Parliament Green Lights Deregulation of Italian Commercial Property Leases
Effective November 12, 2014, the Italian Parliament has approved with amendments Law Decree no. 133/2014 ("Sblocca Italia"), through the enactment of Conversion Law no. 164/2014 (the "Conversion Law").
Italian Tenancy Law
Italian commercial property lease agreements are regulated by Law no. 392 of July 27, 1978 (the "Tenancy Law"). The Tenancy Law contains various mandatory provisions in favor of the tenant that may not be disregarded. Any departure from these provisions to the benefit of the landlord, if challenged by the tenant, can be declared null and void and automatically replaced by the applicable mandatory provision of the Tenancy Law.
The Conversion Law allows the parties to a property lease agreement to depart from the mandatory provisions of the Tenancy Law in those agreements where the annual rent is greater than €250,000 and the leased property has not been declared of historical interest. As a result, large Italian property lease agreements now have the same type of flexibility seen in other European markets.
The law does not apply to property lease agreements executed prior to the date of enactment of the Conversion Law (November 12, 2014), nor to judicial proceeding pending as of that date.
Some of the main provisions of the Tenancy Law that were previously mandatory and now can be disregarded in large property lease agreements are:
Minimum Duration and Renewal. Minimum duration is six years, with automatic renewal for additional minimum six-year periods at each expiration.
Exit Rights. Landlords are not entitled to withdraw from a lease outside of expiration and, in any case, at the expiration of the first term, withdrawal is limited to where (i) it intends to occupy premises for its own use, or (ii) it intends to renovate the leased premises. The tenant is always entitled to withdraw from a lease in the case of so-called "serious reasons" ("gravi motivi").
Rental Increases/Indexation. Rent increases are capped at 75 percent of variation of the National Institute for Statistics ("ISTAT") index for leases having the minimum duration (i.e., 6 + 6 years), and capped at 100 percent of the variation of the ISTAT index for a lease that exceeds minimum duration.
Sublease and Assignment of Contract. The tenant retains the right to sublease or to assign the contract within the scope of the lease or the sale of the relevant going concern.
Registration Costs. No more than 50 percent of contract registration costs are chargeable to the tenant.
With respect to lease agreements where the tenant is a retailer—i.e., carrying out an activity that involves direct contact with clients and consumers ("contatti diretti con il pubblico degli utenti e dei consumatori")—the following additional previously mandatory provisions of the Tenancy Law may now be disregarded in large Italian property lease agreements without any prejudice to the considerations described above.
Goodwill Indemnity. The tenant has the right to a goodwill indemnity equal to 18 monthly installments of the established rent, or 36 monthly installments of the established rent if the immediately subsequent re-letting (within 12 months) is to a tenant operating in same product category.
Preemption Rights. The tenant has preemption rights in the case of the sale of the property, as well as re-letting of the property at the same terms and conditions of third-party purchasers or tenants.
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