First rent, then purchase with “Rent to Buy”
Rent to buy
“Rent to buy” is a growing phenomenon that allows for the setting aside of costs for the acquisition of a house by initially paying its rent.
Thanks to “Rent to buy”; it is possible to acquire a house after “trying it”. This contractual tool actually allows you to set aside a part of the money paid for the lease to make up the deposit for the acquisition.
The purchase is not always obligatory but should be prepared for in most contracts so as not to distort the meaning of this formula.
The planned duration of the rent contract before the title deed is only set out as three years, but the buyer (obviously never the seller) can ask to pay it in advance.
Rent to buy sets out the signing of the contract at the same time as the preliminary contract in order to fix the conditions for the future sale.
These documents, both paid, will protect the buyer from the seller’s future considerations, but also of failure, death, foreclosures and collateral.
The law on Rent to buy
Rent to Buy is relatively new in Italy, and is regulated by Decree 133 of 2014, known as “the Made in Italy decree”, converted into law 164/2014. The law means the immediate enjoyment of a property and the right to acquire it within a determined period, after paying the rent with an amount of money also intended for the property’s purchase.
Setting aside the down payment, the lease regulation can end up being more costly compared to what would be legally expected, based on the place and price per square metre.
The tenant is safeguarded for a period of ten years, across three of the preliminary contracts, thanks to the transcription of the contract in property registers.
Rent to Buy and who it works for
Rent to buy is a gradual formula that allows you to buy a house by playing for time, whilst pursuing other projects in the meantime.
Rent to buy can be useful to those who, while getting the loan easily, do not have enough financial clout to pay the deposit.
Someone who in the meantime has a property to sell could also use it, for example, or those who need to consolidate their own economic situation, or those who want to build a credit history to then more easily get a mortgage.
It could be of value for very “substantial” real estate purchases for commercial or industrial use.
On the other hand, it favours those sellers that have placed properties on the market for a long time or contractors that guarantee a fuller range of clients.
If one of the parties is a debtor.
In case one of the parties is a debtor, the scenarios that open up are different.
If the tenant/promisor buyer does not respect the agreements the landlord will be able to get back the property and respect all of the fees already received, at least the contract does not provide for the return of the amount paid on top and aimed at the failure to purchase.
If the deal is cancelled and it is the seller’s fault, they should have to return the amount for the purchase, increased by legal interest.
The contract loses validity with the failure to pay a certain number of regulations, not necessarily consecutively, of an amount, generally, equal to a twentieth of the total price.
Full freedom is given to the parties to insert into the “rent to buy” contracts a temporal purchase limit, a limit of unpaid rent before the decline, the amount of fees intended for shelving, the obligation or not of the final purchase and the different parameters that define the agreement.
Until the moment of the deed, ownership of the property is left to the seller, which is why, pending the final transfer of the property, the one paying taxes on ownership of the property of taxes for real estate possession continues to be the one with full possession of it, like in a completely normal rental contract.
However, the tenant/promisor will have to pay transcriptions expenses for the contract and those for the final deed of sale.
The seller could accept, as an advance fee, however much may be deposited by the buyer in case they commit to buying the house as soon as possible.
The seller could also hold onto the fee received as a deposit in case the sale does not end up working, an eventuality that it is possible to avert with the stipulation of a contract that is advantageous for both parties.
If the purchase option is exercised, the given fee as an advance payment on the price risks being lost.
Given the complexity of the subject and the need for stipulating contracts that suit both parties, we put our expertise at the disposition of those interested in this type of formula.
Do not hesitate to contact the expert Real Estate lawyers at Boccadutri International Law Firm for information on contracts and instructions for rent to buy.
Contact our lawyers here.