The introduction of Legislative Decree No. 122/2005 and
Through the enactment of Legislative Decree No. 122 of June 20, 2005, a framework was established for the first time to safeguard the property rights of purchasers of properties under construction. The objective of this legislation (and subsequent amendments) is to address the so-called “contractual asymmetries” often present in situations where one party holds a position of strength, contrasting with the so-called “weaker party”.
According to this law, such a situation exists – and thus the decree applies – in cases where the seller is either a builder (thus an entrepreneur, whether individually or as a company, or whether the construction is outsourced to a third party) or a building cooperative, and the buyer is an individual (even if they are also a member of the building cooperative in question).
The last category of buyer is deemed deserving of specific protection, as they bear all the risks naturally associated with purchasing a property under construction. The aforementioned decree – also referred to as TAIC (containing provisions for the Protection of Purchasers of Properties Under Construction) – therefore imposes a series of regulations to ensure fair contractual relationships, safeguarding the position of the contracting party that may find themselves in a condition of contractual disparity.
The Reform of Legislative Decree No. 14/2019
Despite the well-intentioned nature of the 2005 legislation, it soon became apparent that the provisions aimed at protecting purchasers of properties under construction could easily be disregarded or circumvented. Consequently, in drafting the “Code of Business Crisis and Insolvency” in 2019, the legislature attempted to address the issue by introducing a series of amendments to the 2005 legislative decree. The spirit of the reform aimed to improve not only the protections for the buyer but also entrepreneurial quality by introducing the requirement for the builder to be considered “guaranteeable”.
The Concept of “Properties Under Construction”
According to the legislation in question, a “property under construction” corresponds to one for which at least a building permit has been requested. The property must also be at a stage where it cannot yet obtain a certified occupancy permit. In simpler terms, these are buildings to be constructed from scratch. However, it is believed that, in order to truly implement the underlying protective rationale of the legislation, it should also be applicable to cases of building renovation, at least where it involves so-called “major” renovations, i.e., interventions affecting the typological, structural, and formal elements of the existing building, resulting in a real “transformation” of the pre-existing structure.
It should also be noted that a necessary condition for the application of this protection is that the purchase of the property under construction must be in the form of a preliminary contract or any other contract aimed at the subsequent purchase of ownership (or other real property rights) in accordance with the provisions of Article 6 of Legislative Decree 122/2005.
Protection of Purchasers of Properties Under Construction: Obligations of the Builder
Legislative Decree 122/2005 introduced a series of obligations specifically on the builder, including:
– the obligation to provide the buyer with a surety bond (Articles 2 and 3), under penalty of nullity of the contract, which must comply with the standard model provided by the Ministry (see next paragraph) and must guarantee both the refund of the sums paid to the builder before the transfer of ownership, in case the latter is still in a crisis situation, and the failure to release the ten-year insurance policy referred to in the next point, the obligation of which must be fulfilled at the time of transfer of ownership;
– the obligation to enter into a ten-year insurance policy for damages resulting from construction defects of the property (Article 4), which must comply with the standard model. If the policy is not delivered at the time of the final sale, the penalty will again be nullity of the contract;
– the obligation (in this case, both for the builder and for the buyer) to enter into the preliminary contract or the different contract aimed at the subsequent purchase of ownership of the property under construction or other real right on it, by public deed or authenticated private agreement, and to conform it to the minimum content set by the legislature (Article 6);
– the obligation to arrange for the subdivision of the mortgage loan and the cancellation of the mortgage before the deed is executed (and therefore of the deed with real effects), which the notary cannot draw up before such compliance (Article 8).
The Obligation of Suretyship in the Purchase of “Properties Under Construction”
Regarding this aspect, it should be specified that the surety bond loses its effectiveness when the guarantor receives from the builder a copy of the deed of transfer of ownership containing the details of the ten-year policy and its compliance with the standard ministerial model. This model, to be concluded at the same time as the sale of the property, is introduced by the decree of the Ministry of Justice No. 125/2022.
Article 1 of the decree sets out the general requirements for the preparation of the deed, and in particular it is established that the surety bond relating to properties under construction:
– may be issued jointly by multiple guarantors of the building company. Release can be made either with separate deeds for each guarantor and for their own share, or with a single deed indicating the guarantors and their respective shares. In this case, the division by shares will operate in the internal relationships between the guarantors, without prejudice to the solidarity bond towards the buyer of the property;
– must provide for the maximum overall guaranteed amount. This must correspond to the sums and the value of any other consideration that the builder has collected and those that, according to the terms and conditions established in the contract, are still to be collected, without deductibles.
The additional elements of the surety contract are outlined in the standard model contained in attachments A and B of the ministerial decree, with the clarification that the clauses provided for in Section I of the model may be modified by agreement of the parties but only in a more favorable direction to the beneficiary-buyer.
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