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Property Letting

Italy - Property Letting


Several expats buy properties in Italy as an investment or to have a second/ holiday home in a foreign country. Some of them use their homes all year long but many leave their houses unoccupied for a major part of the year. In such cases the buying and restoration costs can be recovered to some extent, by letting the property out to tenants. Several British, American, German and Scandinavian visitors to the country rent homes for a short period of time (anywhere between 2 weeks and 3 months). Those who are interested in getting an annual income from their properties can lease it out for a longer period of time.

Contract types

The new rental regulation in Italy has replaced the old rent control (equo canone) and long terms (patti in deroga) contracts in the country. The new law states that a rental agreement can be of two types. The first is a Standard or a Free Market Contract (contratto a libero mercato) and the second is the Conventional Contract (contratto convenzionale).

The Free Market Contract allows the landlord and the tenant to decide all the terms, including the rent. This contract is signed for four years and can be renewed for another four years. If the landlord wishes to terminate the agreement after the initial four years, the tenant needs to be informed about it 6 months in advance. Rents can only be increased by up to 75% of the cost of living index during this period. Subletting is permitted under this contract, but only if the property isn’t leased to a third party is its entirety. In case of any damage to the property, the tenant is held liable. Free market contracts are not applicable for tourist apartments and luxury apartments (di lusso).

Conventional Contracts contain terms and conditions that have been set by the National Landlords and Tenants Association. This agreement is signed for three years and can be renewed for two years. A conventional contract can also be drawn for 5 years with no option for renewal. The ceiling for increase in rent has been set by the agreement between associations and is relatively low. Under the law of 1998/431 there are “special” tax incentives for landlords who sign conventional contracts. Tenants are prohibited from sub-letting the property under this contract.

Rents and deposits

Rents in Italy depend on the area of the property, its location and its interiors.

Properties in the urban areas are leased at a higher amount as compared to rural properties. Rentals for properties in the heart of the city are more expensive than the suburbs. For example, a one-bedroom apartment in the city center costs about €650.00 a month; a house of the same area located on the outskirts of the city costs around €460.00 per month. A 3-bedroom apartment could be rented out for anywhere between €800.00 and €1,100.00 depending upon its location.

In Italy a landlord can lease an unfurnished/ empty property (vuoti), which doesn’t even have light fixtures or a fitted kitchen. Semi-furnished (parziamente arredati) apartments have light fixtures, a fitted kitchen and wardrobes but no furniture. Fully furnished apartments (arredati) contain basic furniture (like beds, sofas and tables) in addition to light fixtures, a fitted kitchen and wardrobes. Rents for empty apartments are usually the lowest. Most people pay more for fully furnished houses because they do not have to buy their own furniture.

For renting a property under either contract, tenants have to pay a deposit, which is equivalent to 3 months’ rent. This amount is returned to the tenant, with interest (3%), when the rental agreement is terminated. A landlord could take up to 2 months to pay this amount back. Many landlords evaluate the property thoroughly and deduct the amount for any damage from the deposit.

At times landlords also ask for a few months’ rent in advance. As per the Italian law, landlords cannot get more than 3 months’ rent in advance.

Registration

After all the details have been finalized between the landlord as well as the tenant, an agreement needs to be drawn up and signed by both the parties. For validation purposes, the contract must be registered with the local ufficio del registro. In some cases, contracts for leasing apartments have to be approved by the local “tenants and owners” association too. All properties being leased out for any duration should be registered with the commune for compliance with the local laws.

The registration fee is 2% of the yearly rent plus government stamps for unfurnished properties. In case the property is furnished, 3% of the annual rent is charged. Usually, the landlord and the tenant split the registration fee between them. In case a property is leased though an agent, the tenant is charged an additional fee of either 10% of the annual rent or 1 month’s rent.

Contract termination

If a landlord in Italy wishes to terminate a rental agreement, he has to send a disdetta (registered letter with 6 months notice) to the tenant, mentioning the reason for termination. The disdetta can only be served after 4 years for a free market contract and 3 years for a conventional contract.

Under special conditions, a free market contract can be terminated by the landlord before its expiration date. Valid reasons for early termination of the contract include: personal use for the property, selling the property, renovation and using the property for public/ religious/ cultural purposes. If the property isn’t used for the stated purpose within a period of 1 year, the landlord has to renew the original contract with the same tenant or compensate the tenant by paying 3 years’ rent.

A tenant can terminate a contract before its expiry date for legitimate reasons like moving to another city. In this case too, a disdetta must be provided. If the tenant is serving the disdetta 6 months prior to the contract expiration date, no reason is required.

Tax

Anyone who spends 183 days a year in Italy is regarded as a resident and is liable to pay taxes from all sources of income including rent. The taxable amount may vary, depending upon an expat’s annual (Italian-sourced) income and the bracket they fall under.

Since the taxation system in this country is very complicated, all expats are strongly advised to consult a commercialista.


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