Contracts for enjoyment in relation to subsequent alienation of real estate
(Article 23 of Legislative Decree “Unblock Italy”)
“Rent to buy and l’affitto con riscatto (rent with purchase right) are two completely different forms of purchase.” Commonly used as synonyms, rent to buy and l’affitto con riscatto are two ways of selling that are different from both a contractual and conceptual point of view.
What is the difference between rent to buy and l’affitto con riscatto?
L’affitto con riscatto (which has existed in Italy for some time) is often confused with rent to buy which is, instead, an alternative form of purchase which originated in Anglo-Saxon countries. The two forms are different both conceptually and contractually.
From a conceptual point of view, l’affitto con riscatto consists of paying the price of the home, in whole or in part, in installments. Rent to buy is a preparatory program to purchase, which gives the potential buyer time come into line with the bank requirements for granting a mortgage. Aspiring borrowers can use the three years up to the time of the signing of the deed to raise their level of equity (i.e., the initial capital required at the time of purchase) and create a payment history that reassures the bank on his/her reliability as a payer.
On a contractual level, l’affitto con riscatto consists of a lease agreement flanked by an agreement providing a purchase option.
The former usually includes a clause that provides for the right of the renter to be able to purchase the asset at a price agreed upon today and blocked for X number of years. If you exercise the right to purchase, the rental payments, in whole or in part, are reclassified as a down payment and are deducted from the sales price.
With the rent to buy approach, there is a double contractual scheme with a preliminary sales agreement connected to a lease agreement. Part of the amount paid by the tenant to the seller goes to the lease, with a favorable rent rate, and part is a down payment on the price as determined by the preliminary sales agreement. There is no subsequent revaluation of the amounts paid, which allows for clarity from a tax vantage.
Which of the two contracts does Article 23 of the “Unblock Italy” decree regulate?
Article 23 e has modernized the traditional rent with the option to purchase approach. Firstly, it has introduced the positive element of making it mandatory to register the affitto con riscatto lease in the land register, as is the case for all sales contracts and preliminary sales agreements. The registration is valid for the entire duration of the contract and in any case for a period not exceeding 10 years.
Another positive element is that it has provided a mechanism by which a part of the sums paid for the “enjoyment” of the property at the time of the notary’s public deed go towards an advance on the price.
In the rent to buy approach, if the tenant is unable to stipulate the deed, he/she has the opportunity to continue with the lease, losing, however, the favorable rent. Or the tenant could get out of the contract and recover the sums paid as down payment simply by using the option provided for in the contract to sell his/her contractual position to a third party.
