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PRICE DEPOSIT, A MEANS OF PROTECTION

As we have already discussed in our article “Guide to the preliminary contract”, the purchase of a house is one of the most important economic transactions in the people’s lives. It is therefore appropriate that those who are faced with this delicate moment can feel fully protected and calm.

In this regard, during the purchase phase, the potential buyer is exposed to the risk that, between the date of the deed and the date of its transcription in the Public Real Estate Registers, an unexpected encumbrance may be imposed on the seller. In exemple a mortgage, a seizure, a foreclosure, etc.

By the way, situations like these, rarely occur because notaries nowadays fulfil the transcription obligation in a very short time. There are particular cases in which to increase the security of the transaction it is advisable to use an important means of protection.
This instrument is represented by the so-called price deposit.

What does the price deposit consist of?

Price deposit is that discretionary procedure, forecasted in a context of sale or other deed of transfer, by which it is possible, always on request of at least one of the parties, to deposit the agreed sum to the notary as a guarantee of the successful outcome of the sale.
The notary will hold the sums until the transcription of the sale and, therefore, until the final transfer of ownership.
The price deposit procedure is a practice imported from France, introduced in Italy by Law 147/2013, Article 1, paragraph 63. and it is possible with the agreement of both parties.
In 2017, the “Legge sulla Concorrenza” introduced its ‘optionality’, in other words the request to make use of the price deposit can also be made by only one of the parties in order to bring out the notary’s obligation to hold the sums.

How does the price deposit work in practice?

Basically, here is what happens if you decide to exercise this option:

• A ‘dedicated’ bank account into which the sums (deposits and/or down payments, balance) are to be paid is opened by the notary so that there can be no confusion between the amounts deposited and the notary’s personal property
• the sum deposited by the notary will be non-transferable, unattachable by either the seller’s or the buyer’s creditors
• the price will be paid by the notary to the vendor only when the latter has completed all the formalities, discharged any existing debts (a mortgage on the house to be purchased, for example), paid other charges connected with the deed (such as overdue condominium charges) and after transcribing the deed in the Public Real Estate Registers.

Thus the notary performs a guarantor function, since the negotiation between the seller and the buyer cannot be fully effective as long as mortgages or foreclosures are registered on the property.

In which cases is it advisable to use this means of protection?

You can use the price deposit even in the absence of particular liens or encumbrances on the property, but it is certainly advisable in the following cases:

• There is a previous lien or mortgage on the property: the payment of the price will be made once these liens have been cancelled.

• The property is subject to legal pre-emption. Price will be paid when the possibility of exercising such pre-emption ceases to exist.
  
• House is not fit for habitation. Amount will be transferred upon presentation of the certified report of fitment of the property.
  
• Estate is still occupied by the vendor and delivery of the same will not take place upon the signing of the contract. The buyer will pay upon delivery of the house free of persons and things.
  
• There are debts of the vendor, relating for example to residual condominium expenses. The condominium administrator will request payments, and the notary will deposit the sums necessary to cover these expenses.

Can the price deposit guarantee be used even if the buyer intends to take out a mortgage?

Absolutely.

If the buyer finances the payment of the price, in whole or in part, by mortgage, the bank will deposit the sum to the notary and the procedure will be the same.

What are the modalities for depositing the price?

At the time the final deed is signed, the parties may have chosen to pay the total amount in a single payment or only the balance, if the price has been deferred in the preliminary contract.

Anyway, they may pay by bank draft made payable to the notary or by bank transfer to the notary’s account.

In any case, It would be advisable to manifest the intention to avail of it before the deed for organisational reasons. Howeere nothing excludes that in the event of serious reasons arising, the option may also be manifested directly at the deed.

Conclusion

In conclusion, an advantage that the price deposit offers the seller is the fact that the sum is already deposited in the notary’s account. He will therefore have the certainty of receiving the payment due as soon as all the clauses are fulfilled.

However there are also some disadvantages:
Firstly the seller he will have to wait the receipt of the amount. So, in case that he has to buy another property with the money received, this will be not possible for him immediately.

Secondly for the buyer the major disadvantage is certainly the not insignificant cost added to the notary’s fee.

It is therefore necessary to avail oneself of the price deposit instrument only in special cases of obvious risk.