Transcription of the preliminary real estate sale agreement: what the priority-preserving effect is and how it protects the buyer

The transcription of a preliminary real estate sale agreement is a legal instrument that protects the prospective buyer against third parties through the so-called priority-preserving effect.

Let’s look at how it works, the requirements and deadlines that must be met, the protections it offers if the sale is not completed, and how it applies to properties to be constructed.

Transcription of the preliminary agreement: purpose and scope of application

The preliminary agreement obligates the parties to enter into the future definitive agreement, but it does not immediately transfer ownership of the property or other rights in rem. Ownership will be transferred only upon execution of the definitive agreement.

A period of time passes between these two stages, during which it is important to protect the rights of the prospective buyer.

During this interval, the transcription of the preliminary agreement provides protection against third parties through the so-called priority-preserving effect.

Transcription is also permitted when the preliminary agreement:

• is subject to a condition;
• concerns a building to be constructed or under construction.

In general, transcription is an optional form of protection and not a requirement for the validity of the preliminary agreement. It is therefore important to distinguish between:

• the form required for the preliminary agreement to be valid;
• the form required for its transcription.

To be valid, the preliminary agreement must be in writing, since it must have the same form required for the definitive agreement. Without written form, the agreement is null and void.

To be eligible for transcription, however, the preliminary agreement must be executed as a public deed or as a private agreement with signatures authenticated or judicially verified.

Consequently, a preliminary agreement drawn up as a simple private agreement, without authentication of the signatures, may be valid between the parties but cannot be immediately transcribed in the real estate registers.

Fiscal registration should not be confused with transcription. Fiscal registration establishes a legally certain date for the signing of the agreement, but it does not produce the same effects as transcription in the real estate registers and, in particular, does not give rise to the so-called priority-preserving effect.

What is the priority-preserving effect and how does it protect the buyer?

The main purpose of transcribing the preliminary agreement is the priority-preserving effect, which allows the prospective buyer to reserve a position of priority over certain subsequent transcriptions and registrations concerning the same property.

In simpler terms, transcription of the preliminary agreement establishes a date from which the buyer can assert their priority against third parties, provided that the subsequent formalities required by law are completed within the prescribed deadlines.

How does it work?

When transcription is used, the normal sequence of the real estate sale involves three steps:

1. execution and transcription of the preliminary agreement;
2. execution of the definitive agreement;
3. transcription of the definitive agreement.

When these steps are completed within the deadlines established by law, the effects of the transcription of the definitive agreement, for the purposes of priority over other registered acts and entries, relate back to the date on which the preliminary agreement was transcribed.

Consequently, the following may be unenforceable against the prospective buyer, meaning that they cannot be asserted against them:

• a subsequent sale of the same property;
• an attachment or seizure transcribed at a later date;
• a mortgage registered at a later date;
• other prejudicial registrations or entries made during the period between the transcription of the preliminary agreement and that of the definitive agreement.

The Italian Supreme Court of Cassation has confirmed that the priority-preserving effect has a general scope: it protects the buyer not only against other parties who subsequently acquired rights in the same property, but also against the seller’s creditors.

The priority-preserving effect therefore allows the prospective buyer’s acquisition to take precedence over transcriptions and registrations made against the seller after the transcription of the preliminary agreement, provided that the conditions established by law are met.

However, transcription of the preliminary agreement alone does not immediately transfer ownership or guarantee definitive priority. For the priority-preserving effect to produce its full legal effects, the definitive agreement, an equivalent instrument or a favorable judgment must subsequently be transcribed.

How long does the priority-preserving effect of transcription last?

The priority-preserving effect does not last indefinitely: its effectiveness is subject to two alternative time limits.

The effects of the transcription of the preliminary agreement cease and are deemed never to have occurred if the definitive agreement is not transcribed:

1. within one year of the date agreed upon for the conclusion of the definitive agreement;
2. in any event, within three years of the transcription of the preliminary agreement.

The protection therefore expires upon the earlier of the two deadlines.

The one-year deadline from the scheduled date of the notarial deed

If the preliminary agreement specifies the date by which the notarial deed must be executed, the transcription of the definitive agreement must take place within one year of that date.

The parties may agree to extend the deadline originally established for the execution of the definitive agreement.

However, to preserve the priority-preserving effect, the agreement extending the deadline must be executed and transcribed before the deadline being extended expires.

The maximum three-year limit from transcription

The second time limit is three years from the transcription of the preliminary agreement.

This is a maximum deadline that the parties cannot modify or extend.

If the date scheduled for the definitive agreement, or any extension of that date, exceeds the three-year limit, a new transcription is required.

In this case, the new transcription establishes its own position of priority from the date on which it is made, without preserving the priority established by the previous transcription.

The Italian Supreme Court of Cassation has also clarified that:

• both deadlines serve general interests;
• the court may determine that they have expired even without a specific request from the parties;
• the cessation of the priority-preserving effect does not result in the termination of the preliminary agreement or the obligations undertaken by the parties;
• after the deadlines have expired, the prospective buyer loses only the protection against third parties arising from transcription.

The preliminary agreement may therefore remain valid and effective between the seller and the buyer even after the priority-preserving effect has ceased. The separate issue of any applicable limitation period for rights arising from the agreement remains.

Transcription of the preliminary agreement for properties to be constructed or under construction

The law requires the transcription of a preliminary agreement concerning a portion of a building to be constructed or under construction. In this case, the preliminary agreement must specify:

• the usable floor area of the portion of the building that is the subject of the sale;
• the share of the right to the entire building to which the prospective buyer is entitled, expressed in thousandths.

The transcription is initially made with reference to the property, for the share specified in the agreement. When the building comes into existence, the effects of the transcription extend to the physical portions corresponding to the specified share and to the related common areas.

What protections does the buyer have if the preliminary agreement is not performed?

Transcription of the preliminary agreement may also provide protection to the prospective buyer if the definitive agreement is not executed.

In particular, claims arising from the non-performance of a transcribed preliminary agreement may benefit from a special privilege over the property, provided that the effects of the transcription have not already ceased at the relevant time identified by Article 2775-bis of the Italian Civil Code.

In particular, the provision identifies the following events:

• the filing of a judicial claim;
• the termination of the agreement evidenced by an instrument bearing a legally certain date;
• the attachment of the property;
• intervention in enforcement proceedings.

A special privilege is a form of protection that, when the conditions established by law are met, grants the creditor a preferential position over other creditors with respect to the proceeds from the property.

In the case of a transcribed preliminary agreement, this protection may apply, when the relevant conditions are met, to the amounts that the prospective buyer is entitled to receive as restitution or compensation for damages arising from the non-performance of the agreement.

The special privilege is closely linked to the effectiveness of the transcription of the preliminary agreement. If the effects of the transcription have already ceased at the relevant time established by law, the prerequisite for benefiting from the privilege also ceases to exist.

When and how is the transcription of the preliminary agreement canceled?

The transcription of the preliminary agreement may be canceled:

• with the consent of the interested parties, expressed in the forms required by law;
• pursuant to a final judgment ordering its cancellation.

It is important to distinguish the cancellation of the transcription from the cessation of its priority-preserving effect.

As we have seen, the priority-preserving effect automatically ceases when the deadlines established by law expire, without the need to physically cancel the transcription from the real estate registers.

However, if one of the parties does not consent to the cancellation, there may be an interest in obtaining a judicial ruling establishing the ineffectiveness of the transcription and ordering its cancellation.

In summary

The transcription of the preliminary agreement is a legal instrument that protects the prospective buyer during the period preceding the definitive transfer of ownership.

Although it does not directly transfer ownership of the property, it allows the buyer to reserve a position of priority over subsequent transcriptions and registrations through the so-called priority-preserving effect.

For this protection to produce its effects, however, it is necessary to comply with the forms required by law, complete the subsequent formalities and observe the deadlines established by Article 2645-bis of the Italian Civil Code.