A. Mortgages

1. Can security be granted to a foreign lender?

Yes. There is no restriction on the ownership of land by foreign parties in general or a foreign bank taking security over land. However there are some limitations regarding the possibility for a foreign bank which does not have a permanent establishment in Italy to benefit from the “substitutive tax”, as detailed in paragraph 3.1 below.

2. Can lenders take a mortgage over land and buildings on the land?

In general, a mortgage extends to all improvements on the mortgaged land (including any construction realised on the land). In the event that a third party holds a superficies right over the land (that is a right which creates a horizontal split in ownership, enabling a third party to own a building, whilst the land on which such building has been built is owned by a different person), such third party may grant a mortgage over the buildings whose erection has been started, completed or is merely planned and the owner of the land may grant a separate mortgage over the land.

2.1 The distinction between mortgages on land and buildings on the land?

With respect to the mechanisms for registering and perfecting a mortgage, there is no such distinction.

Any mortgage is granted by the owner of the relevant right (ownership, superfiecies right etc.) by means of an unilateral notarial deed and must be registered in the Land Registry (Ufficio dei registri immobiliari) by filing a notice of registration (see also paragraph 3 below).

2.2 Are mortgage certificates for a certain value issued? What is the cost? Are they transferable?

Mortgage certificates do not exist in the Italian system.

In order to ascertain whether a real estate is subject to a mortgage or any other charge (e.g. a privilege) it is necessary to obtain an abstract from the Land Registry or a certification by a Notary Public.

The mortgage is considered as an ancillary instrument (principio di accessorietà), meaning it can not be assigned to a third party separately from the secured obligation. Therefore the mortgage is deemed to be assigned together with the relevant secured obligation and/or the secured credit.

For this purpose it is necessary to have the assignment registered with the Land Registry, unless the assignment is made pursuant to article 58 of the Italian Consolidate Banking Law (en masse assignment – mainly used in securitisation transactions), in which case the assignment of the mortgage is enforceable against any third parties without any need of registration.

It is also possible that two or more mortgagees agree to swap their security ranking (subrogation) in respect of a specific asset.

2.3 Can second ranking security be taken? If so, how is it registered? Is a priority deed also registered?

Yes. The Italian law allows creating more than one mortgage over the same asset. Security ranking depends on the date of application for registration of the mortgage. The registration process of second (or subsequent) ranking mortgages is the same as the one for first ranking mortgages (see also paragraph 3 below).

2.4 Can the real estate be transferred to a third party (being still subject to the mortgage) without the lender’s consent?

A mortgage is an ancillary instrument and cannot be assigned to a third party separately from the secured obligation. If the third party obtains title to the real estate (which does not need lender consent), the real estate remains subject to the mortgage.

2.5 Are there any preferred creditors (other than prior ranking mortgage holders)?

There can be additional preferred creditors being (i) any creditors who have started enforcement proceedings against the real estate for repayment of the debt and (ii) the Italian State for direct/indirect taxes.

2.6 Can “all monies” mortgages be taken?

“All monies” mortgages are not available in Italy. Security is available for specific obligations only e.g. “all sums due under a facility agreement between the parties dated 30 June 2010”.

2.7 Can a landlord’s right to receive rent be charged, assigned or transferred to a lender by way of security? If so, how?

Generally speaking, the landlord’s right to receive his rent could be pledged or assigned to the lender by way of security without the consent of the tenant. A written pledge or assignation in security is taken and needs to be (i) notified to the tenant and (ii) bear a date which has been either (i) notified to a Court Bailiff or (ii) authenticated by an Italian post office to be enforceable against the tenant and any third parties.

2.8 It is customary/possible for a lender to take a charge/security over bank accounts of the borrower? Is it usual for lenders to contractually restrict rights to withdraw funds in accounts until the scheduled interest and capital repayments are made?

Yes. A bank account pledge is customary. Generally, a borrower is entitled to operate the account(s) until it is in default.

3. What are the mechanisms for registering land and for registering and perfecting security?

As a general rule any transfer of land must be executed in the form of a notarial deed and must be registered with the relevant Land Registry Office.

Mortgages must be notarised and registered in the Land Registry. For registering the mortgage, the creditor has to submit to the register of mortgages the notarial deed and two originals of the notice of registration.

3.1 Consequences of failure to register?

If the mortgage is not registered in the Land Registry, it is not enforceable.

3.2 Formalities for execution of security and costs?

The notarial deed whereby a mortgage is created must state the maximum secured amount, that is the maximum amount (which is automatically increased by act of law by default and legal interest accrued for a certain period of time) that may be recovered through the enforcement proceedings and subsequent auction of the mortgaged asset.

The costs for the creation of a mortgage are as follows:

  • mortgage tax equal to 2% of the amount by which it is created; plus
  • stamp duty equal to 0.5% of the value of the secured obligations (only in the event that the mortgagor is different from the secured debtor); plus
  • notary fees (depending upon the amount of the mortgage).

However Italian tax law also provides that a “substitutive tax” equal to 0.25% of the secured obligations (in lieu of any tax and duty payable in respect of the credit facility agreement and any related securities) applies when the following requirements are met:

(a) the lender is a credit institution;

(b) the relevant credit facility is a medium-long term facility (more than 18 months); and

(c) the transaction is deemed “located” in Italy.

However it must be pointed out that there is a debate if the substitutive tax regime would also apply in the event that a credit facility granted by virtue of an agreement executed outside of Italy (and by a bank which does not have a permanent establishment in Italy) is secured by means of a mortgage created over real estate located in Italy.

In the case of an event of default occurring, the mortgagee is entitled to enforce the mortgage through a public sale. In order to enforce the mortgage the mortgagee must obtain a title for enforcement of its credit (e.g. an immediately enforceable decision or payment order, a bill of exchange, a protested cheque etc.). The mortgagee will receive payment out of the sale proceeds up to the maximum secured amount.

The cost of enforcement of the mortgage may vary. Normally enforcement proceedings last not less than 2/3 years.

All security constituted by attending a Notary requires the lender to be represented. Usually the lender grants local Italian lawyers a power of attorney (limited in scope and duly legalised in the lender’s own jurisdiction) to enable the lender to be represented before the Notary. It is recommended the power of attorney is put in place ahead of completion.

4. Can the lender use a Security Trustee to hold security on trust for creditors?

It is not common that secured creditors appoint a Security Trustee to hold security on trust. In any case, the law allows creditors to appoint a security agent with the power of acting in their names and on their behalf. Such agent can be empowered to carry out any actions in connection with the mortgage.

4.1 What happens if the lenders change later on e.g. on a transfer? Does new security have to be signed?

As mentioned under 2.2 above, the mortgage is automatically transferred to the assignee together with the secured obligation/credit. Consequently no new security needs to be rendered but any change in the secured credit or should be registered and therefore a notarial deed of transfer is needed.

5. Does the landlord/borrower have control over changes in tenants if the tenant wants to transfer the lease to a new tenant and is the original tenant still bound by the lease?

6. How can the lender enforce its security?

6.1 Can a foreign jurisdiction (either a court or arbitral tribunal) be chosen to settle disputes and under what circumstances may such a choice not be recognised?

No. It is necessary that a mortgage is created under Italian law and that any dispute is subject to Italian jurisdiction.

6.2 Does the local law allow for the enforcement of arbitral awards or foreign judgements without review?

Yes, foreign arbitral awards and foreign judgements are recognised and enforceable in the Italian jurisdiction (by virtue of applicable EC Regulations and international conventions) without any scrutiny in the merits, unless a constitutional right of one of the parties is violated.

6.3 How can that security be enforced? Can it be sold to a third party? Is it possible for a secured party to appoint receivers/liquidators and if so how and what are their powers? Can security be enforced directly without recourse to the courts and are private sales of security possible? Does it have to be sold by auction?

In the event of a default by the mortgagor, the mortgagee is entitled to file legal proceedings in order to sell the mortgaged real estate by auction.

The security cannot be sold separately. The law does not allow selling the mortgaged real estate privately. The mortgagee has no authority to appoint receivers or liquidators.

6.4 Is the lender responsible for maintenance and insurance of the real estate after default until sale?

No. The lender is not responsible for maintenance or insurance after default unless the lender applies to the court to be appointed as custodian to the real estate by the courts and is subsequently appointed.

6.5 Is there any method of foreclosure (lender obtaining good title to the real estate in satisfaction of all or part of its debt)? If so, does this require a court order and is it only automatically used when the real estate is not sold at public auction?

It is not possible to contractually agree that the mortgaged real estate is to be automatically transferred to the lender upon default. A judicial order is always necessary to transfer title to the mortgaged real estate. The transfer of the real estate is ordered if (i) its auction was not successfully carried out and (ii) the lender has filed a request to have the real estate transferred to it.

7. Is there anything else that you would specifically point out to a foreign lender as being unusual or particularly difficult?

In the event that the deed creating the mortgage is executed outside of Italy, it must be legalized before an Italian notary in order to be registered in the Italian Land registry.

The mortgage is valid for 20 years starting from the date of its registration and unless renewed before such term, on that date it automatically expires.

The Italian Consolidated Banking Law provides specific rules relating to banking loans secured by a mortgage over land or over buildings (credito fondiario). More specifically, mortgages cannot be submitted to claw-back actions if they are registered in the Land Register almost 10 days before the adjudication in bankruptcy of the mortgagor and the lender is entitled to enforce the mortgage through a separate public sale in parallel to the liquidation proceedings of the other assets of the mortgagor in bankruptcy.

It must be also noted that the transfer of a mortgage created over the assets of a company in bankruptcy is not enforceable against the Receiver of the said company unless it is carried out through the en masse assignment process pursuant to Article 58 of the Italian Banking Law, as specified above.

B. Security Over Shares

Assuming real estate is held in a locally incorporated single purpose vehicle to provide an alternative to enforcement of the mortgage over real estate:

1. Can security be granted to a foreign lender?


2. Can second ranking security be taken? If so, how is it registered?

Generally, no. It might be possible to create a second ranked pledge over shares where the lender is the same but the pledges secure different obligations. It is not possible for the pledge or to assign/transfer its remaining interest in the shares (if any) to another lender.

For a pledge of quotas (similar to shares) in a S.r.l. (Società a responsabilità limitata being equivalent to a UK private limited company) it would be possible to create a second ranked pledge on the same quotas but rarely seen in practice.

3. What are the mechanisms for registering and perfecting security?

A valid pledge over shares can be created in two different ways:(i) by specific pledge deed duly legalised by a Public Notary, duly annotated as pledged in favour of the lender on the related share certificate and in the shareholders books of the SPV or (ii) by endorsement of the share certificates to the lender, duly legalised by a Public Notary.

For a valid pledge over quotas in a S.r.l. method (i) above is required and the deed needs to be filed with the relevant Companies Registry.

3.1 Consequences of failure to register?

Without appropriate registration the pledge is not validly created so cannot be enforced.

3.2 Formalities for execution of security and costs?

See A.3.

Stamp duty 
0.5% of the lower of (i) value of shares/quota and (ii) the secured obligations.

Notary fees 
Calculated on a sliding scale depending, of the secured obligations amount, starting from a minimum of EUR 37 up to a maximum of EUR 1,333.00

4. Do the shares need to be transferred into the name of the lender or its nominee?


5. How can the lender enforce its security?

5.1 Can it be sold to a third party? Is it possible for a secured party to appoint receivers/liquidators and if so how and what are their powers? Can security be enforced directly without recourse to the courts and are private sales of security possible? Does it have to be sold by auction?

The secured creditor has no authority to appoint a receiver or liquidator.

General enforcement is (i) by sale to a third party via relevant Italian Civil Code procedure or (ii) by assignment of the pledged shares to the lender via a competent Court. Enforcement costs of the pledge over the shares may vary. Normally enforcement procedure lasts at least 6 months, and longer if the debtor challenges the procedure.

Generally, the law does not allow selling the secured shares/quotas privately, so public auction is necessary. However, if the shares/quota meet the relevant Italian legal criteria (based on the criteria set in the EU financial collateral directive) and the pledge contains appropriate provisions the secured party can (a) provide for the sale in whole or in part of the pledged shares and set off the proceeds of the sale against the secured obligations or (ii) appropriate the pledged shares and set off their value against the outstanding secured obligations.

5.2 Are loans from shareholders subordinated? If so, how is this done? Is it customary for such loans to be waived or written off contractually as part of an enforcement of a share pledge should a default occur?

Loans from shareholders are subordinated to other creditors by law and if a shareholder loan is repaid in the year before the declaration of the SPV’s bankruptcy, it must be repaid to the SPV’s liquidator.

Shareholders can contractually agree that their rights to repayment of their shareholder loan(s) are renounced/waived in a default situation but this is not yet a customary provision in Italian law share pledges.

C. Leases

Legal issues that would be likely to impact upon the valuation and the security of income from an investment perspective.

1. Lease Structure

1.1 Typical lease length?

For residential leases the typical lease length is generally 8 (4+4) years. For non-residential leases it is 12 (6+6) years.

1.2 Maximum/minimum lease length if any?

As a general rule, the minimum length for residential leases is 4 years and for non-residential leases it is 6 years. These terms are automatically renewed for a further 4 years and 6 years respectively, unless specific circumstances set forth by law occur.

1.3 Statutory controls and obligations re renewal/termination of leases (does tenant have automatic right to renewal or can they apply to the courts for a new lease); also does some form of notice have to be served to terminate a lease to avoid renewal?

The tenant has an automatic right to renewal from 4 years to 4 years and from 6 years to 6 years for residential and non-residential leases respectively, unless specific circumstances set forth by law occur.

For residential leases, the termination notice must be sent by the landlord by registered letter at least 6 months before the expiry of the lease.

For non-residential leases, the termination notice must be sent by the landlord by registered letter at least 12 months before the expiry of the lease.

1.4 Any overriding statutes concerning the ability of the tenant to break a fixed term lease (whether or not included as a term of the lease)?

If there are serious reasons, the tenant, by law is entitled to withdraw from the lease agreement at any time by giving the landlord at least 6 month’s notice, regardless of any different provision set forth by the agreement.

1.5 Any other security of tenure provisions available to a tenant that would frustrate possession or prevent receipt of market rents?

There are no relevant provisions frustrating possession or preventing the receipt of market rents, other than those relating to the length of the lease and the review of the rent mentioned above.

2. Rent/Rent Reviews

2.1 Rental income receivable quarterly/monthly in-advance/in-arrears?

The parties are free to determine the terms and ways of payment of the rent. The most common practice is to have the rent paid monthly or quarterly in advance.

2.2 Periodicity of reviews?

The rent can be reviewed yearly.

2.3 Basis of review (upwards-only or variable, indexation or market rent)?

With regard to residential leases, the rent can be adjusted each year limited to the percentage of the cost of living index, as published by the National Statistics Institute, whilst the rent for non-residential leases the adjustment is limited by law to 75% of the cost of living index.

2.4 Are rents/reviews subject to statutory control in regard to quantum or increase (i.e. rent control)?

There are no statutory controls in relation to quantum or increase (save for very specific cases).

3. Lease Obligations: Who has responsibility for:

3.1 Internal maintenance, decoration and repair?

The tenant is responsible for the ordinary maintenance and repair deriving from normal wear and tear, whilst the landlord is responsible for extraordinary maintenance.

3.2 External maintenance, decoration and repair?

The tenant is responsible for ordinary maintenance and repair, whilst the landlord is responsible for extraordinary maintenance.

3.3 Structural repairs?

Structural repairs are usually considered extraordinary maintenance, and therefore fall under the responsibility of the landlord.

3.4 Insurance?

There is no obligation to underwrite an insurance policy, which must be agreed between the parties.

3.5 VAT?

When applicable, VAT is usually charged to the tenant.

3.6 Rates?

3.7 Other typical outgoings?

Unless the parties expressly agree otherwise, the typical expenses are borne by the tenant.

3.8 The ability to recoup any landlord outgoings (including management costs) by way of service charges?

The landlord outgoings are usually implicitly transferred to the tenant by having them included in the rent amount, but it is possible to charge further amounts for ancillary services such as cleaning, custody, reception etc.

4. Enforceability

4.1 Are terms of leases/contracts recognised and supported by case law in the jurisdiction?

The terms of the lease contracts are recognised and supported by case law in Italy.

5. Valuation and Environmental

5.1 To be recognised in the courts, does an appraisal have to be prepared by some domestically regulated/qualified party or is an RICS (Royal Institution of Chartered Surveyors)-qualified appraisal report accepted and recognised in each jurisdiction?

Should the appraisal be entrusted to the party, it can be carried out by any expert and is freely evaluated by the judge. If the appraisal is required by the judge, the judge shall appoint an expert enrolled in the relevant list held by the competent court.

5.2 Is it possible/customary to obtain environmental reports from a local government agency or a qualified, insured environmental professional?

Environmental reports in such circumstances are not customary in our Jurisdiction.

5.3 Is it possible for liability in respect of past or present breaches of environmental laws to attach to a lender by it holding or enforcing a mortgage over real estate?