Another post about this very important issue. Use our useful search tool to find our other articles on off-plan property purchases.
Investing off-plan is where a purchaser makes a commitment to buy a property from a developer that has not yet been built or is in the process of being built.
This type of investment hides any number of risks, the major one being that if the builder is declared bankrupt, then the buyer may well be out of pocket.
Italian legislation provides a number of measures to protect buyers from this scenario, but the buyer needs to ensure that these protections are in place – as always, but particularly when it comes to off-plan property purchases, caveat emptor.
Law 122/2005 declares the obligation of the builder to offer a surety bond. This is to guarantee the buyer for the money deposited prior to the transfer of ownership of the property, in case of bankruptcy or default.
According to art.1 of Law 122/2005 the builder is obliged to offer such a surety bond at the latest at the moment of the signing of the preliminary contract required in off-plan transactions. In the absence of a surety bond the preliminary contract will be considered void unless the buyer explicitly expresses that it should prevail. The surety has to be clearly mentioned in the preliminary contract.
According to article 2 of Law 122/2005 the surety needs to be a Bank, an Insurance Company or a Financial Broker authorised by the Bank of Italy. The surety bond guarantees the buyer repayment of the money paid as a deposit.
In order to request excussion of the guarantee (the process or proceedings whereby a creditor must take action against a principal debtor before proceeding against a surety or subsidiary debtor), the buyer has to formally withdraw from the Preliminary Contract. A written request of withdrawal by the buyer, together with evidence of deposit payments, will be sufficient to activate the guarantee. The surety is obliged by the law to refund the deposit within 30 days.
According to art.3 of Law 122/2005 the surety bond also covers damages arising as a consequence of building defects in the property, even when discovered after the signing of the Deed of Sale.
The building defects of the property covered by art.3 are listed in art. 1699 of the Italian civil code. The guarantee for such defects has a stature of limitation of ten years from the finalisation of the building works in question.
Where the seller is a different legal entity from the builder of the property, the seller is legally required to request a copy of the surety bond from the builder and to give this to the buyer. This is part of the seller’s contractual obligations is referred to in the Deed of Sale.
If you are considering investing in off-plan property in Italy our advice is to engage your own independent legal adviser. Bear in mind that a lawyer recommended by the developer or real estate agent may well have a conflict of interests in this matter.
If you need any help, please contact us.