banner

Author Archive %s Hanover Bond Law

Hanover Bond Law’s victory in landmark defamation case is upheld by the Court of Appeal

On 11 November 2018 the Court of Appeal handed down the judgment upholding HCJ’s decision in Alexander Economou v David De Freitas. Hanover Bond Law acted for Mr De Freitas who successfully defended on grounds of public interest the defamation claim brought against him by Mr Economou. This was a test case for the public interest defence after section 4(6) of the Defamation Act 2013 had abolished and replaced the common law defence in Reynolds v Times Newspapers [2001] 2 AC 127. The court found that the principles therein identified were still relevant to the interpretation of s 4.

The full judgement is available at the link below

https://www.bailii.org/ew/cases/EWCA/Civ/2018/2591.html

Real estate deal in Costa Smeralda

The Italian office of Hanover Bond Law is assisting a major German asset manager in connection with the development of a new luxury resort in Costa Smeralda, the famous “Emerald Coast” in the North of Sardinia.

In 2018 partners Luca Salerno and Luja Ling assisted the client in connection with the acquisition of the resort from the Italian family that owned it from the 1960s. Major works started in Spring 2019 to turn the hotel and the surrounding 15 hectares of pristine landscape into a top destination which is an addition to the client’s existing luxury resorts in the Mediterranean branded “7 Pines”. The overall cost of the operation will be in excess of 45 million Euros.

Inheriting property or other assets situated in Italy

Inheriting property or other assets situated in Italy

We often come across situations where a person that is based outside of Italy inherits assets located in Italy.

The situation typically arises when an Italian national settles abroad. Italy has historically had one of the highest rates of home ownership in the world. Italians tend to hold on to property and are very family orientated and it is very common for Italians to bestow property upon their descendants when they die.

When this person dies his or her estate are likely to comprise of assets, often real estate but also bank accounts etc., that are located in Italy. The default rule under the EU Succession Regulation (Brussels IV) is that the law of succession (not tax law) that will apply to the one person’s estate as a whole is the law of that person’s habitual residence at the time of his death. This is subject to two exceptions, namely that the deceased was “manifestly more closely connected with another country” or that the deceased had chosen in his Will for the law of his nationality to apply. Such choice can be made explicitly or implicitly by making the Will in accordance with the law of his nationality.

When probate proceedings get underway in the country of residence of the deceased, for example an Italian national who resided habitually in the United Kingdom, the issue arises of what to do about the Italian assets that are comprised in the estate.

We often get asked this question by the professional in the UK, Germany or Spain who is overseeing a probate that includes assets situated in Italy.

The answer is that, whenever there are assets in Italy, certain steps must be undertaken there in order for the assets to be transferred to the heirs.

Another situation that we regularly come across is that of a probate that is opened in Italy and whose beneficiaries include people that are based outside of Italy. These people would either have been expressly named in the Will of the Italian deceased (the”testamento“), or they would be a designated heir in accordance with the Italian rules of intestacy.

We note in this regard that the Italian rules of intestacy allow relatives up to the sixth degree of blood relationship to inherit from an Italian national. For example, one can inherit from an Italian second cousin and even from the child of an Italian first cousin once removed.

Furthermore, as is often the case with civil law systems, Italian law provides for forced heirship which is alien to Anglo-Saxon law. This can lead to complex situations where different assets that are included in the succession are subject to English and Italian law and there are heirs who are subject to different regimes. Often these situations lead to legal disputes amongst heirs.

Clients usually contact us after having been approached by an Italian notary public in relation to a will in which they are named as heir. In those circumstances, the first thing that we do is to explain to our client how the Italian rules around the acceptance of an inheritance differ from those in the heir’s home jurisdiction.

The main peculiarity of the Italian rules is that, by accepting the inheritance (which can be made up of real estate, chattels or choses in action), the heir also accepts by default all liabilities that go with his share of the inheritance.

This is different from the inheriting in the UK where tax liabilities etc. are dealt with as part of the probate process at the end of which the heir gets paid a sum of money or is given specific chattels net of any liability.

Once our clients are appraised of this key difference, they often pause before proceeding with the acceptance of the Italian inheritance. They typically try to ascertain the value of the estate and aks us to check if there are unpaid taxes or other liabilities associated with the assets that form part of the estate.

We note in this regard the Italian government levies high taxes on the ownership of real estate that is not used as main residence.

By way of example (or cautionary tale, rather!), a client of hours partly inherited a flat in Southern Italy worth in the region €80,000 that had accrued liabilities of more of €10,000 on account of unpaid tax and service charges. Also, the flat was in a condition of serious disrepair. By becoming the co-owner of the property our client would have instantly become jointly and severally liable for damages suffered by third parties in connection with any problem with the building. The Italian co-heirs (some distant relatives that our client never met) proved difficult to engage with whent it came to discussing building insurance and other costs of the property going forward. Furthermore, our client was looking at paying 8% Italian Inheritance Tax on the value of his share of the property. In the end, we negotiated with the co-heirs an agreement whereby our client got cashed out by them in exchange for his renunciation to the inheritance.

We are often retained by people that were contacted by a “heir hunter” who got wind of an unclaimed inheritance in Italy and worked out that our client is an heir under the Italian intestacy rules.

In these situations, we assist the client with the preparation and filing of the “dichiarazione di successione” (literally a declaration of succession). This needs to be done within one year of the death.

The application must specify all the assets of the deceased and the following documents need to be enclosed to it:

  • The deceased’s death certificate;
  • a “certificato di famiglia” (literally “family certificate”) relating to the deceased. This document can be obtained at local authority where the deceased resided at the time of death;
  • a certificato di famiglia (or equivalent foreign document) relating to each of the heirs
  • a copy of the will (if any) complete with an Italian translation.

Where the asset to be inherited is a piece of real estate, within 30 days from the submission of the dichiarazione di successione an application for “voltura catastale” must be submitted with the local office of the Italian Inland Revenue (Agenzia delle Entrate – Ufficio Territorio).

If the asset to be inherited comprises only of a bank account the balance of which is less than €120,000 there is no need for the dichiarazione di successione. All that is required is an “atto notorio” namely an affidavit that states that the individual in question is the lawful heir by virtue of a will or under the intestacy rules. If the bank account has a balance of more than €120,000 or if real estate is part of the estate the dichiarazione di successione is always necessary.

Cross border inheritance also throws up complex tax issues. UK Inheritance Tax or IHT is due if the deceased was ‘domiciled’ (permanently resident for tax purposes) in the UK or if the person left assets that are located in the UK, for example real estate or a bank account.

Similar rules apply in other countries (e.g. in Italy as we mentioned above).

Where there are assets in multiple jurisdictions tax liabilities can arise simultaneously in more than one of such jurisdictions. Think for example of a person who inherits from a UK domiciled person who had a bank account in Italy. Must tax be paid in Italy or in the UK?

The answer is not necessarily straightforward, also because in the UK it is the estate (namely the deceased, in a way) that pays IHT whereas in Italy it is the heir who has the tax obligation.

Luckily there are bilateral treaties between countries that help avoiding double taxation. These treaties (usually based on the OECD model double taxation treaty) typically make allowances for the country in which the deceased was domiciled to tax all worldwide property and for the other country only to tax certain types of assets such as immovable property (e.g. real estate) located in that country. If tax is paid abroad, for example tax is paid in Italy in connection with money standing to the credit of an Italian bank account of a UK-domiciled individual, UK IHT will be levied but HMRC will (within certain limits) give credit for the money already paid in Italy on account of tax so that tax does not get paid twice.

Please contact us on enquiry@hanoverbondlaw.com if you require assistance in connection with cross border inheritance matters that involve Italy, Germany, Spain and/or the UK. We have in all these jurisdictions dedicated lawyers who have helped countless clients resolve often urgent and complex situations. 

 

Buying a property in Italy: The “Contratto Preliminare”

Buying a property in Italy: The “Contratto Preliminare

Once the buyer of a property located in Italy agrees with the seller the purchase price and other key terms, such as the date when the handover of the property will happen, the parties enter into a “contratto preliminare”, literally a “preliminary contract”.

The preliminary contract has the effect of “securing” the property for the prospective buyer and it often entails a substantial down payment by the latter, usually 10% of the purchase price or more.

The contratto preliminare is an agreement to enter at future date into the deed whereby title in the property is transferred from the seller to the buyer. The deed is called “contratto definitivo”, literally the “final” or “definitive contract” and it needs to be executed in front of an Italian notary public.

If the buyer refuses to enter into the contratto definitivo, the seller keeps the deposit. If the seller refuses to enter into the contratto definitivo, it has to pay to the buyer double the deposit.

The contratto preliminare deals with basic issues such as the seller and buyer’s authority and capacity to enter into the final contract, as well as key terms of such contract, such as information that identifies the property (type of building, number of rooms, land registry data, floor plans, energy efficiency certificate etc). In the absence of such basic elements the contratto preliminare will not be valid.

The more detail the contratto preliminare contains, the less doubts there may be when entering into the final contract. The buyer must therefore pay special attention to what is written in it and it is advisable that an Italian lawyer who acts for thee buyer either drafts the preliminary contract or reviews and approves the proposal that is put forward either by the seller or by the estate agent.

The contratto preliminare often includes “ancillary” provisions which can be of critical importance.

The most common of these clauses are:

  1. The date by which the final contract must be entered into. This date is agreed by the parties taking into account the time that is required for the buyer to take out the mortgage or, in the case of the sale of properties that have not been built, the time when the property will be finished and ready for sale. The term so agreed may be “semplice”, literally “simple” or “essenziale”, literally “of the essence”. For the reasons that we explain in more detail below, it is very important for the buyer that the term is specified to be of the essence.
  2. The deposit that is paid by the buyer upon signing the contratto preliminare. The seller usually demands that the buyer pays him a sum of money upon entering into the contratto preliminare. The amount requested by the seller is usually between 10 and 20% of the purchase price. Depending on what the parties agree prior to entering into the contratto preliminare, the down payment made by the buyer can either be characterised as advance on the payment of the purchase price, in which case it is referred to as “acconto”. Alternatively, the parties can specify that the down payment constitutes a “caparra confirmatoria” in accordance with Article 1385 of the Italian civil code. This is, literally a “confirmatory deposit”, which entitles the seller as the recipient of the deposit to withhold such amount of money should the final contract not be entered into due to circumstances that are attributable to the buyer. On the other hand, if the final contract is not entered into due to circumstances that are attributable to the seller, the buyer is entitled to be paid by the seller double the amount of the deposit that it paid to the seller. If the parties proceed regularly with the final contract, the deposit is either returned to the buyer at the signing of that contract or, more frequently, the amount of the caparra confirmatoria is applied towards the purchase price.
  3. The penalty that is owed by one party to the other in case the former defaults under the contratto preliminare. This is effectively a provision whereby the parties agree liquidated damages, in accordance with Article 1382 of the Italian Civil Code. The parties can agree to pay the other party an amount of money in advance, on account of such penalty. This is referred to as “caparra penitenziale”. The penalty is often determined by reference to the days that elapse after the date when the final contract ought to have been entered into. The penalty ought to be fair or else the court will adjust downwards.

Registration of the contratto preliminare

A very important form of protection for the prospective buyer is the registration of the contratto preliminare and its “iscrizione” (literally inscription) in the the “Registro Immobiliare”, broadly the Italian equivalent of the the Land Registry. The registration is expressly contemplated by Art. 2645-bis of the Italian civil code.

In order for the preliminary contract to be inscripted, it must either be drawn up by notary public or it can be signed under hand by the parties but it then needs to be authenticated by a notary public.

Once the contratto preliminare has been inscripted any other subsequent registration of the title (possibly arising as a result of the seller having attempted to sell the property to someone else) or the registration of a restriction on the property (by way of mortgage or enforcement action etc) will not have any effect against the prospective buyer who inscripted the contratto preliminare. Eeffectively the inscription amounts to what in the UK would be a restriction in the Land Registry.

However, it is important to note that the effect of the registration lasts only one year from the agreed original deadline for the signing of the final contract and in any case, within three years from the inscription. If the expected deadline is more than one year, three years from the time of the inscription

Consequences of default

In the absence of a caparra confirmatoria or a caparra penitenziale, upon a default under the contratto preliminare the following remedies are available to the innocent party.

The innocent party can commence a legal action aimed at obtaining the specific performance (esecuzione in forma specifica) of the contract pursuant to Article 2932 of the Italian civil code. Such action results in the court handing down a judgement that has the same legal effect as the final contract was supposed to be entered into, had one of the parties not defaulted under the preliminary contract.  In order to obtain such judgement, the innocent party must be seen by the court tendering to the defaulting party its part of the bargain. For example, the buyer must tender the purchase price. The actual payment of the purchase price will only take place once the judgement is final, i.e. it cannot be appealed. That is also the time when the passing of the title in the property will be registered in the Italian Land Registry.  In addition to the forced transfer, damages can be sought by the innocent party. It is worth noting that the claim form for this type of action can be registered in the Land Registry. This has the same effect of the registration of the contratto preliminare. Hence it gives the buyer some peace of mind that whilst the action is pending the seller cannot dispose of the property or permit the creation of security interests on it.

Alternatively, pursuant to Article 1453 of the Italian civil code the innocent party can seek a judgement that declares the contratto preliminare terminated and that condemns the defaulting party to return what the defaulting party was given further to the preliminary contract (this could be the advance of the purchase price given by the buyer to the seller, or the access to / use of the property granted by the seller to the buyer). The innocent party can also seek the payment of damages. Importantly, this remedy can only be pursued if the deadline for the stipulation of the contract is “of the essence”. If the term was just a “simple” term, the preliminary contract remains in place and, although the party that did not abide by it is in default, such default does not entitle the other party to obtain the termination of the contract.

Very importantly, Italian courts have consistently decided that, in order for a term to be considered of the essence, it is not sufficient that the parties make formal statements to that effect in the contratto preliminare. What is required is that the contratto preliminare makes it clear why a party needs the final contract to be entered by the deadline that is stipulated in the contract. So this is an area where careful drafting by an Italian lawyer who is well versed in property law is absolutely crucial.

If the buyer paid the caparra confirmatoria, then if the seller refused to enter into the final contract by the agreed date (and that date was specified to be “of the essence”) then the buyer can terminate the contract and seek the payment of double the amount of the deposit only. It cannot seek damages also. Likewise, if the buyer fails to enter into the final contract by the agreed date the seller can retain the deposit but cannot seek damages also.

Contract registration

The contratto preliminare must be registered with the Inland Revenue Service. The parties or the real estate agent in charge of the sale are required to do this.

Registration must be made within 20 days from the execution of the contratto preliminare, or 30 days where the contract is drawn up with the intervention of a notary public.

If there is no payment in advance of the purchase price a registration fee of €200 plus €16 of stamp duty for each page of the contract must be paid on registration of the preliminary contract. Alternatively, if there is a payment in advance of the purchase price the stamp duty equal 3% of such payment with a minimum payment of €200 (plus €16 per page stamp duty) unless the transaction is subject to VAT in which case only the VAT is applied. If money is paid on account of the caparra confirmatoria the registration fee is 0.5% of the amount so paid.

The 3% of the down payment in advance or the 0.5% of the deposit will be deducted from the taxes that are owed by the buyer upon the execution of the final contract.

Please contact us if you require legal assistance in connection with the purchase of real estate in Italy. In addition to specialist property lawyers in our Milan and London office, we have a network of trusted notaries public in all Italian regions that can offer an excellent service at competitive prices.