THE EVOLUTION OF THE LEASING CONTRACT
The ever-increasing markets competition and the emergence of new needs have pushed for the definition of new contractual schemes, capable of responding to the diversified demand of purchasers of goods and services.
Thanks to the influence of Anglo-Saxon law, for several years now the Italian legal system has welcomed a number of figures similar to the lease contract: real estate leasing (known as 'leasing'); rent-to-buy; and buy-to-rent.
These are, in truth, niche institutions that are not yet widely applied in our legal system but which, in our opinion, are extremely undervalued.
For these reasons, we feel it is appropriate to explain how they work: these institutions could soon represent new forms of investment and a valid alternative to traditional sale and lease contracts.
The matter is regulated by Article 1(76) of Law 208/2015 (Stability Law 2016).
Property leasing is a legal transaction for consideration involving three parties:
(a) the user company;
(b) the grantor (a financial intermediary);
(c) the seller of the asset or the service provider.
It is, in essence, a trilateral contractual scheme, which differs from the traditional equipment leasing contract.
To make it simple:
* company X (USER) indicates to the Bank the asset it needs;
* bank Y (GRANTOR), on the basis of the indications received from the user, buys or arranges for the construction of a property from party Z (SELLER/SUPPLIER);
* bank Y, against payment of a periodic fee, lends company X the property sold/supplied by Z.
Property leasing involves two contracts, linked to different economic interests:
* a sale/purchase contract between bank Y and seller/supplier Z;
* a leasing contract between bank Y and user company X.
The rent is based on the market value of the property, following an appraisal. It may be fixed or floating, depending on whether the contract provides for its indexation over time.
The user company may renegotiate the financial plan during the term of the contract. At the end of the term the user may exercise one of the following options:
a) return the leased asset;
b) exercise the redemption option: purchase the asset for a residual sum predetermined at the time the contract is signed.
If the user company chooses to redeem the asset, it will enter into a sale and purchase agreement with the bank.
RENT TO BUY
The purpose of the transaction is to rent in order to buy.
The matter is governed by Article 23 of Decree-Law 133 of 2014, 'Urgent measures for the opening of construction sites, the realization of public works, the digitalisation of the country, the simplification of bureaucracy, the hydrogeological instability emergency and for the resumption of productive activities', known as the 'Unlock Italy Decree'.
The decree grants legal protection to the parties to the lease if they intend to buy the property when it expires.
The subject of the contract may be a residential property or not.
What is the difference with property leasing?
In rent-to-buy the transaction does not involve three parties but two: the contract is between tenant and landlord, with the former having the option to buy the property at the end of the lease.
The rent will be higher than the market rent as it does not represent only the consideration for the enjoyment of the property but also a share of the subsequent sale price (this share will be returned to the tenant if he does not intend to purchase the property at the expiry date stipulated in the contract).
The advantage of this contractual scheme is, for the tenant, to immediately enjoy the property best suited to his needs without suffering the asset reduction, corresponding to the purchase price, or having to take out a mortgage; for the landlord, to obtain a higher income, compared to the market rent, for the entire duration of the lease. Thanks to the legislative change brought about by the Banking Decree (d.l. 59/2016), if the tenant defaults, the landlord can avail itself of the eviction validation procedure.
The rent-to-buy contract is subject to transcription.
BUY TO RENT
In buy-to-rent there is simply a purchase and sale with a particular form of payment in instalments:
* the transfer of ownership is immediate (there is no tenant because the contractor acquires the property immediately);
* the consideration for the sale is paid in instalments.
The difference with buying and selling after taking out a mortgage is clear: in buying and selling the seller is paid in full by the bank while in buy-to-rent the seller only receives an advance on the purchase price and the rest is paid in instalments.
Forms of real estate investment have evolved over the years.
Real estate leasing, rent-to-buy and buy-to-rent institutions represent good options, especially on the buyer's side, to enjoy a property while lacking the necessary liquidity and avoiding bank debt.
If you are looking for a property that is right for you, contact us for advice and we will help you find the solution that best suits your needs.