In this article you will find elucidation regarding the new legislation of the "Code of Business Crisis and Insolvency" launched by DL of 12/01/19 No. 14, by which the following was inserted
The obligation of the builder to enter into the preliminary by the notary public
This taxation is applied if the property to be sold is in such a state of construction progress that it is not possible to apply for its usability. In this specific case, the preliminary contract must be made by notarized private contract or public deed.
Why was this new legislation introduced?
During the economic boom years, it was common practice for some builders or real estate speculators to acquire buildable land, obtain building permits with regular plans, and sell "on paper" (i.e., without yet having moved a bucket of earth) one or more units to a prospective buyer.
We are talking about the golden years where, often, the entire availability of a real estate development transaction was placed on the market even before it reached the roof of the building. When the market is doing well, and clients are buying, everyone is happy by entering into preliminaries and sales in serenity and harmony.
However, there comes a period of lean cows in the real estate market: the developer, in the wake of past experience, buys more building land, starts with more construction projects at the same time, but customers do not buy as much as before. Compounded by the financial crisis, the difficulty of obtaining mortgages and financing, the project properties remain unsold.
The lifeblood of every builder (who does not have the economic strength to be able to finish a construction site with his own finances) i.e., the confirmatory deposits of the preliminary sales agreements that are used to pay for the progress of the work, fails. The laborers, not being paid for their work or at least the down payments of the agreed upon amount, do not show up at the construction site and the operation grinds to a halt.
By blocking this mechanism, the developer (who often has opened financing to purchase the area or start the construction site) finds himself in a limbo where the only way out unfortunately is the FAILURE of the operation.
These kinds of episodes are very frequent, unfortunately, as many real estate transactions that began in years when market values were higher, end up in a market where values are very low, completely undermining the business-plan of the developer who does not have the finances necessary to finish the work.
When this happens, the poor buyer who has entered into a preliminary purchase and sale agreement sees his or her home and the possibility of recovering the down payment he or she has paid go away.
On this last point, there is actually already legislation in place to protect the consumer, namely the obligation enshrined in Decree 122 of 20/6/2005 for the builder to issue an adequate surety bond to guarantee all sums collected prior to the final transfer of ownership. (including the down payment)
This provision, either through ignorance on the part of the buyer or through malice on the part of the builder, is not always respected or is "circumvented" by issuing inadequate warranties that fail when the need for enforcement arises.
The landscape was this, bankrupt construction companies and consumers without homes and down payments.
What does the new legislation provide for?
In order to curb this phenomenon, the legislature decided to introduce, with Legislative Decree No. 14 of January 12, 2019, which amends precisely Legislative Decree 122/2005 by imposing the obligation for the builder who wants to sell a property in such a state of progress that it cannot yet be obtained the agibility, to sign the preliminary mediate public deed or notarized private contract, then in front of a public official (notary).
This protects the buyer in multiple ways:
- the notary will make all verifications in his power, on the transaction in question.
- In front of the notary public, the builder will no longer be able to show "unprotective" sureties or impermissible guarantees
- the contract entered into will be drawn up in the appropriate form and updated with current regulations.
Since when will this new legislation apply?
This regulation is applicable to contracts involving "real estate to be built" for which the relevant building permit (agibility) has been applied for or submitted after March 16, 2019 (i.e., the 30th day following the day of publication in the Official Gazette of the Business Crisis Code, which in fact took place on February 14, 2019: Article 389, paragraph 1).
Consequences
While it protects the buyer, this new legislation comes with not insignificant indirect costs:
1 The buyer, who previously could sign a preliminary in the form of a private writing, will now have to bear the costs of a preliminary from the notary.
2 For each preliminary, the builder will have to bear the cost of the surety bond (usually bank), which will probably fall to the buyer within the agreed price for the house.
3 Banks are "notorious" for not issuing surety bonds (especially in the construction industry) so easily and usually require a deposit of the same amount in the account ( do you want the guarantee for 30,000 € ? leave me 30,000 € in the account, tied up + expenses ) this implies that the small builder will have to support with his own forces ALL the construction site until the agibility is obtained.
In defined a good measure, which will end the careers of many "improvised" builders who are not in a position to provide the proper guarantees.
P.S: Sources inside the notariat have pointed out to me that the prevailing interpretation of this legislation does not cover real estate "on paper," which could still be subject to a preliminary in the form of a private writing. The scriminant would seem to be the building title, that is, the issuance of the building permit. Prior to the permit, it would not be mandatory to enter into the preliminary in the form of a notarized private writing or public deed. We will see how the legislation develops 😉
