The retail and commercial operators, either Italian or foreign ones, look very familiar and confident about the common rules of the lease agreements for commercial purposes. However, in our experience as legal consultant, we have recognized that such confidence and assumptions might turn to be not entirely correct, as Italian Law of July 27, 1978 no. 392 (“Lease Law”) provides many different mandatory rules.
Firstly, Lease Law applies to properties assigned for commercial, industrial, artisan or touristic purposes and it is mainly favourable to Tenant.
As to the term, the mandatory minimum term provided is 6 years (9 for the hotels). The lease agreement is automatically renewed for further periods of six years (or 9 years) each unless terminated by each party by giving to the other party a 12 months prior written notice before each expiration term (18 months for hotels).
However, Lease Law grants the Landlord the right to deny the automatic renewal of the agreement after the first 6 years term only in some cases provided mandatory by law and concerning the Landlord’s will of reusing the premises for itself or its parents.
However, Tenants with a strong bargaining power may agree the Landlord’s waiver to the right to deny the automatic renewal of the lease at the end of the first six year term upon occurrence of the circumstances mentioned above and therefore, at the end of such term, the lease may be terminated only by the Tenant by giving to the Landlord a 12 months prior written notice. Pursuant to Article 1573 of the Italian Civil code, leases have a maximum term of 30 years (including any renewal of same).
Except for the cases of termination of the agreement at any time by the Tenant provided by the general provisions of the Civil Code – such as the termination for the Landlord’s fault or for the occurrence of particular circumstances provided by the Civil Code (by way of example: termination for default or termination for excessive burdensome of the performance – Tenant is entitled to walk out from the agreement at any time and for whatever reasons, giving at least 6 months notice to Landlord, only if such faculty has been expressly agreed between the Tenant and the Landlord and set forth in the relevant lease agreement. Tenant is entitled to walk out from the lease agreement just in case of occurrence of “serious grounds”. The definition of “serious grounds” is not expressly provided by the Italian law but the requirements have been identified by case law. The above said, usually only Tenants with a strong bargaining power are granted with the right to break before the expiration of the lease. However, some Tenants may obtain the right to walk out at any time and for whatever reason from the lease after a certain period of time from the lease starting date (in general three/five years which is considered the minimum period of time for a commercial activity to succeed). In some cases, in the lease agreements where a turnover rent is provided, Tenant may also agree with Landlord the right to walk out in case of a turnover decrease under a certain fixed threshold.
As far as the rent is concerned, as a general rule, there are no legal restrictions on the capacity of the parties to freely fix the lease rent. However indexation of the rent cannot exceed 75% of the ISTAT inflation index.
A cash deposit to be paid by the Tenant may be provided in the agreement to secure the premises good state of maintenance at the end of the lease. The cash deposit cannot exceed three monthly instalments of the rent and usually is not aimed at covering unpaid amounts or secure the fulfilment of other obligations provided in the agreement.
A turnover rent based on the annual turnover reached by the Tenant within the concerned property may be agreed between the parties as well. The turnover rent is fixed in percentage. In such case, the rent amount is strictly linked to the Tenant’s turnover trend and, for this reason, we may find a turnover rent clause especially in lease agreements with Tenants having a strong retail development perspective.
Tenant is entitled to remove the additions made in the property at the end of the lease, if no damages occur to the property from the removal, except the Landlord prefers to keep the addition for itself. In such latter case, Landlord shall pay to Tenant the indemnity mentioned above Landlord is entitled anyway to ask Tenant to leave the property without the addictions at the end of the lease. With specific reference to the restructuring works to be carried out by Tenant within the property the prior approval of the Landlord is always required for the parties best convenience and for administrative reasons as well. In fact such works require the previous filing by Tenant with the competent local authority (i.e. municipality) of the project referring to the refurbishment works to be expressly approved by Landlord.
The Tenant is usually in charge of the ordinary repair and maintenance of the unit and of the extraordinary repairs and maintenance of the assets owned by the latter and placed in the unit. Landlords are in charge of ordinary and extraordinary repairs and maintenance of the common parts and of extraordinary repairs of the property.
