Understanding the innovative "rent to buy" mechanism in Italy: enjoy your property immediately while deferring the final purchase, with comprehensive analysis of civil and tax implications.
Avv. Carlo Carta
Civil and Commercial Law Expert
Article 23 of Decree-Law No. 133/2014 (the "Sblocca Italia" decree), effective September 13, 2014, addresses the "rent to buy" mechanism, also known as lease-to-own. This innovative contractual arrangement is ideal for those intending to purchase real estate while immediately enjoying its use through periodic payments, deferring the final purchase and payment of the remaining price, which must be reduced by all or part of the previously paid installments.
Key Benefits
The "Sblocca Italia" decree permits rent-to-buy contracts for residential and commercial buildings, as well as land. These contracts apply to all parties—individuals, businesses, professionals, etc.—whether as the "prospective buyer" or "prospective seller."
Article 23 of D.L. No. 133/14 mandates the transcription of rent-to-buy contracts pursuant to Article 2645-bis of the Italian Civil Code to protect both parties (prospective buyer and seller). The contract must be executed via:
Notarized agreement ensuring legal validity
Private contract with notarial authentication
The three-year term provided in Article 2645-bis, paragraph 3, is extended to the entire duration of the contract, but not exceeding ten years. This protects the "prospective buyer" throughout the property's enjoyment period until the anticipated purchase date (but not beyond ten years from signing).
Transcription of the preliminary agreement reserves the property for up to 10 years, as it takes precedence over subsequent registrations made by the seller. This gives the buyer priority rights over the property.
Transcription also establishes a special lien on the property (Article 2775-bis of the Civil Code) securing the prospective buyer's claims in case of seller default. For example, if the grantor declares bankruptcy, the tenant has the right to recover from the property's auction proceeds the portion of installments allocated to the purchase price (the residual portion allocated to rent need not be refunded).
In general terms, the rent-to-buy contract can be defined as follows:
The party designated as the "prospective buyer" may immediately use the property by paying a specified installment over a certain number of years.
At the end of the established period, the actual sale occurs, with total or partial offsetting of amounts previously paid for the property's availability.
The parties enjoy broad contractual autonomy and may freely determine:
Length of the enjoyment phase and subsequent sale
Portion of installment attributed to purchase price
Optional withdrawal clauses and conditions
Possibility to assign the contract to third parties
The division of monthly payments between the enjoyment portion and capital portion is freely negotiated by the parties based on prevailing market rental rates. This flexibility allows customization based on market conditions and party preferences.
The rent-to-buy contract may be terminated under the following circumstances:
Failure to pay installments triggers automatic termination
The contract terminates upon non-payment of a minimum number of installments (even non-consecutive) as determined by the parties. However, this minimum cannot be less than 1/20 of the total number of installments.
Example Calculation:
For a 10-year contract (120 monthly installments), termination requires non-payment of at least 6 installments (120 ÷ 20 = 6).
Seller fails to fulfill contractual obligations
When the grantor (seller) defaults, they must refund the portion of installments allocated to the purchase price, plus legal interest.
This protects the prospective buyer from seller misconduct or inability to complete the sale.
Buyer fails to complete the purchase
The grantor has the right to repossess the property and, unless otherwise stipulated in the contract, retain all installments paid as compensation.
Important: Parties can negotiate different terms regarding installment retention in case of tenant default—this should be clearly specified in the contract.
The tax treatment varies significantly depending on whether the redemption clause is binding for both parties or only represents an option for the buyer.
As clarified by the Italian Revenue Agency (Circular 28/2011 and Resolution 338/2008), a lease contract with a binding future sale clause constitutes a transfer of goods that is deemed to occur at the time of signing the "lease" contract, even though the transfer effects occur later.
Key Points:
Under Article 109 of the Consolidated Income Tax Act (TUIR), for leases with a binding transfer clause for both parties, the sale proceeds are deemed received upon contract signing.
This applies even when two separate agreements are executed (a lease contract followed by a binding preliminary sale agreement requiring both parties to transfer ownership at lease expiration).
When the tenant is granted the option to purchase the leased property at a predetermined price, deducting any down payments and accrued rents, the following rules apply:
During Lease Period
Rent payments are subject to VAT at the applicable rate
Upon Exercise of Option
The business applies VAT on the remaining transfer amount
During property enjoyment: Rent allocation is taxed as lease income
Upon transfer: A capital gain arises between the sale price and the property's tax basis
Contract binding for both parties
Property Value
€300,000
Monthly Payment
€1,200
Capital gain is immediately determined (difference between sale proceeds and property value) at contract signing
Tax Basis
€350,000
Duration
10 years
Monthly Rent
€600
Monthly Down Payment
€500
Final Sale Price
€400,000
Income Tax:
Tax rental allocation: €600 × 12 = €7,200/year
VAT:
Apply 22% VAT on €7,200 rental income
Down Payment:
€500 × 12 = €6,000 + 22% VAT (debt to lessor)
Note: Down payment does not constitute taxable income
Income Tax - Capital Gain:
€400,000 - €350,000 = €50,000
VAT Application:
On the difference between final sale price and down payments:
€400,000 - €60,000 (€6,000 × 10 years) = €340,000 + 22% VAT
Rent-to-buy contracts are eligible for various tax benefits and deductions provided by Italian law:
Tax benefits during the lease period
Deductions for leasing property used as a primary residence pursuant to Article 16 of TUIR apply until the final redemption of the property.
During Lease Phase
Qualify for rental deductions
Primary Residence
Must be principal dwelling
Renovation and energy-saving deductions
Benefits for building restoration and energy-saving interventions are available to the tenant who has property availability.
Building Heritage Recovery
Deductions for renovations, restorations, and maintenance work
Energy Efficiency Upgrades
Tax credits for energy-saving improvements and green building upgrades
Important: The tenant must have legal availability of the property to claim these deductions
Navigate the complexities of rent-to-buy contracts with confidence. Our legal team provides comprehensive advice on contract structuring, tax optimization, and buyer protection.