Navigating Precontractual Liability in Italy as a Foreign Real Estate Investor
What is Precontractual Liability?
Purchasing real estate in Italy is a complex process, especially for foreign investors. Beyond taxes and fees, Italy imposes precontractual liability, which holds both parties responsible for the consequences of their participation during negotiations. Understanding precontractual liability as a foreign investor is vital, as individuals and companies can be held liable for the damages incurred by the other party before a contract is formalized.
Legal Framework
Article 1337 of the Italian Civil Code
Precontractual liability is derived from two articles of the Italian Civil Code. First, Article 1337 c.c. states: “Le parti, nello svolgimento delle trattative e nella formazione del contratto, devono comportarsi secondo buona fede. [The parties, in conducting negotiations and in the formation of the contract, must act in good faith.]” This general clause requires fairness during negotiations, and Italian courts interpret its scope with reference to the parties’ behavior.
Article 1338 of the Italian Civil Code
While Art. 1337 c.c. establishes a general duty to negotiate in good faith and protects against fraud or scams, Art. 1338 c.c. addresses a more specific scenario. It provides that “La parte che, conoscendo o dovendo conoscere l’esistenza di una causa d’invalidita’ del contratto, non ne ha dato notizia all’altra parte e’ tenuta a risarcire il danno da questa risentito per avere confidato, senza sua colpa, nella validita’ del contratto. [The party who, knowing or should have known of the existence of a cause of invalidity of the contract, having not notified the other party is liable for damages suffered by the latter for having relied, through no fault of his own, on the validity of the contract.]” In practice, this means both parties must disclose any information relevant to the contract’s validity, and failure to do so can invoke precontractual liability.
Key Case Law
While not formally binding, the judicial precedent set by Italy’s Supreme Court of Cassation provides guidance to lower courts enforcing precontractual liability. Notably, Cass. Civ. Sez. III, 27 March 2018, no. 7517 lays out four conditions that must be met for liability during negotiations:
- Negotiations were underway between the parties, meaning concrete steps were taken towards agreement.
- The party claiming damages reached a reasonable reliance on the conclusion of the contract. Reasonable reliance can be drawn through the phase and extent of negotiations, or more concrete sources, such as letters of intent or preliminary agreements (compromesso).
- The party held liable interrupted negotiations without justified reason. Some typically justified reasons for terminating negotiations include:
- Existence of litigation pertaining to the property,
- New demands from a party,
- Misinformation regarding the property,
- Construction issues, etc.
- There are no facts that should have prevented the claimant’s reasonable reliance, meaning the claimant was appropriately diligent and did not ignore any warning signs.
Application to Real Estate
Precontractual liability is especially important to real estate, as negotiations require significant financial investment and time commitments. In Italy, buyers pay taxes, notary fees, mortgage related costs, cadastral and land registry fees. Sellers typically pay for an energy efficiency evaluation (APE), and both parties split the real estate agent’s commission. Precontractual liability protects the investor in case of fraudulent or misleading sales or negotiation practices, allowing them to recover these expenses. This is particularly relevant for foreign investors, who may be purchasing property without seeing it in-person.
In real estate, precontractual liability often arises due to the frequent use of letters of intent and preliminary agreements, which serve as grounds for its invocation. A non-binding letter of intent, either unilateral or bilateral, signifies interest in continuing negotiations, thus subjecting parties to good faith rules. Preliminary agreements, a binding part of the contracting process, are accompanied by a deposit, adding an extra layer of liability if either party refuses to sign the final deed.
Comparison to Other Jurisdictions
While several systems hold the principle of good faith, Italy is one of the few to apply it to the negotiation stage. For example, in the United States and United Kingdom, investors can generally withdraw from negotiations at any time without consequences, assuming no promises have been made. With this freedom comes a risk, as investors in these regions may suffer losses if sellers terminate negotiations. This means that buying in Italy can be safer for investors.
Another key distinction from other countries with precontractual liability is that Italy only allows negative interest. The liable party is only responsible for financial damages and lost income, but will not be subject to any punitive charges.
Importance of Legal Counsel
Given the complexity of precontractual liability and Italian real estate, an Italian attorney is essential to help foreign investors navigate the system’s legal intricacies. Since the good faith clause is broad, attorneys must apply case law to identify when precontractual liability can be invoked. Unlike the impartial duties of notaries and real estate agents, an attorney will represent and protect you or your company’s interests when investing in Italian property. AdvaLux’s dedicated, multilingual attorneys bring deep expertise in international and real estate law, and are uniquely equipped to safeguard your interests while maximizing your investment.
-Morgan Dreher
October 1, 2025