When buying real estate in Italy, it is common practice for the contracting parties to enter into a preliminary contract (in Italian: Contratto Preliminare).
This is done to secure the deal and avoid that during the lengthy preparation of the documents, or the time required to conduct the necessary due diligence, one of the parties breaks off the negotiations.
This Quickguide will cover:
What is a real estate preliminary contract in Italy?
Although not specifically defined in law (Article 1351 of the Italian Civil Code only mentions it) the preliminary contract is regarded as a contract with which the parties undertake to enter into a future agreement (called, definitive).
While considered autonomous, the preliminary contract must contain all the elements of the future definitive contract (such as the agreement of the parties, subject matter, and price).
In addition, the preliminary contract will contain an explicit undertaking to sign the definitive contract within a certain amount of time, or it could already indicate the date when the future contract will be signed.
Is it necessary to sign a preliminary contract to buy real estate in Italy?
Parties are not required to enter into a preliminary contract.
Indeed, if the parties have already reached an agreement on every element of the deal and there is no need for due diligence, or this has already been conducted, the definitive contract can be immediately concluded.
The definitive contract is prepared by the notary in the form of a public deed that will then be signed by the buyer and the seller.
It is important to point out that the notary is required by law to conduct a minimum of due diligence. As an example, the notary will:
Verify the identity of each contracting party.
Verify if there are mortgages or liens on the propriety.
Check the energy performance certificate of the property (APE).
The law does not require the notary to ascertain the existence of a whole array of technical documents which might prove vital to the deal. Reference is made here to technical verifications on the property as, for example, the absence of any illegal construction or modification made by the previous owner, unfortunately very common in Italy.
As these verifications require time, parties might want to enter into a preliminary contract to conduct the necessary due diligence prior to signing the definitive.
What types of preliminary contracts are there in Italy?
Under Italian law, the preliminary contract can take the form of a private deed which is prepared by the lawyers assisting the parties. The contracting parties are allowed to introduce any clause which they deem necessary to regulate their relationship. However, the preliminary contract can validly bind the parties to conclude the future contract only if it contains all the elements of the definitive.
Alternatively, the preliminary contract can take the form of a public deed which is prepared by the notary. The notary is regarded as a third party that does not side with one or the other party and will only put in writing what has been agreed by the buyer and seller. For this reason, it might be necessary to obtain legal assistance prior to entering a preliminary contract.
Lastly, if the real estate purchase is conducted with the assistance of a real estate agent, you might be asked to sign a proposal that, if accepted by the seller, will be regarded as a preliminary contract. It must be noted that, until it is accepted by the seller, the proposal only binds the buyer. Hence, it’s important to carefully examine the contract before it’s entered into and ask for a legal opinion on the obligations arising from this agreement.
To be considered valid and enforceable, the law requires the preliminary contract to be in writing.
I am no longer interested; can I terminate the preliminary contract?
If entered into, the preliminary contract binds the parties to the conclusion of the definitive contract.
The contract can be terminated due breach or on the verification of one of the conditions set out in the contract. If none of the previous conditions apply and the buyer is no longer interested in purchasing the property, s/he will lose the right to receive the amount given as deposit.
Alternatively, if there is an agreement between the contracting parties, the contract can also be terminated for mutual consent.
The seller doesn’t comply with the preliminary contract: what are my options?
If the seller unilaterally decides not the proceed with the conclusion of the definitive contract, the buyer can alternatively:
Request specific performance
The innocent party can start a judicial proceeding requesting the judge to issue a decision replicating the effects of the definitive contract.
Request double the amount given as deposit
In this case the defaulting party must pay double the amount given by the buyer as a deposit. This will be applicable only in those cases where a deposit has been given by the buyer.
The innocent party can also claim for damages. For damages claim the general rules will apply.
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