Rent with redemption: what the rent to buy contract is, how it works and when it is convenient

Rent to buy (also known as rent with redemption) is the contract that provides for the immediate granting of the enjoyment of a property with the tenant’s right to purchase it within a certain period. During the course of the relationship, the tenant pays the grantor a consideration. A part of it is paid for the enjoyment of the property, the other part for the transfer. The contractors have the right to determine the amount due for the transfer. Rent to buy, therefore, is a contract that establishes the methods of enjoyment of properties according to the subsequent sale of the same. It must be transcribed and, according to the law, it must take the form of an authenticated private agreement or public deed (paragraph 1, art. 23 of Legislative Decree 12 September 2014, no. 133).

The institute was introduced in 2014 with the aim of promoting the recovery of the real estate market and bringing it out of stagnation. The mechanism identified by the legislator allows the tenant to book the purchase of an asset, for which payments in excess of the resources available at that time would be required. This makes it possible for him to immediately enjoy it and postpone the payment of a large part of the consideration agreed for the sale to a later time. Thus, also allowing the deferral of the opening of the bank loan (where necessary) and, moreover, for a lower amount.

To the grantor, the rent with redemption allows you to maintain ownership of the property while enjoying the double economic advantage deriving from:

• from the payment of the fees for the concession of its use to third parties,
• the payment of the initial part of the agreed consideration for the future sale.

In a favorable market situation, the seller insures the sale price making it immune to long-term variations. In fact, there is no term for the duration of the contract.

The Rent to buy regulation is entirely contained in art. 23 of Legislative Decree 12 September 2014 (converted with Law 11 November 2014). This is recorded as “discipline of leasehold contracts according to the subsequent sale of properties”. In paragraph 1 of the article, the legislator specifies that the rent with redemption differs from the financial leasing contract.

Rent to buy is not even comparable to a property lease agreement (T. Verona, ord., 12 December 2014, n. 95).

Article 23 of Legislative Decree 12 September 2014 governs, among other things:

• the hypothesis in which the grantor does not exercise the faculty granted to it regarding the purchase,
• termination for non-payment of the agreed fees for the enjoyment of the property,
• the effects of termination on the parties.

The leasing contract translates into an essentially financial transaction involving a bank or a financial intermediary. The latter must be registered in the register provided for in Article 106 of the Consolidated Banking Act referred to in Legislative Decree 1 September 1993, no. 385

• The intermediary or the bank undertakes the obligation to purchase an asset following the instructions received from the user;
• the asset is made available to the user for a given time against the payment of a periodic fee;
• the user assumes the risks, including deterioration, of the asset.

Upon expiry of the contract, the user can exercise the right to purchase ownership of the asset at a previously agreed price or, in the event of failure to exercise the right, is obliged to return the property (Article 1, paragraph 136 of no. 124/2017).

Leasing is a three-sided contract (seller, intermediary and user). Otherwise, the Rent to buy contract sees the participation of two parties (grantor and tenant).

The object of the contract can be a property, a building or even a land. A property must be understood not only as a completed property but also one under construction. In fact, paragraph 4 of art. 23 DL 12 September 2014, n. 133 provides that, if the contract relates to a house (under construction), the prohibition provided for by art. 8 Legislative Decree 20 June 2005, n. 122. This latter rule precludes the notary from entering into the deed of sale in the absence of the prior or contextual division of the loan into shares or the splitting of the mortgage as collateral or the attachment of the property.

The standard does not explicitly speak of ownership. The legislator introduces the tenant’s right to purchase the property after enjoyment. It may well be, therefore, that the parties regulate, after enjoyment, the purchase of a real right on the property (usufruct, bare ownership, use, home). In this case, the enjoyment will concern the property as a whole, the subsequent purchase the right in rem.

It is possible to enter into a typical Rent to buy contract relating to a business complex, whether or not it includes real estate rights and / or real estate. With the particularity that, in the event that the company includes real estate, Article 23 of Legislative Decree will apply. 133/2014 and therefore also paragraph 6, first sentence. This expressly states that “In the event of bankruptcy of the grantor, the contract continues, without prejudice to the application of Article 67, paragraph 3, letter c), of Royal Decree March 16, 1942, n. 267 and subsequent amendments “.

The rule does not contain any specific provision regarding the duration of the rental contract with redemption. It is therefore deduced that the duration of the relationship is left to the determination of the parties.

The only limit that emerges from the text of the regulation (paragraph 3, art. 23 of Legislative Decree 12 September 2014, no. 133) is that the enforceability of the right to purchase, referred to in art. 2645-bis, paragraph 3, of the Italian Civil Code, has a maximum duration of ten years. After this period of time, the purchase right is no longer enforceable against third parties. Therefore, nothing prevents the parties from agreeing on a longer right to purchase the tenant, but its enforceability cannot extend beyond the legal maximum limit.

The rule (paragraph 1, art. 23, DL September 12, 2014, n. 133) provides for the tenant’s right to purchase the property. It is necessary to check:

• if and to what extent the parties can introduce a clause providing for the tenant’s obligation to purchase,
• if the provision of an obligation of this magnitude would cause the agreement to escape from that typified by the law, thus integrating the agreement concluded with an atypical contract.

Among the opposing views, I am inclined to believe that, since the legislator has provided the right for the tenant to exercise the right to purchase at any time of the relationship (the contract does not have a predetermined duration), nothing prevents the parties from providing this right is immediately exercised by the tenant and that, therefore, its exercise is manifested by the person entitled to it already at the time of signing the contract.

Since the legislator wanted to introduce a potestative right in favor of the tenant, this power can be modulated by the owner based on his actual interest. Consequently, it can also be exercised within the same Rent to buy contract, if it responds to a real interest. This is due to the principle of general autonomy enshrined in art. 1322 of the Italian Civil Code according to which the parties can freely establish the content of the contract within the limits imposed by law. On the one hand, the will to purchase the property can be expressed by the tenant right after the stipulation of the rental contract with redemption. On the other hand, nothing prevents the tenant (who is the owner of the right) from having an interest in expressing consent to the purchase, anticipating, up to zero, the expiry of the contractual terms.

Moreover, it was also noted, with a pragmatic spirit, that the prohibition could be circumvented by making the tenant exercise the right to purchase the property through a declaration on the sidelines of the contract, signed at the same time as its stipulation.

Art. 23, paragraph 1-bis, Legislative Decree 12 September 2014, n. 133 provides that “the parties define in the contract the portion of the fees charged to the consideration that the grantor must return in the event of failure to exercise the right to purchase ownership of the property within the established term“.

The prerequisite for the return is the failure to exercise the right to purchase recognized to the tenant. This is not a hypothesis of non-compliance with the latter. It is up to the parties to determine the amount of the fees charged to the future purchase that the grantor is required to return.

Instead, the legislation says nothing regarding the return of the property. It is therefore appropriate that the parties provide in the contract a specific obligation of the tenant to promptly return the property. The methods by which to comply with the return will also be specified. As an obligation included in a contract stipulated in the form of an authenticated private agreement or public deed, the commitment has the value of an enforceable title for the release.

Nothing prevents the parties, in their own autonomy and without any distortion of the legal discipline, from introducing the granting of a sum of money into the contractual bond. This is in order to reinforce its effects. Of course, in the event that the Rent to buy contract contains the tenant’s right to purchase, it will not be possible to speak correctly of a deposit pursuant to art. 1385 of the Italian Civil Code Since there is no obligation on the tenant to purchase, we will more properly speak of an advance on the consideration. In the different hypothesis in which the contract already contains the tenant’s exercise of the right to purchase (and therefore it has become a commitment to purchase), the giving of a sum of money finds its justification in its proper function of the deposit consisting, in fact, in strengthening the negotiation commitment.

In the event of termination due to non-fulfillment by the grantor, the latter is obliged to return the portion of the fees ascribed to consideration, plus legal interest.

In the event of termination due to default by the tenant, the grantor has the right to the return of the property and to the acquisition of the rents as compensation, unless otherwise agreed. The obligation to return the property included in the contract constitutes an enforceable title pursuant to Articles 474, 2nd paragraph, n. 3 c.p.c. and 2930 c.c. It follows that the grantor must not introduce a full knowledge judgment (i.e., ordinary judgment) to have his right to return the property ascertained.