ITALY Law and Practice Contributed by: Guido Alberto Inzaghi, Ivana Magistrelli, Silvia Gnocco and Gabriele Paladini, SI – Studio Inzaghi
6.3 Regulation of Rents or Lease Terms The parties are free to determine rent amounts. Italian law sets a minimum term for leases (see 6.4 Typical Terms of a Lease ) and the parties can freely fix the term in longer-term leases. 6.4 Typical Terms of a Lease The Tenancy Law provides for fixed minimum terms of six years for non-residential leases of office/retail properties and nine years for hotel properties. Tempo - rary leases can be entered into on the basis of certain objective reasons. In longer-term leases, the parties can agree on a different term. The Italian Civil Code provides for a maximum lease term of 30 years. The lease automatically renews upon the expiry of the initial period, unless either party gives notice not to renew at least 12 months prior to the expiry term or 18 months prior to the expiry term in the case of hotels. A residential lease has a fixed/minimum term of four years. Upon the expiry of the initial term, the lease automatically renews for another four years, unless the parties agree otherwise. The Italian Civil Code distinguishes between ordinary and extraordinary maintenance works and tenants are generally only responsible for ordinary maintenance. However, parties can deviate from this principle. The frequency of rent payments can be freely agreed upon between the parties. 6.5 Rent Variation Parties are free to determine the rent, but once it is fixed, it is subject only to an annual review based on 75% of the Italian National Institute of Statistics (ISTAT) consumer price index or 100% depending on the duration of the lease. Since November 2014, parties to longer-term leases can freely negotiate and determine a mechanism for reviewing and updating the rent. However, current market practice still pro - vides for the rent to be updated on the basis of the ISTAT consumer price index. Turnover rents, stepped rents, and free rent periods are also permitted, subject to certain limitations set out in case law.
6.6 Determination of New Rent See 6.5 Rent Variation . 6.7 Payment of VAT Residential Leases
The general rule is that residential leases are VAT- exempt. Landlords can opt for the VAT regime to be applied at a 10% rate exclusively in the following cases: • leases executed by companies that built the leased building and companies that have performed, including through contractors, the renovation works referred to in Article 3 (1)(c), (d) and (f) of Presidential Decree No 380/2001; and • leases of social housing (as defined by law) carried out by other companies. The tax reform currently in progress should extend the VAT option to any landlord who qualifies as a VAT entity, irrespective of these requirements (as in the case of non-residential leases, see below). Non-Residential Leases The general rule is that these leases are VAT exempt. However, any landlord can opt to have VAT applied (at a 22% rate). The VAT option must be clearly stated in the agreement. 6.8 Costs Payable by a Tenant at the Start of a Lease In Italy, no costs should be paid by the tenant other than rent and any ancillary charges, unless fit-out works are to be carried out within the property. If this is the case, the parties will define which works are for the benefit of the tenant and which are for the benefit of the landlord. 6.9 Payment of Maintenance and Repair Maintenance costs for common parts of the property in Italy are borne by the landlord and reimbursed by tenants on a pro rata basis. 6.10 Payment of Utilities and Telecommunications Tenants pay utilities and telecommunication costs in Italy.
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