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Please find below an explanation of the legalities of buying off-plan developments in Italy. This has been provided by our recommended solicitor Giambrone & Law.
LEGAL
Buying Off Plan in Italy – the new legislation.
For many years, the Italian legislative framework has offered minimal protection to those individuals, families or investors who were interested in investing in an off plan property.
It soon became obvious that the provisions of the Civil Code were not adequate to protect the buyers, especially against the inherent risk of the developers going bankrupt during the construction stages, which often resulted in all deposits anticipated by the buyer being lost.
In June 2005, a new decree (decreto legislative n. 122/2005) was approved by the Italian Government, which introduced for the first timer a number of new financial and contractual covenants aimed at preventing the buyers from loosing out if the developer becomes insolvent or bankrupt. This new legislation is inspired to the principles of the Code de la construction et de l’habitation in France as it has introduced the same level of protection for the perspective buyers as under existing French law. Among the new provisions, three are of a paramount importance.
The first one is the compulsory issue of a “fideiussione”, which is the Italian equivalent of a bank loan guarantee: for the first time it has become mandatory for a developer to provide a buyer with a guarantee (which can be issued by a bank or insurance company) for all the funds anticipated by him during the construction phases. As the provisions of the decree are relatively new, little case law has been developed by the “grey areas” or loopholes in the current legislation: under certain circumstances, the developer does not have to comply with the strict provisions of the new decree, and, for example, the developer can still refuse to provide a bank loan guarantee to the perspective buyers if planning permission has now been granted by the local Comune and therefore a situation of “vendita alla carta” would arise. You need to consult a lawyer immediately if the developer claims not to be bound by the terms of the new legislation as alternative precautions can be put in place to ensure that the investment is still safe.
If the bank loan guarantee is not issued and handed over to the buyer when the Preliminary Contracts are exchanged, these contracts would be null and void. However, in order to better protect the buyer, it is only the buyer that can ask the judge to declare the contract void: in this way, a seller who becomes insolvent can not use this legislation to avoid his contractual burdens or limit his liability.
The decree explicitly states that only certain entities can provide the fideiussione in favour of the developers. These entities are subject to special public checks and controls, so that the buyer can rely on the solvency of the supporting Institution. It should be noted that in the unlikely event that the transaction is not accomplished because of the bankruptcy or insolvency of the developer, the buyer is not only entitled to recover the sum invested, but also to ask for the damages based on expenses, waste of time, loss of other contractual chances and so on. It is extremely important that the Preliminary Contract is drafted accurately so that the buyer would not be prevented from claiming double the earnest paid.
The second important protection introduced by the decree is the compulsory insurance policy that the seller must provide before the final contract (rogito) is signed. This insurance policy (warranty) lasts ten years and covers both damages to the property due to negligence in building, cheap materials or soil quality and damages that can occur to third parties. It is important to clarify with the developers that they will issue such an insurance policy prior to completion and at their own cost. In this way the buyer is protected against the risk of buying property which is somehow physically defective or not properly built. Moreover, the long lasting term of insurance is a strong incentive to the seller to put on the market only those developments which are physically sound, otherwise they will have to bear the very high cost of compensation and restoration.
A third warranty regulates how the preliminary contract of sale has been written. These atypical provisions protect the legally unskilled buyer, avoiding obscure formulations that could be interpreted against him in litigation.
It is also interesting to note that the decree has introduced a special “Fondo da solidarieta" which is a special fund in favour of those buyers who have lost their deposits as a result of the developers’ subsequent bankruptcy. The new legislation is valid for all the new off plan developments whose construction started after July 2005 and are not yet completed. It is still relatively new and therefore it is important that those considering buying an off plan property in Italy should seek independent legal advice before signing an legal documents or a reservation form; if you are asked to sign one during your inspection trip, ensure that the deposit is fully refundable and contact a lawyer upon return to the UK: an Italian layer, expert in real Estate, will be able to explain what restrictive covenants can be inserted into a Preliminary Contract to protect the buyer’s interests and safeguard the investment in the long term He would also be able to carry out the due diligence and the legal checks over the development to ensure that the transaction is legitimate and within the boundaries of the new law.
By Gabriele Giambrone, Senior Partner of GIAMBRONE & LAW – an international law form of Italian Avvocati, European Lawyers and English Solicitors. The firm’s main area of expertise traditionally lies with assisting UK clients in the process of buying property abroad. Giambrone & Law operates from offices in London, Italy (Palermo and Turin) and Ireland (Dublin).
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