Preliminary Contract for the Purchase of Real Estate in Italy: A Brief Guide
Are you a foreigner looking to buy real estate in Italy? You’re in the right place. In this brief guide, we will explain how to proceed, focusing on the importance of signing a preliminary contract. Before we begin, remember that certain requirements must be met and procedures followed, which we have detailed in another article on our blog.
How can you purchase real estate in Italy?
Once you have identified the property of interest, the correct procedure for purchasing it is characterized as follows:
- Purchase proposal: This is an irrevocable offer containing the main terms of the transaction between seller and buyer.
- Signing of the preliminary purchase agreement, once the purchase proposal is accepted.
- Notarial deed of sale: This is the final contract and is drawn up in the presence of a notary, who will also carry out the customary registrations (transfer of the sale information to the competent state bodies and to the Land Registry for recording). The buyer will then be given the original property certificate. If the notarial deed is signed a long time after the preliminary contract (or compromise), it is advisable to register the latter with the Land Agency; this is to protect oneself from possible prejudicial registrations (e.g., the seizure of the property in question).
Now, let’s delve into the most important aspects of the preliminary contract.
What is the preliminary sale contract?
It is a preliminary agreement to purchase, in which the buyer makes a formal commitment after the purchase proposal has been accepted. The parties to this contract, willing to conclude a future sale, are called “promissory buyer” (the one who buys) and “promising seller” (the one who sells); they commit to signing the final sale contract at a later date.
Therefore, the preliminary contract gives rise to certain mandatory effects concerning the obligation of the contracting parties to give their consent at the time of the future sale.
Afterward, the real and mandatory effects of the sale (i.e., the transfer of ownership, payment of the price, delivery of the property, etc.) will only occur at the time of signing the final contract.
What is the purpose of the preliminary contract?
The preliminary sale contract is often used to mutually bind the parties for the future, with the guarantee that neither party can withdraw from signing the final contract; this allows avoiding immediate conclusion of the latter, thus using the intervening time between the two contracts to take care of other formalities (e.g., applying for a mortgage, etc.).
What does the preliminary sale contract contain?
By law, there is no specific and detailed regulation. There is only the requirement of Article 1351 of the Italian Civil Code regarding the form (which must be the same as the final contract), under penalty of nullity.
Therefore, the regulation of the preliminary follows that of the specific type of final contract chosen (in our case, that of real estate sale).
The essential elements of the preliminary real estate sale contract are:
- The consent of the parties
- Written form
- Precise indication of the real estate being sold (type, cadastral data, etc.)
- The price.
Obviously, it is advisable to include as many details as possible to have fewer doubts or problems at the time of signing the final contract.
Clarifications on the Form of the Preliminary Sale Contract
We have mentioned that the form must be the same as the final to avoid nullity.
In cases of real estate sale preliminaries, Article 1350, first paragraph, no. 1, of the Italian Civil Code applies, which requires that contracts transferring ownership of real estate must be made by public deed or private written agreement, under penalty of nullity.
Therefore, the parties can proceed independently using a private written agreement, or visit a Notary to conclude the preliminary by public deed or authenticated private agreement (the latter option is necessary if the preliminary concerns properties under construction or to be constructed, according to Article 6 of Legislative Decree No. 122 of 2005).
In the next paragraph, we will specify how the preliminary contract signed at a notary’s office, although not mandatory, has the advantage of providing better protection to the contracting parties; above all, the promissory buyer.
Content of the Preliminary Contract:
Ancillary Clauses
It is possible to enrich the minimum content of the preliminary contract with some additional clauses, called ancillary; they are such because the contract exists even if these are not applied. It is clear that, if decided to include them, they can affect the validity and effectiveness of the contract itself.
Usually, these clauses are intended to protect one or both contracting parties.
The most common are:
- The deadline (the date) by which the final contract must be signed: it is not essential unless the unequivocal will of the parties to make it so emerges (deducible from the expressions used, the object of the contract, etc.)
- The deposit (Article 1385 of the Civil Code), i.e., a sum of money requested by the promising seller from the promissory buyer to attest to the seriousness of the agreed commitment (confirmatory deposit). This will be returned or deducted from the payment of the price stipulated in the final contract if everything proceeds as planned. If, however, one of the parties fails to fulfill the obligations provided for in the preliminary, the other may withdraw from the contract, keeping the received deposit or demanding twice the amount paid. When the deposit is provided as compensation for the right to withdraw from the contract (penitential deposit), once paid, it offers the party the choice to either fulfill the obligations provided for or withdraw from the contract. If withdrawal is chosen, the paid deposit must be forfeited or twice the amount returned.
- The penalty clause (Article 1382 of the Civil Code) stipulates that the non-compliant party (in whole or in part) must pay a specific sum of money as compensation for the damage. Compensation for further damages must be expressly provided in addition.
Is it necessary to set a date for the notarial deed in the preliminary contract?
We have said that the deadline for the signing of the final contract is not an essential element of the preliminary, although, usually, the parties establish it to temporally limit their obligations.
The question that arises is: if it is not mentioned, when can the performance be requested? According to consistent Italian jurisprudence, the interested party can demand immediate execution of the performance. This is the application of the principle provided for in Article 1183 of the Civil Code.
What happens if the date set for the notarial deed is not respected?
If, for a variety of circumstances, the party cannot meet the deadline set for the signing of the final contract, in general, there are no problems since the deadline is not essential and therefore not inalienable. A postponement can be requested if there is an objective impediment.
However, beware of cases where the deadline can become essential, analyzing the expressions used by the parties and taking into account the nature and object of the contract. That is, if the unequivocal will of the parties to consider the economic utility of the agreement lost when the deadline has fruitlessly elapsed emerges. In this case, it would be possible to proceed with the dissolution of the contract.
Does the preliminary contract need to be registered?
Yes, but for fiscal purposes only.
From a civil law perspective, the preliminary contract drawn up with all the essential elements is valid and effective even if it is not registered.
From a fiscal viewpoint, registration is a requirement prescribed by Presidential Decree No. 131 of 1986 (Tariff part 1, Article 10). If not complied with, there will be sanctions, but the contract will still produce its obligatory effects.
The costs are:
- Registration tax (200 euros)
- Stamp duty (16 euros for every four pages of the act or 155 euros if the act is notarized by the Notary). If deposits or advance payments have been provided for, a proportional registration tax is also added, namely:
- 0.50% of the confirmatory deposit
- 3% of the advance payment on the sale price, if not subject to VAT. If VAT is applicable, the registration tax is a fixed amount.
Should the preliminary contract be transcribed?
Although highly recommended for greater certainty and protection, the transcription of the preliminary is not mandatory. It becomes so if the contract is notarized (Article 2645 bis of the Civil Code).
What are the costs of a preliminary contract?
If a non-authenticated private written agreement has been chosen, the costs to be borne are those related to the registration of the act (seen in the previous paragraph).
If the contract is concluded at a Notary’s office, there are both registration costs and the Notary’s fees (depending on the value of the act); in addition, the cost of transcription at the Land Registry (fixed tax of 200 euros and fixed transcription rights of 35 euros).
What is the duration of the preliminary contract?
If a deadline by which to fulfill has been set, how long are the parties bound? If there is no initiative, i.e., if no party takes action to request fulfillment, the preliminary is subject to the ordinary limitation period (ten years from the signing), after which there will no longer be a binding agreement to conclude the final contract.
What happens if the preliminary contract is not respected?
If the counterparty refuses to sign the final contract, protection is possible.
Judicial action can be taken (Article 2932 of the Civil Code), obtaining a judgment that produces the same effects as the unconcluded final contract (“specific performance”).
Alternatively, in cases of serious non-compliance, it is possible to request the resolution of the contract (Article 1453 of the Civil Code) and compensation for damages.
In cases where a deposit is provided for in the preliminary contract, it is possible to withdraw, keeping the deposit or demanding twice the amount of the same (as seen in the previous paragraphs).
Conclusions
We hope to have clarified the fundamental aspects and usefulness of the preliminary contract for the purchase of real estate in Italy. If you need advice, you can contact one of our lawyers specialized in real estate matters.
