Renting out a property in Italy
Foreign investors looking for a good enterprise to carry out should definitely consider purchasing property in Italy, and then renting it out. In fact, Italy’s manifold attractions, cultural scene and overall allure make the whole country a wonderful destination for profitable real estate rentals. But how can you safeguard your investment, and ensure it turns into an advantageous venture? Well, first of all, by mastering the legal requirements and bureaucratic conditions called for by Italian legislation. As in all countries there are various, and diverse, types of contracts one may consider to use in Italy. Choosing the right one, which largely depends on what kind of rental agreement one is pursuing and for what duration, is vital.
As per current Italian law and regulations the different types of rental contracts that may be drawn up are:
- Agreed Contract
- Short-Term Contract
- Contratto 4+4, literally 4+4 Contract
- Contract for Students
- Contract for Tourist Rentals
- The agreed contract usually set for a minimum of 3 years and which may be renewed for an additional 2 years.
- Short-term lease contracts have a minimum duration limit of 1 month and maximum 18 months. The need these contracts respond to is temporary one (with a limited duration), hence they are not extendable nor renewable.
- The Contratto 4+4, i.e. 4+4 contract, is the most commonly used contract for private rentals in Italy. It is basically a free contract which enables parties to decide on the annual fee as they prefer. This contract’s minimum duration is 4 years. Once the 4 years are over it may be renewed for a further 4 years (with the exception of specific law-regulated situations).
- Contracts for college students are legal agreements drawn up to meet students’ specific needs. Duration is equal to minimum 6 maximum 36 months, and renewal is possible after that.
- Contracts for tourist rentals are those agreements valid for rentals no longer than 30 days. As such they do not require formal registration unless the tenants wish to renew the contract and extend their stay for over 1 month
In compliance with Italian law all rental contracts, whatever their type and duration, must contain certain information.
The information rental agreement must necessarily comprise includes:
- Personal information (Italian tax code, ID data / Passport data) for both the landlord and tenant;
- Property details;
- Rental period agreed upon;
- Type of contract;
- Monthly due rental fee
- What the rental fee includes
- APE Energy Performance Certificate – a technical certificate which states the kilowatt/hour amounts the property requires to keep the premises at 18 degrees in winter and summer;
- Deposit requested – landlords are strongly advised to ask for a deposit, equal to at least one monthly rental fee;
- Utilities – terms and conditions related to the use and charging of the property’s gas, electricity etc.
Finalization of a rental agreement implies its signature and registration. Once the two parties have agreed on it and signed it the landlord is required to formally register it at the local Italian Revenue Agency (Agenzia delle Entrate) within 30 days of the signature date. The property owner may either visit the local Revenue Office personally or register the contract online, via the Agency’s website.
Many owners who decide to rent also choose to insure it. To be on the safe side a property’s insurance policy should cover the periods of time in which it will not be occupied and comprise public liability insurance. The public liability insurance aspect is important inasmuch as it safeguards the landlord from any possible third parties’ claims as concerns injury, death, loss or damage of property and negligence. On the other hand an overall insurance of an unoccupied home covers those cases such as weather-caused damage, theft, and/or malicious damage that may happen in a property left vacant.
Having perfect understanding of the specific contractual relations provided for by Italian law, and the duties, obligations and rights of both contracting parties is vital for a good relationship and proficuous business agreement.
Duties of the landlord and tenant
The landlord: art. 1578 of the Italian Civil Code maintains that the owner of the property is required to supply a property in good conditions, i.e. a home free of flaws or faults that hinder its being used for the agreed purpose. In addition, the landlord must provide the energy and safety certificates that establish the required kilowatt/hour required to keep the premises at 18 degrees in winter and summer, and always provide a receipt for the due rental payments received. Should the tenant decide to make improvements on the property, and sustain the costs implied, the landlord must abide (provided these do not lead to any damage). Last, but definitely not least, if the tenant is behaving properly the landlord is not allowed to terminate the contract earlier than agreed upon.
The tenant: is responsible for the property, and required to care for it dutifully and use the premises for the purposes agreed to as stated in the contract. It is the tenant’s duty to carry out minor maintenance tasks in order to be able to return the property in the same condition in which it was let.
Damages and deterioration incurred during the time of the lease are also a tenant’s responsibility, even when these should result from emergency situations, provided the emergency did not occur for reasons independent of the tenant’s actions or will. The tenant is naturally also required to settle extra expenses such as energy consumption and water.
Prospective landlords desirous to make the most of their properties should definitely prepare a detailed and thorough business plan.
We would definitely suggest a close study of the types of contract, definition of the rental fee and careful tax planning prior to embarking on the venture. To do so properly, effectively and efficiently we strongly recommend having serious, dedicated qualified professionals to count upon for advice, information and assistance.
As regards the type of contracts to use investors naturally need to decide what their target tenants “look like”. Short-term contracts are generally used for temporary tenants that are present for a specific reason (for example, work). This agreement offers the benefit of being able to vary one’s requested rental fee, as the amount is only fixed for a single lease’s term. The owner can also easily change the property’s policy, according to what he/she experienced with previous tenants.
The owners of assets near schools or colleges often get very good profits with contracts for college students. These in fact yield profitable fees, and offer the perks of a property occupied only for a set of months at a time, and, generally, low maintenance and/or refurbishment costs. As concerns longer periods of time the advantages of free contract (4+4 Contract) are continuity, stability and dependability. The owner holds a legally binding document guaranteeing a secure rental income for a pre-defined period of time. Landlords often choose long term leases to reduce costs implied when tenants change, and avoid vacancies. On the other hand, this kind of lease does not allow for the flexibility the other types of rental agreements provide. Mastering the details, “hidden info” and peculiarities of different types of contracts can be really hard for a foreign investor. Being able to count on the inside knowledge and expertise of an experienced local lawyer is vital.
Deciding one’s desired rental fee is a crucial step. Looking around, and ascertaining the current trends in the neighborhood and community, to define a competitive fee, is very important.
As concerns taxes foreign investors should bear in mind that they will be taxed for the income derived from Italian sources, and this includes rental income. Hence, rental income must be declared to the tax authorities. Current Italian law provides two options for taxation: ordinary taxation and flat rate tax scheme (cedolare secca). Ordinary taxation is a personal progressive tax. Income up to 15 000 EUR corresponds to a tax rate equal to 23 %.Incomes from 15 001 EUR to 28 000 EUR the rate is 27%. Taxes due rise accordingly and can be as high as 43% for incomes over 75 001 EUR. The flat rate tax scheme (cedolare secca), instead, timplies a fixed tax equal to 21 % of the annual rent for free contracts, 15 % for agreed contracts and 10 % for student contracts. Contracts with a duration of less than 30 days do not need to be registered, and are not taxed.
How to turn your home or real estate investment into a profitable business enterprise without losing one’s energy and patience understanding the fine print of Italian bureaucracy and legislation ? Contact us, we’ll be glad to help. Our expert team of real estate agents, lawyers, accountants, architects and surveyors facilitates and assists foreign investors throughout the whole process of renting their Italian property. Savvy about the law and red-tape we offer all-round services and insider’s tips as regards contracts, taxes and pricing. Committed to your success we also help you make the property public and advertise it to the right target group.