Commercial Leases in Italy
Companies often need physical space to carry out their business activities. Consequently, they need to enter into a commercial lease agreement. A commercial lease agreement will set out the terms for how business is conducted on the property. This paper is not intended to be an exhaustive review of the regulation governing commercial lease agreements in Italy, but rather a brief description of its characteristic elements to date.
In Italy, commercial real estate lease agreements are governed by Law no. 392 of 27 July 1978 (the “Business Tenancy Law”) and residually by the Italian Civil Code (Articles 1571-1654).
According to the Business Tenancy Law, commercial lease agreements shall have a minimum duration of 6 years (in relation to properties with industrial, commercial and/or artisanal activity use) or of 9 years (in relation to properties with hospitality or theatrical use) and upon expiration shall tacitly renew for a further 6 or 9-year period, unless one of the parties decides not to renew the agreement, by giving a 12 or 18-month prior written notice thereof to the other party.
Upon expiration of the first leasing period, the landlord is entitled to terminate the lease agreement in specific circumstances, i.e. (i) the landlord intends to use the premises for residential use of close relatives or institutional purposes (in case of public entities), (ii) the landlord intends to demolish or entirely restructure the premises and restructuring works are incompatible with the tenant staying in the building.
The tenant may withdraw from the lease agreement – with a 6-month prior written notice – on the basis of “serious grounds” (gravi motivi) and in cases of a withdrawal agreement between the parties. According to the majority case law, the “serious grounds” (gravi motivi) include unpredictable events not attributable to the tenant, which have not been foreseen by the parties or could not have been foreseen at the time the agreement was concluded and which make the continuation of the relationship extremely burdensome. In no case shall the landlord be entitled to withdrawal.
In the context of business lease agreements concerning activities which involve direct contact with the public of users and consumers, the Business Tenancy Law provides that: (i) the tenant is entitled to a pre-emption right in case of sale of the property by the landlord during the term of the lease; (ii) the tenant is entitled to a pre-emption right in case of a re-lease of the property by the landlord at expiration; (iii) the tenant is entitled to receive a goodwill indemnity equal to 18 times (or 21 times in relation to properties with hospitality or theatrical use) the amount of the last (monthly) rent should the events set forth in article 34, first paragraph, Business Tenancy Law occur. The amount of the goodwill indemnity is doubled in the event the premises are leased to another tenant operating the same business as the former tenant withing a year. Notwithstanding the foregoing, the tenant is not entitled to any pre-emption right in case of a new lease and/or goodwill indemnity should the lease be terminated for breaches, withdrawal or refusal of renewal upon expiration by the tenant or should the tenant be submitted to any of the procedure foreseen in the royal decree no. 267 of 16 March 1942, as subsequently amended.
According to article 79, paragraph 1 of the Business Tenancy Law, any clause aimed at limiting the aforementioned legal duration of the lease or at providing the landlord with a higher rent than the one permitted by the same law or with any other benefit against the provisions of the Business Tenancy Law shall be void. Any void clause is automatically replaced by the mandatory provisions of law. In particular, in cases where the parties have agreed a shorter duration of the lease than is mandatory, the lease agreement shall have nonetheless the minimum duration described above.
Therefore, regardless of the fact that none of the mandatory provisions at issue have been mentioned in the agreement or been derogated therein by the parties, in case of dispute, a Court will apply such mandatory rules.
Notwithstanding the foregoing, if the annual rent is higher than 250,000.00 euros and the real estate property has not qualified as a “building of historical interest”, the commercial lease agreement is not subject to the mandatory provisions of Business Tenancy Law. Parties are free to negotiate clauses, usually dictated by the Business Tenancy Law, that are generally to the tenant’s benefit. The main commercial departures are usually an indexation of the annual rent higher than 75% (limit set by article 32 of the Business Tenancy Law) and the tenant’s waiver of (i) the automatic renewal of the agreement at first expiry, (ii) the indemnity for loss of goodwill, (iii) the pre-emption right and (iv) the right of early withdrawal on “serious grounds” (gravi motivi).
This article is for information purposes only and is not, and cannot be intended as, a professional opinion on the topics dealt with. For any further information please contact Luigi Croce.