Deferred possession: risks and advice

Introduction

When the seller and the purchaser agree on the deferred possession of the property, it is important to be clear about each party’s responsibilities, rights and obligations.

Deferred possession, is a useful tool to facilitate the conclusion of the sales deed, but on the other hand it can involve some risks that are often significant and neglected.

The tool should not be feared, but it is useful to be aware of its various aspects.

Deferred possession

The definition of possession is given in Italiancivil code in article 1140, as ‘the power over something that manifests itself in an activity corresponding to the exercise of ownership or other real right’.

Possession is the power over or relationship between a subject and an asset that manifests itself in an activity that corresponds to that exercised by the holder of a real right over the asset (for more information on possession: https://antonellolawfirm.com/2024/06/27/the-possession-in-italian-law/).

Generally speaking, the transfer of possession also takes place at the time of sale of the property, but there are cases in which the buyer and seller agree that the delivery of the property will take place at a different and later time than the conclusion of the notarial deed. in this last case we talk about deferred possession (for more information on deferred possession, also known as a notarial deed with deferred delivery, see: https://antonellolawfirm.com/2024/08/20/the-deferred-possession-of-real-estate-in-italian-law/).

When we talk about deferred possession, therefore, it is useful to pay attention to some peculiarities.

Deferred possession and the passing of risk

Firstly, in the case of deferred possession, it must be clear to the buyer when the passing of risk takes place.

The moment when the risk of loss or damage to an asset passes from the seller to the buyer is considered the moment of the transfer of risk.

Even if in many legal systems the transfer of risk only occurs when the asset is physically delivered, in Italy this transfer occurs when the asset is formally transferred, and therefore at the moment of the act of sale.

Furthermore, it should be remembered that in Italian law, the principle indicated by the Latin maxim ‘res perit domino’ applies, according to which the risk of loss of the asset rests with the owner at the moment the asset is lost.

Therefore, if the asset perishes or is damaged in the period of time between the signing of the sales contract and the deferred entry of the buyer into possession of the property, the buyer will be responsible for bearing the cost of the perishing or damage.

Deferred possession and responsibility

Another important element is the transfer of legal responsibility.

Following (and at the same time as) the transfer of risk, the buyer becomes responsible for any damage caused by his property.

Therefore, since ownership of the property is transferred with the express consent in the deed of sale, the buyer, even if he takes possession of the property at a later date, will be responsible from the day of the notarial deed.

Deferred possession and the seller’s duties

Italian civil code places the duty to deliver the property in the state it was in at the time of sale on the seller.

First of all, therefore, the seller assumes the duty to deliver the property to the buyer on the date agreed between the parties.

Furthermore, at the moment of delivery, the property must be in the same condition as it was at the moment of sale. This means that the seller cannot make any changes to the property, damage it, or do anything that could be prejudicial.

Deferred possession: who pays the expenses?

Until the moment of delivery of the keys, the ordinary expenses relating to the use of the property, condominium expenses and ancillary charges are borne by the seller.

It is important to emphasise that expenses relating to extraordinary maintenance are borne by the buyer.

Advice

When I assist my clients in buying and selling with deferred possession, I realise how much confusion there is on the subject and how afraid people (especially buyers) are of the institution.

So I think it’s useful to provide some practical advice to enable everyone to approach the situation in an informed way. This advice is based on my experience and the questions I am most often asked.

The duty of information

When the seller needs to remain in the property even after the sale has been completed, he must inform the buyer. Obviously, the seller must also be informed if the buyer requests a deferred transfer of ownership.

The information must be provided at the start of negotiations or, in any case, promptly if it arises at a later time.

The same duty also falls on the real estate agent.

The importance of establishing the conditions of deferred possession

The agreements that the parties have reached regarding the deferred delivery of the property must be indicated in the preliminary contract.

Care must be taken because often, before the preliminary contract is signed by the buyer, a purchase proposal is signed; in this case all the information must already be contained in the purchase proposal.

Finally, the agreements relating to delivery are also included in the final deed of sale.

The clause of defferred possession

Generally the clause that contains the agreements of the parties regarding the deferred possession is called the ‘taking possession’ or ‘possession’ clause.

This clause is extremely important because it is very important that the will of the parties clearly emerges from it.

In fact, this clause also contains the indication regarding the date of delivery of the property, which must be certain and determined.

The Penalty clause

One of the risks for the buyer in case of deferred possession of the property is that the seller may delay delivery. Precisely for this reason it is important to include a suitable penalty clause with a clearly identified amount for each day of delay.

In this case it is important to remember to write the clause in such a way as to allow the buyer to also request compensation for further damages, in addition to the indicated penalty.

Consistency of agreements

It seems obvious, but since buying and selling property is a situation in which it is likely that the parties will sign several contracts (purchase offer, preliminary contract, notarial deed), it is essential that the agreements made by the parties emerge clearly in all contracts and are consistent with each other.

Changing needs

We have just said that consistency and continuity of clauses are fundamental. However, it happens more often than you might think that the needs of the parties change. It may happen, for example, that after having made the agreements, the seller asks to remain in the property for a longer period of time than agreed, or that one party needs to have deferred possession when initially none had been agreed.

In these cases, it must be clear that if a contract has already been signed in which this clause was not present, there is no obligation for the other party to grant what is requested; in any case, in order to proceed with the negotiation in a peaceful and linear way, it is useful to contact the other party and renegotiate the conditions of sale; if done correctly, a renegotiation can bring advantages also to the purchaser.

Furthermore, in these cases, there are various contractual instruments, besides deferred possession, that can be used successfully.

Compensation to the purchaser

The seller does not owe any compensation to the buyer for the days following the notarial deed in which he continues to remain in the property. This is because the deferred entry of the buyer into possession of the property is generally taken into account in the price of the sale.

Seller’s insurance

It is true that the seller must hand over the property in the same condition as it was in at the time of sale, but it is also true that the unexpected can happen.

One solution, to avoid future disputes, is to get the seller to take out an insurance policy for the period between the notary deed and taking possession.

In this case it is important to evaluate the correct amount of insurance coverage.

Purchaser’s insurance

I always advise my clients to take out an adequate insurance policy for the building’s destruction and for damage to third parties from the moment of the notarial deed.

Here too, it is essential that the insurance contains everything necessary in terms of monetary coverage and events.

Taxation in the case of deferred delivery

The Italian Revenue Agency, in Answer no. 458/2019, clarified that deferred possession, since it is a simple method of regulating the delivery of the property sold, is not subject to registration tax.

Depositing the cheque

In some cases, to protect the buyer, it is useful to consider asking the seller to deposit a cheque with a person trusted by both parties, as a guarantee that the delivery obligation will be fulfilled. The cheque is then returned to the seller once the property has been delivered to the buyer in the established time and manner.

In this case too it is important to evaluate the correct amount and type of cheque to use and to draft appropriate clauses.