“Coverage and Safety in Real Estate Purchasing: Navigating Laws and Sureties”
How can I protect my investment when purchasing a property still under construction?
What legal guarantees exist to secure my advance in the real estate sector?
With the advent of Law No. 210 of August 2, 2004 210, better known as “Delegation to the Government for the protection of the patrimonial rights of buyers of properties under construction” and the related Legislative Decree No. 122 of June 20, 2005, 122, the construction sector has seen significant changes.
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These regulations have clarified and tightened the obligations of builders, providing greater protection to individuals who decide to purchase properties still in the construction phase.
The focus of these provisions particularly concerns two fundamental aspects:
- 210 Insurance Guarantee for Advances: The builder must subscribe to an insurance guarantee that protects all advances given by the buyer. This measure is aimed at safeguarding the buyer in situations where the builder goes bankrupt or is unable to complete and deliver the property as agreed. The Insurance Guarantee covers all amounts already paid and future amounts, as outlined in the preliminary contract, until the conclusion of the official sale deed. It is important to note that funds from loans or the final payment made during the formalization of the purchase are excluded from this protection. If there are no advance payments or deposits, there is no need for this guarantee.
- Decennial Coverage Insurance: This policy comes into effect after delivery, offering coverage for ten years from any construction defects. It extends to various areas, such as the property’s structure, the exterior, moisture protections, and internal floors and coverings.
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It is essential for a buyer to know and understand the importance of the surety bond. When a construction company sells a property, it provides the buyer with a surety bond, which represents a guarantee on the sums already paid and those to be paid, as foreseen by the preliminary sales contract.
To ensure maximum transparency and security, the builder is required to provide the surety bond to the promissory buyer before, or at the time of signing the preliminary contract.
The regulation specifically concerns builders who operate professionally or housing cooperatives selling a property still under construction, while the buyer must be an individual.
The obligation of the surety bond is applied to properties under construction, for which a building permit has been requested but which are not yet complete.
The intent of this regulation is clear: to ensure solid and reliable protection for the buyer of a property under construction, preserving his investments and guaranteeing the possibility to recover the sums paid in case of failure or bankruptcy of the construction company. With these provisions, the real estate sector becomes safer and more transparent for all involved.
We also remind you that the insurance company, at the time of stipulation, is required to collect an additional sum from the client, equal to 0.5 per mille of the amount guaranteed by the surety bond, destined for the “Solidarity Fund for buyers of properties under construction,” managed by CONSAP S.p.A., as provided by Article 17 of Legislative Decree 122/2005. 122/2005.
Modification with Legislative Decree of January 12, 2019, No. 14 – Protection of Buyers of Properties Under Construction
Since Legislative Decree No. 122 of June 20, 2005, 122protection for those buying properties under construction has seen further integrations with Legislative Decree No. 14 of January 12, 2019. 14.
This new update highlights two fundamental aspects:
- Preliminary Contract: The execution of the preliminary contract now requires a public deed or authenticated private writing. The absence of a ten-year insurance policy at the time of purchase can render the contract void.
- Role of the Notary: The involvement of the notary has been emphasized to ensure compliance with regulations protecting the buyer.
These rules apply to contracts related to properties under construction for which a building permit has been requested after March 16, 2019.
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Who is protected by these regulations?
- Seller: Entrepreneur or building cooperative.
- Buyer: An individual who is not acting for business purposes.
- Object of Sale: Properties under construction or not completed, but for which a building permit has already been requested.
Important: The buyer cannot waive these protections, and any contrary clause is considered null.
Surety: At the time of signing the preliminary contract, the builder must provide the buyer with a surety bond, thus guaranteeing the sums paid by the buyer.
Who issues the surety? Banks or insurance companies, while the possibility for financial intermediaries has been eliminated.
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Surety Guarantees: The surety protects the buyer in case the builder faces a crisis or does not deliver the ten-year insurance policy at the time of property transfer.
The Importance of the Surety in the Preliminary Contract
Without an insurance surety, it is not possible to proceed with the preliminary contract. If a contract is signed without a surety, it is void according to the law, protecting the buyer’s rights. The buyer can choose whether to contest the validity of the contract or to accept the contract even without such a guarantee.
Guarantees and Obligations: The Ten-Year Insurance Policy in Real Estate Purchasing
Every builder is required to provide the buyer with a ten-year insurance policy at the time of property transfer. This obligation and the related penalties for non-compliance are detailed in legislative decrees such as Legislative Decree No. 122/2005 122/2005 and Legislative Decree No. 14/2019. 14/2019.
Details and Coverage of the Ten-Year Indemnity Insurance Policy
The policy must cover material damages to the property, including damages to third parties, arising from construction issues or land defects, as specified in Article 1669 of the Civil Code.. Jurisprudence, including that of the Court of Cassation, has variedly interpreted the definition of “serious construction defects,” making it essential to choose a policy that meets the buyer’s needs.
Essential Requirements of the Insurance Policy in Property Purchasing
The insurance must be based on a standard model, be ten-year, cover direct and material damages to the property, and respect other key criteria established by the legislative decrees. The policy should offer comprehensive coverage, without clauses that unduly limit the buyer’s rights.
Consequences of the Non-Delivery of the Insurance Policy to the Builder If a builder fails to fulfill the obligation to provide the insurance policy, the buyer has the right to withdraw from the preliminary contract and may exercise the surety. Non-delivery can also lead to the nullity of the transfer contract, giving the buyer a choice on how to proceed.
Interpretations and Doubts on Renovation Properties undergoing renovation present specific doubts in terms of coverage and insurance obligations. Interpretations vary, making it essential to carefully assess the needs and insurance conditions.
Posthumous Ten-Year Policy DM 154/2022: Protection for Buyers of Properties Under Construction
On October 21, 2022, a significant new development for those purchasing properties under construction was announced: Ministerial Decree 154/2022. Starting November 5, 2022, every builder must provide, during the act of sale, a copy of the posthumous ten-year policy, which will serve as additional protection for buyers.
This document must strictly adhere to the standard text defined in Annex A, ensuring the minimum safety required, similar to what is provided by DM 125/2022 for the surety of real estate buyers.
The Regulatory History: From Law 210/04 to the New DM 154/22
The regulatory path began with Law 210/04, dated August 13, 2004. This law, focused on the protection of real estate buyers, established a roadmap for subsequent decrees. In particular, Legislative Decree 122/05 of July 6, 2005 introduced essential insurance requirements and a mandatory surety, thus ensuring greater protection for buyers in case of potential issues such as the builder’s bankruptcy or post-construction defects.
Updates from DM 154/22
DM 154/22, in combination with DM 125/22, represents a turning point. It introduces a standard warranty model that addresses serious post-construction defects and establishes clear responsibilities for builders and insurers, focusing on the interests of the buyers.
The standard text “Annex A” is a detailed guide, covering aspects such as:
- Property damage
- Civil liability towards third parties, with a minimum limit of €500,000
- Common rules among the sections
It further highlights the importance of compliance, with detailed definitions and criteria, ensuring transparency and protection.
Final Considerations on DM 154/22
This new decree, with its specific and clear definitions, aims to protect buyers, ensuring that builders meet standards and offer adequate guarantees. It is a significant step forward in the real estate world, emphasizing the safety and trust of buyers.
