“Rent to Buy” is a type of contract that, even in Italy, is becoming more and more popular. It allows one to purchase a house, over time, while temporarily occupying it as a tenant.

With legislative decree “Unlock Italy” (Leg. Dec. 133/2014, Art. 23), the government recently issued regulations to formalize this type of purchase.

Let’s look, up close, at what it is.

1. What is a “Rent to Buy” contract?

It’s a new type of contract, where both a lease and a preliminary property sale are entered into at the same time. This means:

• The owner of the property, at the start, consigns the property to the future buyer, who in turn makes periodic/monthly payments

• The future buyer, from the beginning, enjoys the use of the property, assumes all risks involved in its use and pays all costs including condominium fees and all expenses involved in the ordinary maintenance of the property, if planned in the contract.

• The future buyer may, after a certain period, decide to purchase the asset, detracting a portion of the rents paid and the deposit (about 6% of the purchase price). But he’s not obliged to buy it, or else it should no longer be viewed as a “rent to own” lease.

Here’s an Example.

2. What is the time period set for agreeing to buy the property?

Both parties establish the time period in which the future buyer may decide to buy the house. It is within 10 years. Originally the maximum period was within 3 years.

3. What else has been newly introduced?

– The registration of the contract with the Property Registration Office.

– The future buyer is protected from any “unforeseen circumstances” that may concern the future seller before the transferal of ownership.

As an example, if the seller sells the property to a third party, after the registration of the property, the rights of the tenant/future buyer of the property are maintained, even if the purchase agreement comes afterwards.

– In case of missed installment payments on the part of the future buyer, the contract is terminated and the owner of the property has the right to evict the tenant/future buyers. This applies even if missed payments are not sequential. The missed payment amounts triggering eviction, not less than one-twentieth of the entire amount, are determined by the two parties.

In case of non-fulfilment on the part of the seller, the same must pay back the payment installments with statutory interest. The parties are obliged to define which portion of the installment amount must be returned by the seller to the buyer in case of the latter’s failure to exercise the right to buy property within the set time limits.

4. What types of property can be rent to buy property? Does it include property under construction?

“Rent to buy” may be any type of property: detached houses, apartments, garages, subterranean storage spaces, shops, offices, warehouses, and shops. Even land.

It may be also a property under construction. Should the construction company/owner declare bankruptcy, the renter/future buyer would not lose his money, and the contract would endure in case of failure of the seller.

5. What are the tax payments?

A specific tax plan for this type of contract has been just announced.

As previously said the monthly payment includes 2 different installments and they will be subject to 2 different taxations.

•  The rental price you pay monthly to live in the property will be subject to the regulation concerning the lease contracts, and you’ll pay no IVA unless the seller in a builder.

•  On the contrary the price you pay every month and that will be deducted at the end on the whole property price will be subject to the regulations related to the down payments.

It is always recommended to seek professional help, generally from a notary — also necessary for the registration of the contract — who can evaluate the transaction as a whole. A notary’s guidance assures that every question, from the very beginning, is treated with the utmost completeness, seriousness and professionalism, whereby avoiding all future damages.

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[Featured image by Maurizio Zanetti]