Investing in the Italian Real Estate Market: Under the Tuscan Sun

Great opportunities… with care

The Italian real estate market seems to be one of the globally safest harbors for investments. After Covid, the market seems to be back to normal and there is every reason to think that 2022 will have an excellent performance.
However, real estate investments should always be approached with great attention and care, considering the significant capital commitment they involve and the numerous potential frauds and conflict of interests hidden therein.

Then, what are the right steps to take to enter the Italian real estate market safely? Here you have some useful tips for building your house under the Tuscan sun.

I) What roles are involved
a) Real Estate Agent – A real estate agent (mediatore immobiliare) is a subject whose profession is to provide connections between two or more parties, being entitled to a fee in case an agreement is reached. Being intermediaries, real estate agents should be impartial and out of any relationship of collaboration, employment or representation with the parties. Moreover, they are under an obligation of diligent behavior and correct information, according to the average diligence of their profession. However, agents are not bound to provide full legal consultancy or to conduct enquires regarding all the aspects that are legally relevant to a transaction (e.g., mortgages, foreclosures, or other encumbrances).
b) Translator –  When dealing with investments with foreign parties, appointing a translator is always a good idea, so to prevent misunderstandings and refute misleading information. Our office offers this service.
c) Notary Public –  A notary public is a public official empowered with the legal authority to say that documents and legal deeds are correctly signed and truthful. This subject intervenes at last after an agreement has been reached and fully negotiated, to certify what the parties are about to sign, giving it full legal effect.
d) Legal Consultant –  Considering what stated before, it appears essential that those wanting to invest in real estate seek the assistance of a professional that can make them fully aware of all the risks embedded in their operations, not only at the moment of signing a contract, but in advance and throughout the entire process of their investment. Attorneys at law are the ones most suitable for this role, mainly when used to operate with foreign investors and at an international level.

II) Which issues you should entrust to a lawyer
Before you buy
a) Keep calm and negotiate.
In real estate purchases, negotiations constitute a crucial moment to acquire fundamental information on the investment and assess how much an estate is worth. In this respect, it is essential to bear in mind a variegate number of technical and legal aspects which, although less evident, could severely impede the salability of an asset and undermine the fulfillment of the parties’ interests.
Before concluding a contract for the purchase of real estate offered in Italy, it is necessary to have the property itself as well as the relevant existing register entries inspected for previous entries as well as technical information on the property, possible encumbrances, restrictions or defects.
Not to be underestimated is the examination of relevant documents that the seller shall hand over to the buyer. First, to be mentioned are town-planning and cadastral documents, showing that the specific property or land is compliant with all necessary building authorizations and in line with the data contained in the archives of the Land Register (Catasto). In fact, the lack or the incompleteness of such authorizations and documents are likely to make the purchase void (with obligation for the seller to pay the price back) or lead to the demolition of the unauthorized structures, notwithstanding the good faith of the buyer. Other documents whose existence and validity should be preventively checked are the Certificate Of Habitability and the Energy Performance Certificate (“Attestato di Prestazione Energetica“, “APE”) as well as, in some circumstances, the Building Permit (“Permesso di Costruire”), the Substantial Building Amnesty (“Condono Edilizio”), the Certificate of Urban Planning (“Certificato di Destinazione Urbanistica“).
Besides, capable of influencing the buyer’s enjoyment of the purchased assets are also co-ownership regulations. This because different obligations, limitations, and expenses are provided for apartments that are included in a jointly owned building. For instance, the buyer may find himself to be jointly liable with the seller for expenses left outstanding by the latter.
b) The pen is mightier than the sword.
During negotiations, parties tend to exchange documents and drafts, trying to reach an agreement progressively on all the points of the transaction they are looking to enter. However, under the pressure of different interests involved in their business, sometimes parties can run too much, signing documentation that is deemed to be just one step of negotiation, while actually committing themselves to unwanted obligations or liabilities. This concerns, in particular, the conclusion of legally binding preliminary contracts, which is common in Italy. Such is agreed, the legal obligation occurs with the first signature of a document – even if the document is private and aimed “only” at the “reservation of the object”. Thereby a mutual legal bond with the mutual possibility of enforcing the main contract is created.
In this sense, Italian law provides for specific requirements to qualify a document as a binding preliminary contract or to define to what extent a purchase proposal produces its effects or whether it has already turned into a definitive agreement in form of a purchase contract.
Preliminary contract
The preliminary contract is concluded to arrange and carry out the individual inspections, to obtain the necessary certificates and, with agreeing on the purchase price, also to start the financing procedure.
Therein, a deposit of about 10-30% of the pending purchase price can be agreed upon. It is to be considered that according to the Italian anti-corruption law (“normativa antiriciclaggio”) as of 1 January 2022 a maximum of 1.000 Euro can be paid in cash: Article 49 (“Limitazioni all’uso del contante e dei titoli al portatore”) of the Legislative Decree No. 231/2007 that sets limits on the use of cash (recently amended by Tax Decree No. 124/2019), prohibits to transfer cash and bearer securities in Euro or foreign currency from the value of 1.000 Euro for any reason between different parties, whether natural or legal persons. Administrative sanctions in case of violation are to be found in Article 63 of the Italian Civil Code with fines from 3.000 up to 50.000 Euro; according to the newly introduced paragraph 1-ter for violations committed and contested from 1 July 2020 to 31 December 2021 the fines shall be set at a minimum of 2.000 Euro, from 1 January 2022 on at a minimum of 1.000 Euro.
Essential elements of the preliminary contract are – in addition to payment modalities: the identification and origin of the property, assurances on the absence of encumbrances at the time of the closing, provisions for cases of violations, and other inter partes declared conditions, as well as the modalities of the execution of the notarial purchase contract. For that, it specifies all essential conditions of the main contract such as date or deadline for the closing.
The parties can enrich the minimum content of the preliminary contract by inserting additional clauses. These are clauses usually provided for the protection of one or both parties. In particular, some of the most frequent clauses in this type of contract are the confirmatory clause and the penitential clause (“caparra confirmatoria” or “caparra penitenziale”). While the confirmatory clause (cf. Art. 1385 of the Italian Civil Code) serves as a cautionary measure against non-performance (to compensate damages), the function of the penalty clause is to constitute predetermined consideration for a right of withdrawal which the party has reserved to itself by unilateral will (cf. Art. 1386 of the Italian Civil Code). Therefore, if the withdrawing party is the one who has paid the relative deposit (buyer), the resulting effect is to lose the sum paid in advance; vice versa, if the withdrawing party is the one who has received the deposit (seller), he must refund the received deposit twice the sum or quantity to the performing party. If no contractual party makes use of the withdrawal and both parties execute the contract, the deposit will be charged as consideration for the performance under the contract.
According to Article 2645 bis of the Italian Civil Code – introduced by Legislative Decree No. 669/1996 – preliminary contracts (relating to the conclusion of any of the contracts referred to in Article 2643 paragraph 1-4 of the Italian Civil Code) may already be registered in the public register (“registro immobiliare” of the district of the property’s location) leading to a higher protection for the buyer, at least for 1 year from the due date of the main contract. In case of non-performance of the preliminary contract after registration the prospective buyer’s claims are privileged with regard to third parties/other creditors, cf. Article 2775 bis of the Italian Civil Code.
According to Article 1352 of the Italian Civil Code, the form of the preliminary contract follows the requirement of the form of the main contract, i.e. that of the written form.
The preliminary contract must be registered before the Revenue Office (“Agenzia delle Entrate”), within 20 days from stipulation.
Documents substantially binding and definitive, regardless of the label they have been given, are suitable to be brought in front of a court to obtain specific enforcement. That is why legal advice turns out to be utterly important in understanding the real nature of preliminary documents, so that the parties can enter into the exact contract that they were willing to sign.
Purchase contract
With the signing of the purchase contract the property of the real estate officially changes ownership.
Acquisition of the property: The acquisition of property according to the Italian law is based on the consensual principle. In particular, Article 1376 of the Italian Civil Code provides that the transmission of the right in rem occurs solely with the consent of the parties legitimately expressed. Furthermore, according to Article 1326, paragraph 1, of the Italian Civil Code, the contract is concluded in the moment of the effective agreement; from this moment, the object of the purchase is owned by the buyer and the seller is obliged to hand over the property to the buyer as per Article 1476, paragraph 1, n. 1) of the Italian Civil Code. Therefore, no material transfer of property has to take place; but it is owed as a consequence of the contract.
Entry in the public register: According to Article 1350 paragraph 1, n. 1) of the Italian Civil Code the form of the contracts “che trasferiscono la proprietà di beni immobili” require a public deed or a private written contract (“scrittura privata”). The contract must be certified by the Italian notary for entry in the public register, regardless of where the purchase is made from. Therefore the notary – or in case of a private written contract the parties themselves – carries out all necessary measures in connection with the purchase contract aiming at a valid registration of the contract.
Though the registration of the contracts that transfer ownership of real estate is obligatory for the principle of publicity (Article 2643 paragraph 1, n. 1) of the Italian Civil Code, the effect with regard to acquisition is only declaratory. Accordingly, the omission of the registration does not lead to the invalidity of the contract but to the “inopponibilità”, meaning the act of transfer of property not properly registered is unenforceable with regard to third parties, who for any reason, have acquired rights on real estate based on a previously transcribed deed, as per Article 2644 of the Italian Civil Code. In that case, third parties could acquire the property with good faith in the ownership.
Place of conclusion of contract and applicable law: For contracts regarding property (also for preliminary contracts) as contractual obligations, the applicable law in principle is the law of location (Regulation (EC) No. 593/2008, known as “Rome I”). If the contract is not concluded in Italy but Italian law is supposed to be applicable, this should be expressly agreed upon. Regardless of the place of agreement the contract must be certified by an Italian notary. For registration and tax obligations in Italy an Italian notary should be involved.
Mandatory content and execution of the contract: For the conclusion and execution of the purchase contract, there must be a minimum content, such as the indication of the parties, the origin of the seller’s rights and the object of purchase. Documents that are to be submitted must be presented in Italian or together with an official translation. A legally binding part of the contract is a declaration by the seller that the object of purchase is not burdened with tax debts. Lastly, the conditions of the payment of the purchase price must be set out in the contract.
Payment: Immediately afterwards, the full purchase price must be paid in the presence of the notary, i.e. via bank cheque or proven bank transfer to the seller or a fiduciary account. Other eligible costs are: the property transfer tax made up of registration, cadastral and mortgage fees depending on the number of residences and the legal status of the parties; Broker’s commission after the preliminary contract has been concluded; Legal and notary fees or translator costs as well as VAT.
Once you have decided to be the new owner
c) Buy and keep on investing.
There are not just purchase costs: making profits from a real estate investment requires to forecast all the potential expenses that it may indirectly involve. Selecting the right steps to restore and upgrade real estates may not only lead to save money, but also increase the value of the property, eventually paving the way for new business activities to run within it. In this light, it turns out to be crucial to have a detailed knowledge of any law provision that may help in reducing costs and enhancing profits. For instance, you might be interested in knowing what it takes to receive a building permit, but also in signing good contracts and applying for the benefits provided under the legislation on building activities. You could also consider conferring a power of attorney for those operations you might not be able to carry out in person. In that case, the content of the power of attorney must be precisely defined and drafted with regard to the object of purchase and following the requirements of Italian law.
d) Let the State be a friendly neighbor.
The purchase of a real estate asset involves compliance with varying tax duties, such as registration, VAT, mortgages, and cadastral taxes. The kind and the amount of fiscal imposition may depend on different factors. First of all, what should be taken into account is the quality of the seller and whether he is or not the construction company that built or renovated the estate within four years before the sale: this circumstance is likely to impact both on which taxes are chargeable (e.g., VAT) and their amount. Then, special tax provisions may apply when a property is bought as a first home or by a business or to host particular business activities (e.g., running a farm). Finally, foreign buyers could seriously consider the hypothesis to make Italy their new home, given the special tax benefits they could be awarded in moving their tax residency to Italy.
f) Buying a house at auction: advantages and disadvantages
Judicial auctions are an alternative to buying a house the traditional way and they are popular in Italy compared to other countries, due to the fact that you can find good opportunities to buy property at below market prices. Judicial sales involve the auctioning off of property that belonged to someone who didn’t pay their debts, culminating in the seizure of their property and its sale at auction; the proceeds go to pay off part of the previous owner’s debt.
Buying a house at auction has several advantages, including especially low prices. Sometimes, it’s even possible to get prices 20% lower than the market average. There is no risk of fraud, as all the property information is available on the public sales portal. The paperwork and appraisals are also already included, while no notary fees are ever borne by the buyer of the house at auction, nor is commission paid to any estate agent since the purchase is made in the context of a lawsuit.
These auction opportunities are open to all types of buyers from professional property developers to private individuals searching for a family home, or even those seeking a profitable rental property. However, the procedure may be complicated and you definitely need legal assistance if you decide to participate to an auction.

Our Mission: Why Petrocchi & Partners – Attorneys at Law

Most of the subjects involved in real estate transactions earn benefits depending on whether a contract is stipulated or not. We, attorneys at law, have no interest in reaching an agreement: our interest is stipulating good agreements, ensuring the fulfilment of our client’s expectations.
Balanced and well negotiated contracts lead to better performance and can often prevent the arising of future conflicts. With this aim, we have always been assisting individuals, companies, and institutions, and, since 1968, we have established successful relationships with foreign clients across the world. In this sense, we have gained the needed experience to act not only as legal consultants, but also interpreters and cultural mediators.
Throughout our history, we have always favored transparency and fairness in the exercise of our profession in order to provide our clients with a fair balance between benefits and risks in their operations, always with an eye open for the needs and opportunities of a global economic society. If you are considering entering the Italian real estate market, we will be by your side in pursuing your goals.