Renting out a property in Italy
One of the main reasons for buying a property in Italy is renting it out, either as a holiday home or on a long-term basis. It is therefore vital to understand how to turn one’s property investment into a profit-making venture by renting it out to reliable tenants. In the following article, we present the legal requirements, paperwork, and business models which should be considered when renting out property in Italy.
Rental contracts in Italy
Italian legislation allows for a variety of different types of rental contracts. Selecting the suitable one depends on the type of rent and duration of the rental period:
- The free contract, known in Italy as contratto quattro + quattro, allows the parties to freely determine the annual fee. Its duration is at least 4 years after which it can be renewed for another 4 years (except in special circumstances which are specifically determined by law). This is the most commonly signed type of contract in the majority of private rental agreements;
- Another type of contract is the agreed contract usually set for a minimum of 3 years and which may be renewed for an additional 2 years
- A short-term lease contract has a minimum duration limit of 1 month and may be issued for no more than 18 months. This contract is based on the tenant’s temporary need and is thus non-renewable
- Contracts for college students are legal agreements designed specifically for students. Minimum duration is 6 months, maximum 36 months, with an option for renewal
- Contracts for tourist rentals are the last type of rental contract known in Italy. This kind of pact lasts less than 30 days and does not need to be registered unless the tourists decide to prolong their stay for over 1 month
House rent agreement terms
Regardless of the type of agreement, there are some terms that should always be included into the contract.
- The landlord and tenant’s personal information (Italian tax code; passport or government ID);
- The property details;
- The type of contract and rental period, comprising exact dates;
- The rental amount due monthly, and what it includes
- The Energy Performance Certificate (Attestato di Prestazione Energetica or APE) – a certification which establishes the required kilowatt/hour needed to maintain the premises at 18 degrees in winter and summer, and is required by law;
- The requested deposit – it is always advisable to ask for a deposit. Usually it is equal to one month’s rental worth;
- Maintenance – terms and conditions concerning costs related to the property such as gas, electricity etc.
Once a rental contract is signed, there is a time frame of 30 days for it to be registered. In order to register the contract the landlord can go directly to an office of the Italian Revenue Agency (Agenzia delle Entrate). As an alternative there is a facilitating option to register a new contract on the Agenzia delle Entrate’s official website.
In addition to the above, when a landlord wants to rent out a property, he/she might wish to consider insuring it. A good insurance policy should include public liability insurance and also cover the periods of no occupancy of the property. Public liability insurance protects the landlord against third parties’ possible claims concerning negligence, death, injury, loss and damage of property. It is also possible to insure one’s home when it is not occupied. This insurance covers cases of theft, storm, flood and malicious damage that might occur when the property is left empty for more than three weeks at a time.
As regards the specific contractual relations of the contracting parties, it is crucial to be aware of their respective rights and obligations, as detailed and explained below..
Duties of a landlord
First and foremost, the landlord should provide a property in a good condition, free of defects that would significantly reduce its ability to be used for the agreed purpose (art. 1578 of the Civil Code). The landlord is also required to provide the safety certification and the energy certificate that establishes the required kilowatt/hour needed to maintain the premises at 18 degrees in winter and summer (as required by law). The landlord is also obliged to give the tenant receipts for all due rental payments. The landlord cannot deny the right of the tenant to make improvements on the property at his/her own expense, provided these do not lead to any damage. Finally, if the tenant is not causing any trouble the landlord cannot terminate the contract earlier than agreed upon.
Duties of a tenant
The tenant should take responsibility for the property and provide the due care in using it for the purposes as agreed upon in the contract. The tenant is also obliged to carry out minor maintenance repairs, so as to return the property in the same condition in which it was given to him/her, except for usual declines that are a result of the use of the property. The tenant also takes responsibility for any loss or deterioration during the lease, even if it is a result of an emergency and as long as they are not able to prove that such an emergency occured for reasons not attributable to them. Finally, the tenant has the duty to pay additional expenses on top of the rent such as energy and water bills. Other than knowing the legal prerequisites, a future landlord shall also have a business plan in order to make the most of their property. Here are some of our suggestions as to the successful management of a rental property.
5 steps to rent a house in Italy
1. Type of contract
First of all an investor should decide on the purpose of the property and, thus, the corresponding target tenants and type of contract. Short-term leases are commonly signed when the tenant is temporarily situated in the area for a specific reason (for example, work placement). The advantage of this agreement is that since the rent amount is only fixed for the term of a lease, the landlord may increase the rent every time the lease is renewed. Also, he/she is entitled to change the policy, updating it based on the experience with previous tenants.
Contracts for college students are an excellent option for investors who own a property located near a college campus, because a property nearby a college can yield higher rents. Another advantage is once again the fact that the property would be occupied only for a few semesters. Moreover, the tenant would probably not have high requirements due to the fact that they would not stay long, so that it would not be necessary to make continuous upgrades and refreshments.
The main advantage of a free contract or an agreed contract is its stability. With this kind of agreement the landlord holds a legally binding document that ensures a secure rental income for a designated period of time. Landlords often prefer signing long term leases to reduce turnover costs and avoid vacancies. However, the disadvantage of this kind of lease is that it does not provide as much flexibility as other types of rental agreements.
To understand the specific differences among contract owners are advised to consult a lawyer, who can explain the details and peculiarities of contracts and suggest the best options based on the location and type of property in question.
2. Set the cost
Setting the cost of the rent is a vital step. The price should depend on what other rental properties are going for in the neighborhood and community. Investors should keep in mind that potential tenants will be looking forward to deals, so the rent should be set at a competitive price. We recommend researching the market before deciding on a specific price.
3. Tax planning
Non-residents are only taxed for their income from Italian sources, including rental income. Thus, the income must be declared to the tax authorities and duly taxed. There are two options for taxation: ordinary taxation and flat rate tax scheme (cedolare secca). Ordinary taxation is subject to a personal progressive tax. For an income up to 15 000 EUR the tax rate is 23 %. For incomes from 15 001 EUR to 28 000 EUR it is 27%. The due tax rises accordingly and can become up to 43% for incomes over 75 001 EUR. As concerns the flat rate tax scheme (cedolare secca) this implies a fixed tax equal to 21 % of the annual rent if the rental agreement is a free contract, 15 % if it is an agreed contract and 10 % if it is a college contract. If the contract is for less than 30 days, it does not need to be registered and there are no taxes due.
4. Hire professionals
Turning one’s home into a rent out property may seem like a simple task, but it is important to contact real estate attorneys and accountants to make sure one is correctly abiding by tax laws, zoning ordinances, and local property rules.
Making the property public and advertising it to the right target group is another key to successfully renting it. Here are some Italian websites which have been proven to have a stable and focused audience in the sphere of real estate rentals:
- StudentsVille – one of the most popular Italian websites for student living and housing, it gives the landlord access to a great number of students and is thus a great choice for advertising a property near colleges and universities;
- Apartments in Florence – recognizable website for the region of Florence and Tuscany, it offers a great variety of property for both short and long term rentals, luxury villas and city apartments.
- Florencehouse – property management network, looking to not only advertise a property, but also provide a full circle service, including property maintenance, paperwork, taxation, and 24/7 guests assistance, all run by experienced professionals.
Our expert team includes real estate agents, lawyers, accountants, architects surveyors able to facilitate and assist, guiding prospective investors through the whole process of renting a real estate property in Italy. Knowledgeable of the local real estate market we assist and facilitate our foreign clients ingeniously by sharing our insight with them, allowing them to grasp understanding about the local real estate market and helping them contact a real estate agency, and find the right property.
To further facilitate our clients, easing proceedings, we are also available to:
- assist with all the paperwork required to certify the property;
- advise on the type of contract to be signed, rental price, and means of advertising the property;
- manage the property: find the right tenants, deal with maintenance, and provide hospitality services;
- draft a rental contract and register it with the competent authorities;
- advise on taxation matters;