dei beni culturali e del paesaggio) grants the government the right of pre-emption for the sale of an asset qualified a “cultural asset”.
  

The main estate rights over an asset regulated by the Italian Civil Code, are the following:

• Right of ownership (Diritto di Proprietà), which grants to the owner (proprietario) the full and exclusive rights to use, to construct, transform or restructure, and to dispose totally or partially, at any title, of the asset; in all these cases, the owner may exercise its “full and exclusive” right of ownership, “within the restrictions and obligations deriving from the legal system”; these restrictions and obligations are those introduced by the special laws mentioned above, such as planning and urban rules, cadastral regulations, or others, such as distance, prohibition against causing damages to third parties, etc. (art. 832 of Italian Civil Code (ICC));
• Right of surface (Diritto di Superficie, i.e., “right to build over”), in which the owner (proprietario concedente) grants a third party (proprietario superficiario) the right to construct, to maintain and to become the owner of a building built on land owned by the proprietario concedente; this right has the business purpose to ease construction of a new building without imposing the costs for the acquisition of the land; this right is also adopted when an energy company intends to build its own facility on a third party’s asset and use it as energy provider;
• Right of usufructs (Diritto di Usufrutto), which grants to the beneficiary the right to use and to draw fruits, without limits, from an asset, but with the obligation to respect the intended use of the asset (art. 981 ICC);
• Right to plant over (Diritto di Enfiteusi), which grants the beneficiary (enfiteuta) the right to plant and use a plot of land, with the obligation to improve the land and to pay rent to the landowner (art. 957 of the ICC); this right has the purpose of promoting the productivity of agricultural lands;
• Right of easement (Diritto di Servitù), which grants to the owner of an asset (fondo dominante - dominant estate), the right to impose – over a confined land or asset (fondo servente - serving land) – obligations or burdens (such as passage, water drainage, passage of electrical conduits), necessary for the complete use of the dominant estate.

Real estate transactions between professional investors are usually structured as an asset deal, share deal or, for more sophisticated transactions, as a fund deal.

Asset deal

In asset deals, the acquisition structure is divided in three phases, each with different types of legal documents, form, content, and legal effects.

Phase 1 – Proposal of Purchase

The first phase comprises the Proposal of Purchase (Proposta di Acquisto), prepared by lawyers, containing all the essential elements of the prospective transaction: a concise description of the asset, the range of price and modes of payment, conditions precedent of the acquisition (due diligence, board approvals, bank financing), timing of closing and exclusivity; in case of violation by either party of its obligations to be negotiated in good faith (i.e., obligation of transparency vis-à-vis the counterparty and obligation of confidentiality vis-à-vis third parties) during the negotiation, the relevant party may be held liable for damages.

Phase 2 – Preliminary Agreement

If the seller accepts the Proposal of Purchase from the buyer, the parties sign a preliminary Sale and Purchase Agreement (Contratto Preliminare di Compravendita), drafted by lawyers, which regulates, in detail, all the terms and conditions of the prospective sale, already mentioned concisely in the Proposal of Purchase (urban and cadastral description of the asset, agreed price and final modalities of payment, etc.); as well as the structure of contractual representations and warranties released by the seller in favor of the buyer. It is advisable that the Preliminary Agreement be signed before an Italian notary who will register the Preliminary Agreement with the Real Estate Registry (formerly called Conservatoria): this process of “Trascrizione” of the preliminary agreement with Conservatoria guarantees – to the accepted buyer – priority to purchase the asset with respect to (i) any registration of subsequent preliminary agreements fraudulently executed by the seller with new buyers or (ii) against easements or seizures registered by third parties against the sellers, after the Trascrizione of the Preliminary Agreement.

Phase 3 – Notarial Deed of Sale

The final contract of sale is a notarial deed, prepared by the notary (usually chosen and paid by the buyer); the notarial deed of sale - negotiated and reviewed by the parties and their lawyers - contains not only the final asset of interest agreed by the parties of the Preliminary Agreement, but also compulsory clauses imposed by the special laws mentioned above, since they are compulsory requirements for a valid legal transfer of the asset, such as the Urban Declaration (Dichiarazione Urbanística), the Cadastral Compliance Certificate (Attestato di Conformità Catastale) and the Certificate of Energy Consumption (Attestato di Prestazione Energetica).

Share deal

For a share deal, after the preliminary exchange of the Proposal of Purchase, the acquisition structure is divided in two phases:

• Execution of a Share Purchase Agreement (or a Quota Purchase Agreement, depending on the type of financial instrument of the target), in the form of a private contract, where the parties agree on all the terms and conditions of the transaction: price, mode of payment, conditions precedents, representations and warranties; this Share Purchase agreements is usually subject to condition precedents (condizioni suspensive); and
• Execution of the transfer – in notarial form - which results in the endorsement and delivery of the shares to the seller, in case of “società per azioni” (or signing of the notarial deed of sale of the quota, in case of “società a responsabilità limitata”), upon payment of the price.
  

In a share deal, since the ordinary legal rules set forth by the Italian Civil code for the sale of goods apply exclusively to legal defects over the shares or quotas (and do not cover automatically the assets and liabilities nor the business of the target), the buyer’s lawyers must pay close attention to negotiate contractual representations and warranties to protect the buyer against defects referred to the assets owned by the target.

Fund deal

If the transaction involves the acquisition of portfolios of assets or several assets in different countries, with professional investors involved, it is advisable to consider the structuring of a real estate fund, which offers high transparency and tax efficiency.

Transactions with foreign parties

Concerning cross-border transactions involving a foreigner (i.e., a non-Italian citizen), the foreign party is entitled to buy assets in Italy if (i) they are a European Citizen, (ii) they have a “Permesso di Soggiorno”, an administrative document released by the police, or (iii) their home country permits Italian buyers to purchase assets on the same terms and conditions (Condition of Reciprocity under international laws).

The real estate registry system in Italy is composed of two registries, “Conservatoria dei Registri immobiliari” with civil effects and “Catasto” with tax effects:

• Conservatoria dei Registri immobiliari is a real estate registry with civil purposes, as it renders any real estate transaction of rights over immovable assets legally public and known to third parties, in order to guarantee undisputed acquisition and to prevent “double sales” by the seller to multiple buyers: the first buyer who registers the acquisition with Conservatoria, prevails legally; and
• Catasto is a real estate registry with tax purpose; it contains a full mapping of the Italian real estate assets in order to determine the tax regime and the relevant levy on each asset.

The notary is the public official entitled to:

• Ascertain – before closing – the legal title of ownership of the seller and the absence of burdens over the immovable asset, and check that the notarial deed is duly accompanied by all legal declarations and documents; necessary for a valid transfer: Urban Declaration, Certificate of Cadastral Compliance, Certificate of Energy Consumption;
• Notarize – during closing – the signatures of the parties and date of execution of the deed of transfer; and
• Register – following closing – the notarial deed of transfer with Conservatoria and with Catasto.
  Only one notary is required per single transaction in Italy (not one notary for each party, like in other countries).

For an asset deal, the Italian Civil Code sets forth specific protections in favor of the buyer:

• Against legal defects, such as (i) eviction, i.e., claims by a third party purporting to be the owner of the asset transferred or (ii) presence of legal burdens over the asset in favor of third parties, unknown to the buyer. In these cases, the buyer has the right, between signing and closing, to suspend the transaction as a precautionary measure and, after closing, the right to damages; and
• Against material defects of the asset (Vizi occulti, such as the right of the buyer to (i) terminate the agreement and the right to damages or, alternatively, to the termination of the sale agreement, as well as (ii) the right to a reduction in the price.
  

In addition to the legal protections mentioned above, the parties usually negotiate contractual representations and warranties in order to guarantee certain areas of business not covered by legal protections, such as (i) conformity between actual use and authorized use of the asset, pursuant to administrative law (in particular, for assets destinated to high street retail or hotels), (ii) the absence of hazardous material, (iii) the absence of illegal occupation, and (iv) the absence of unpaid taxes. While legal protection set forth by the Italian Civil Code have a one-year statute of limitations period, the contractual representation and warranties may have longer periods, depending on the agreement of the parties.

When purchasing an asset, the buyer releases in favor of the financing bank a set of guarantees which usually include (i) the “Ipoteca”, first degree mortgage over the asset, granting the beneficiary the right to expropriate an asset owned by the debtor, (ii) assignment of the rents, and (iii) assignment of the indemnifications under the insurance policy. If the asset is “under construction,” the bank will also require the assignment of any down payments (Caparra Confirmatoria or Acconto) paid by the prospective buyers to the seller, during the construction phase.

The Italian Law 392/78 contains two sets of rules for commercial lease agreements:

• Rules for the so-called “Grandi Locazioni,” applicable when the rent above €250,000 (US$263,990*) per year, provided that the parties expressly agree to adopt “Grandi Locazioni” discipline; and
• Rules for the so-called “Locazioni Ordinarie,” applicable when the rent is equal to or below €250,000 (US$263,990*) per year.
  

In case of Locazioni Ordinarie (rent equal to or below €250,000/US$263,990*), Law 392/78 provides the following mandatory rules, all in favor of the tenant (therefore, in case of violation of these mandatory rules, the relevant clause shall be replaced by the relevant rule set for by Law 392/78, or the entire agreement may be declared null and void):

• Minimum duration of the lease: six years plus six years for commercial leases and nine years plus nine years for hotel leases;
• Right of withdrawal for just cause, exclusively in favor of the tenant;
• The base rent – as freely agreed by the parties – may be adjusted exclusively based on 75% of Index Istat (ISTAT - indice dei prezzi al consumo per le famiglie di operai ed impiegati): this implies that, for the Locazioni Ordinarie, the “step up rent” may be subject to risk of invalidity, if the relevant clause is not correctly drafted;
• For the lease agreements of an asset intended for commercial businesses open to the public (i.e., including hotels), the right of pre-emption in favor of the tenant for the new lease of the asset, if the landlord – after expiration of the precedent lease – intends to lease it to a new tenant, and the right of pre-emption in favor of the tenant for the purchase of the asset, if the landlord intends to sell it to third parties; and
• For the same lease agreement of assets intended for commercial businesses open to the public, in case of termination upon the initiative of the landlord, the tenant is entitled to an indemnification for loss of goodwill (indennità per perdita d’avviamento); the indemnification is equal to 18 months of the latest rent for commercial leases and 21 months of the latest rent for hotel leases.
  

While – as indicated above – the Locazioni Ordinarie provides mandatory rules, imposed directly by the Law 392/78 in favor of the tenant, conversely, in case of the Grandi Locazioni, the parties may freely negotiate all the terms and conditions of the agreement: the rational of the rules of Grandi Locazioni is that, since the tenant is able to pay a rent above €250,000 (US$263,990*) , they are presumably considered professional entrepreneurs and therefore, both the tenant and the landlord have similar negotiating powers, so that they are able to protect themselves autonomously, without need for the legislative protection of the tenant as imposed by the Law 392/78 for Locazioni Ordinarie.

The Italian market of the hotellerie has increased - in the last years - the presence of international brands strongly specialized and exclusively focused on the management of the hotel business (azienda). The international contracts usually adopted for these purposes are: (i) the Franchising Agreement, regulated by Italian Law 129/2004, whereby the franchisor (i.e., international brand) grants to the franchisee (i.e., the owner or the tenant of the hotel) the right to manage the hotel in accordance with the brands’ standards, policies and requirements and under the specific brands and signs (insegna) owned by the international brand (marchio); or, alternatively, (ii) the Hotel Management Agreement, regulated by international standard practices, whereby the Hotel Manager (i.e., international brand) manages directly the hotel, on behalf of the owner or the tenant, in accordance with the brands’ standards, policies, and requirements and under the specific brands and signs (insegna) owned by the international brand (marchio).

The Italian legislator has recently simplified and deregulated the process of authorization of construction and restructuring of the asset significantly. Testo Unico Edilizia d.P.R. n. 380/2001 currently provides the following alternative regimes:

• “Permesso di costruire” is a formal authorization released by the municipality for a new construction or major restructuring of existing assets;
• SCIA (segnalazione certificata inizio attività) is a unilateral notification sent by the owner to the municipality, in case of extraordinary maintenance or light restructuring (or, alternatively CILA Comunicazione Inizio Lavori Asseverata, when the works do not concern structural parts of the asset): SCILA or CILA must be duly accompanied by a formal report of a technician confirming that the works are consistent with the planning documents, as well as national and local laws. Once the notification is sent to the municipality, the works can start immediately. In any case, the municipality has the full right to verify that the works are consistent with the notification and with public laws; and
• Edilizia libera: there is no need for any authorization or notice for ordinary maintenance and the instalment of energy (e.g., solar panels), heating equipment, light or temporary constructions, or similar activities.

The Italian real estate market is becoming increasingly sensitive regarding recent criteria of ESG issues. The main Italian funds’ asset managers are starting to include indicators of ESG criteria in their acquisition process of new assets with sellers, in the periodical reports sent to their investors, in the lease agreements with their tenant (especially in the hotel sector), and in the property management agreement with the property management companies. Some real estate companies have also started a process of “labelling” their assets adhering to ESG criteria, in terms of energy saving or environmental compliance. Hotel operators – to comply with the “social” criteria – are starting to increase their dialogue with municipalities, public associations, or nonprofit organizations located close to the hotel, to adapt the use of the hotel to public service and public activities to the benefit of the community.

The tax regime applicable to the acquisition of an asset varies significantly depending on the acquisition structure adopted: (i) asset deal (in this case it also depends on the type of asset and the nature of the seller (private or professional), (ii) share deal, or (iii) fund deal. For this reason, in the initial phases of negotiation, it is advisable to obtain a preliminary tax analysis of the different scenarios to compare the tax impact of each structure.

*According to the 10 December 2024 exchange rate

Download: Handbook for Real Estate Transactions