05 Mar

A foreign client of OS Law firm signed a preliminary contract for the purchase of a luxury villa on Garda Lake.

After a couple of weeks, our client found a better opportunity on the market and asked us if it was possible to cancel the preliminary contract with no big consequences. Let’s try to find out how it works!

What does a preliminary contract for real estate mean in Italy?

You might be asked to sign a preliminary contract if you decide to purchase real estate in Italy.

It is customary for the parties to a real estate purchase in Italy to enter into a preliminary contract or “contratto preliminare” in Italian.
This is done to close the agreement and prevent negotiations from breaking down while the paperwork is being laboriously prepared or while the appropriate due diligence is being carried out.

The preliminary contract shall be deemed autonomous but shall contain all the components of the future definitive contract (such as the agreement of the parties, subject matter, and price).
Also, the preliminary contract will clearly state that the final contract must be signed within a specific timeframe, or it may already state the date on which the future contract will be signed.

Is a preliminary agreement mandatory to purchase real estate in Italy?

A preliminary agreement is not necessary for the parties to enter into. In fact, the parties can instantly finalize the definitive contract if they have already agreed on every aspect of the deal and no further due diligence is required or needs to be done.

The notary will draft the final contract in the form of a public deed, which the buyer and seller will then sign. It is crucial to note that the notary must exercise at least a minimal amount of due diligence as required by law. The notary is not required by law to confirm the existence of a wide range of technical documents that could be crucial to the transaction, such as the lack of any illegal construction or modifications made by the previous owner, which are regrettably quite common in Italy.

Parties may prefer to sign a preliminary contract first in order to do the necessary due diligence before signing the definitive because these verifications take time.

What kinds of preliminary agreements exist in Italy?

According to Italian law, the preliminary agreement may be written as a private deed and prepared by the parties’ respective attorneys. Any clause that the contracting parties think is necessary to govern their relationship may be introduced. Yet, only if the preliminary contract has all of the components of the definitive contract can it legally obligate the parties to enter into the subsequent contract.

Alternatively, if a real estate agent is helping you with the transaction, they can ask you to sign a proposal that will be regarded as a preliminary contract if the seller accepts it. It should be emphasized that the proposal only binds the buyer until it is approved by the seller.

Hence, it is crucial to carefully review the contract before signing it and to get legal advice on the obligations that result from this agreement. The preliminary contract shall be in writing to the extent law requires to be enforceable.

But now let’s try to focus on the scope of this article: can I cancel the preliminary agreement because I no longer want it?

The parties are required to follow the terms of the definitive contract if the preliminary contract is executed.
Only if one of the conditions mentioned in the contract is not properly verified, the contract may be canceled for breach of it.

The buyer will forfeit the right to the deposit money if none of the aforementioned circumstances hold true and s/he decides against buying the property.
Conversely, the contract may be canceled only by mutual consent if the contractual parties have reached an agreement.

On the other side, what are my alternatives if the seller violates the preliminary agreement?

The buyer by his side has further options if the seller unilaterally decides not to proceed with the signing of the definitive contract:

• – Specify the performance you want: the innocent party may initiate legal action and ask the judge to render a judgment that has the same implications as the binding agreement.
• – Double the deposit amount that was given: in this scenario, the party in default is obligated to pay twice the deposit sum provided by the buyer. This will only apply in circumstances where the buyer has paid a deposit.
• – Demand damages: an innocent party may also file a claim for compensation. The general rules will apply to any claims for damages.