Italian competition law No. 124/2017: changes in property purchase procedures

The Italian Parliament has recently approved the annual legislation No.124/2017 for market and competition, (“Legge annuale per il mercato e la concorrenza”) which entered into force on August 29th, 2017.

The legislation, inter alia, makes provision for the purchaser in Italian real estate transactions to deposit the purchase price with the Notary carrying out the deed of transfer, to hold in escrow until such time as the Purchase Agreement has been duly registered in the real estate registry and the Notary has verified the subsequent registration of the property in favour of the purchaser.  By applying this special provision, the Notary is obliged to hold the purchase price in escrow until such time as the appropriate checks have been performed, and the Purchaser is satisfied as to the position.  And when this has occurred, the Notary may thereafter release funds to the Vendor.

In the purchase of real estate property, there are several potential risks for a purchaser, typically including:

• misconduct by the Vendor such as double alienation of the same property to different purchasers, or
• situations where the conditions - contractual or not - of the property are not as agreed upon between the parties (e.g. the encumbrance of a judicial mortgage) or do not reflect representations made.

 

To mitigate against such potential risks, purchasers must seek to protect their position in the best and most suitable way possible. The new legislative provisions present an effective way for purchasers to safe guard their position.

In practical terms, the new procedure starts with the purchaser (or both parties) asking the Notary to hold the purchase price in escrow until the formal transfer requirements provided for by the law are fulfilled and it is confirmed that the transfer of the property has been effectively executed as agreed upon and registered. In this way, the purchase price is not directly paid from the purchaser to the vendor at the closing of the purchase agreement before the Notary (the notarial deed called “rogito”); the purchase price is only transferred by the Notary to the Vendor after the above mentioned checks have been performed and it has been confirmed funds may be released from escrow.

To better understand the broad scope of this new legislation, it is important to briefly describe the Italian real estate property registration regime: the ownership of real estate property, in order to have effects vis-à-vis third parties (as in the aforementioned case of double sale), must be registered in the real estate registry. Registrations are based on chronological priority from date of registration: the subject who registers first holds the ownership right but although this regime usually works in an efficient way, as previously mentioned unpleasant situations might occur.

In practise, there has been a risk that a vendor may double sell the property to two different subjects, receive the price for both transactions and disappear. The purchaser who registers the transaction first is formally the owner, whereas the one that tries to register it afterwards will not be able to do so, having lost the
purchase monies paid (which can be recovered after a civil trial against the Vendor) and not being recognised as the owner of the property.

Prior to the enactment of law No. 124/2017 such risks were mitigated by the execution of a Preliminary Agreement, in private or public (notarised) form, registered in the real estate registry, by which the parties undertake to conclude the notarial deed of transfer of the real estate property; such agreement entails only the obligation to sign the notarial deed and does not transfer the property, but is an effective way for the purchaser to be shielded not only against other registrations in the timeframe between the preliminary agreement and the notarial deed, but also to be able to recover sums paid as deposit or to file suit against the Vendor in case of breach of contract. Preliminary Agreements of this nature may still be used post enactment of the new legislation at the option of the parties.

The new regime introduced by the above legislation, is the only suitable alternative in cases where no preliminary agreement has been executed.

The management of the purchase price through escrow has the further advantage that in the event unknown/undisclosed burdens on the property emerge after the signing of the notarial deed, the purchaser has more options (also with the support of the notary) to resolve the issues without losing the amount paid. Therefore the overall risks borne by the purchaser are lower and the whole transaction structure appears very clear: in case the transaction does not take place as agreed upon, there is no need for the purchaser to resort to judicial proceedings to recover the price paid. The only further point to consider is that of payment timing: the purchaser has to simultaneously pay at the time of the closing of the notarial deed the whole purchase price, the stamp duty, the land taxes and the notary fees.

In conclusion, the purchaser of a real estate property who prefers to avoid the preliminary contract registration procedure but wishes protect himself against potential issues, can take into consideration this new payment scheme pursuant to law 124/2017.

For further information, contact:

Alberto Lama, Avvocato

Bureau Plattner, Bolzano

e: alberto.lama@bureauplattner.com 

t: +39 02 25060760