On March 16, 2021, new protections were introduced for buyers of properties under construction. Rules that are worth knowing in detail, as they are of fundamental importance for those who, like you, have decided to buy a house.
To clarify, in this article we will illustrate all the rules provided for by the decree with Legislative Decree no. 14/2021 “Code of the business crisis” and reported in the Decalogue of the National Council of Notaries.
What does the purchase of buildings under construction foresee: rules and safeguards?
Below, we will try to answer the most frequently asked questions regarding the purchase of properties under construction and, in particular, what are the rules and safeguards provided for the buyer and seller.
- What does the current law provide today?
- Why has the rule been changed?
- How does the protection for buyers of buildings to be built change?
- Since when is the new law applicable?
- Until when is the surety valid?
- Is the intervention of the notary in the preliminary agreement advantageous?
- What does the preliminary entail?
- How does the law protect the buyer even at the time of the sale?
- What are the consequences if the norm is not respected?
- What to do if you want to buy an unfinished property?
We continue step by step.
1. What does the current law provide?
With Legislative Decree 122/2005, the aim is to protect the buyer – who enters into a contract for the non-immediate transfer of a property under construction with a construction company – from the risk that, due to a hypothetical crisis or bankruptcy of the construction company, these may suffer the loss of the money invested for the purchase.
Here is what the protection provides for the buyer:
- The obligation of the builder to deliver to the buyer a surety that can guarantee the reimbursement, in the event of a crisis or bankruptcy of the construction company, of all the advances paid or to be paid before the definitive transfer of ownership
- The obligation to deliver to the buyer, at the time of transfer of ownership, and indemnity insurance policy lasting ten years, which can guarantee compensation for material and direct damage to the property, caused by total or partial ruin or by serious defects of construction
- The obligation to adapt the preliminary sales contract, or other types of contract aimed at transferring ownership to a natural person, to a “minimum” content announced by the legislator
- Provide an alternative procedure for repaying the loan and therefore the related mortgage registered as a guarantee, in the event that the bank does not do so within 90 days of receipt of the request
- The prohibition for the notary to proceed with the stipulation of deeds of sale, if before or at the time of stipulation the splitting of the loan or the cancellation of the mortgage for the lots without taking on the loan, or even the splitting of the mortgage has not been agreed for lots with the takeover
- The right of pre-emption in favour of the buyer in the case of auctioning the property, as the main residence, in the case of an enforceable procedure, even if he has in any case obtained from the guarantor the reimbursement of the advance money
- The exclusion from bankruptcy revocation for the property that the buyer has undertaken to live within 12 months from the date of purchase
It should be emphasized that the protection rules apply only to these conditions:
- When to sell is a builder inserted in the business or a building cooperative and when to buy is a natural person. Therefore, the protection is not applicable in the event that a private individual is selling or a company is buying
- When it comes to “buildings to be built”, i.e. buildings for which permission to build has already been requested or which in any case are still to be built, or for which construction has not been completed, thus making the property unusable.
Furthermore, the new standard is applicable to residential, commercial, productive, office buildings, etc…
The buyer protection rules are applicable at different times:
1. At the time of stipulation of the preliminary it is expected:
- The obligation to deliver the surety to the buyer, which ceases at the time of the transfer of ownership of the asset
- The obligation to adapt the contract to the legislative content
2. Following the stipulation of the preliminary and before the final, it is expected:
- The right to ask for the loan to be paid in instalments
- The prohibition of signing by the notary in the absence of a title for the instalment or cancellation of the mortgage or foreclosure
3. Upon obtaining the definitive notarial deed of ownership transfer, the following is expected:
- The obligation to deliver the indemnity insurance policy
4. Following the signing of the definitive deed, it is expected:
2. Why has the standard been changed?
It was changed because the rule for purchases made up to March 15, 2021 could be disapplied, given that companies could also not issue the guarantees and still sell the properties under construction.
Therefore the rule has been modified not only in order to improve the protection in favour of the buyer but also to increase the entrepreneurial quality through the introduction of the need for the manufacturer to be in effect “guaranteed”.
3. How does the protection for buyers of buildings to be built change?
The new legislative decree provides for the obligation to stipulate the preliminary contract together with a notary, who, in turn, is required to verify and certify the correctness of the surety.
Moreover, according to the new rules, the surety guarantees the reimbursement of the money paid by the buyer even in the event of failure to issue the indemnity policy with a duration of 10 years.
4. since when is the new law applicable?
Most of the protections introduced with the new law are applicable to both preliminary and definitive contracts relating to residential buildings for which the qualification (specifically: the building permit, SCIA and DIA) has already been requested or presented to the Municipality starting March 16, 2021.
5. How long is the guarantee valid?
The surety is valid as long as the credit institution or the insurance company that issued it keeps an authentic copy of the deed of transfer of the property, which in turn contains the certificate of the issue of the ten-year insurance policy.
Until then, the money guaranteed by the surety can be requested by the buyer in the event of a crisis or bankruptcy of the construction company, in the event that the future buyer has communicated that he wishes to withdraw from the contract.
Or if the notary has certified the impossibility of receiving the transfer deed due to the failure to issue the ten-year policy.
6. Is the intervention of the notary in the preliminary agreement advantageous?
The notary’s task is to ensure the buyer that all necessary checks have been carried out relating, for example, to the existence of mortgages or other constraints on the property to be built.
In addition, the notary is obliged to transcribe the preliminary contract in the real estate registers, in order to protect the buyer from the risk of mortgages or constraints following the transcription of the contract.
7. What does the preliminary include?
In addition to the issuance of the surety, the preliminary must contain:
- The description of the property to be built, complete with boundaries and appurtenances
- Indication of any deeds of obligation, therefore also the existence of mortgages or any prejudicial transcripts
- The deadline for the execution of the works, the price and the terms of payment agreed
- The building permit and contracting companies
- The specifications including the characteristics of the materials and the project documents
8. How does the law protect the buyer even at the time of the sale?
The decree provides for the delivery to the buyer of a ten-year indemnity insurance policy by the construction company, at the time of signing the sale contract, in such a way as to cover the material damage suffered by the property in the event of the total, partial or of serious construction defects.
For this reason, the sales contract must show the details of the ten-year policy. If the policy is not delivered, the notary will not proceed with the receipt of the deed.
The purchaser, who in turn has communicated that he wishes to withdraw from the contract, has the right to obtain compensation for the money paid to the manufacturer, the company or the credit institution that issued the guarantee.
In the event of the purchase of a property under construction in which the builder should go bankrupt before the signing of the deed of transfer of ownership, the proceeds of the forced sale of the building under construction will be recognized only to creditors with collateral on the building under construction.
9. What are the consequences if the norm is not respected?
In the event that the obligation to stipulate the preliminary agreement with a public deed or authenticated private agreement is not respected, the contract will be null and void due to lack of form.
It is precisely the intervention of the notary in the stipulation that guarantees compliance with the obligation to deliver the surety in the preliminary and the ten-year policy in the final.
10. What to do if you want to buy an unfinished property?
In this case, it is necessary to contact the notary with the aim of entrusting him with the execution of the checks regarding the non-existence of mortgages or any other constraints, and the control over the issue of the surety.
Protections for the purchase of properties under construction: all the necessary information
We have compiled a detailed guide on buyer protections when buying properties under construction.
It is important to know the rights and obligations of those who buy, but also of those who sell and those who participate in the buying and selling process. For this reason, we recommend that you read each step of this article carefully.
Only in this way will you know what to do if a particular situation arises in the process of buying a property under construction.