Legal News from Italy
In this issue of the Legal Kit & News we talk about three major issues of the last few months: the new law provision adopted to help entrepreneurs that could not use leased premises during the lockdown, the reform of some provisions in the Italian civil procedural code and an overview about new developments in insolvency law.
Covid and Rent: a New Law Provision to help Entrepreneurs
A controversial law provision has been lately adopted to help entrepreneurs that could not use leased premises during the lockdown.
The provision – entered into force on July 25, 2021 with the conversion law of law-decree May 25, 2021, no. 73 – says that landlord and tenant must cooperate in good faith to recalculate the amount of the rent for 2021 for maximum 5 months. This applies only if certain prerequisites occur i.e.:
- the tenant did not have right to any monetary help from the government in relation with the pandemic;
- a loss of turn over a certain threshold because of lockdown;
- the impossibility to carry out its business for more than 200 days because of lockdown.
The new provision appears to set forth a procedure aimed at helping those tenants that had suffered the most because of the lockdown. Although the language is obscure and convoluted still the provision apparently does not amend the civil code general provisions, which have been used by courts to decide litigation so far.
The Reform of the Italian Civil Procedural Code
On September 21, 2021 the Italian Senate has approved the draft of the delegation law on the reform of the Italian civil procedural code (CPC).
The delegation law shall be now approved by the House of Representatives, to whom the draft has been submitted on October 5, 2021.
Probably the reform will be adopted, so it could be interesting to anticipate two of the most relevant modifications of the CPC:
- the mandatory mediation is applicable also for cases related to franchising;
- the summary proceeding normally applied to lease contracts is also applicable to rent of business contracts.
Probably because franchising is now considered by the Parliament a contract where a party (franchisee) is formally weaker than the other party (franchisor), it has been included in the list of contracts where mediation is mandatory.
When mediation is mandatory, a mediation proceeding must be started before filing a judicial proceeding.
The mediation proceeding takes about 1-3 months and it – evidently – delays the timing for starting a judicial proceeding and consequently the issuing of a possible judgment.
However, if the parties enter into a settlement agreement during the mediation proceeding, they may resolve the dispute in short time and without waiting for the judgment that normally is issued in 2-3 years after the filing of the claim.
The other relevant proposal of modification to the CPC relates to business leases.
Our CPC sets forth an expedite proceeding aimed at evicting the tenant which is in breach of its payment obligation (sfratto per morosità). Such summary proceeding is sensibly shorter than the ordinary proceeding, and may grant the landlord an interim declaration of termination of the lease as well as an interim injunction for the payment of the rent.
Currently, this proceeding is only applicable to property leases. When it comes to business leases, , the landlord cannot take advantage of the above expedite proceeding, andis only entitled to start an ordinary proceeding recover the unpaid rent and/or to terminate the lease for breach.
The proposed modification of the CPC extends the application of the sfratto per morosità to business leases, which would sensibly favor landlords in business lease agreements .
Property leases and business leases contracts and rent of business contract, with such modification of the CPC, become very similar from a remedy perspective and therefore, the parties decision on the type of contract to be chosen for a specific deal will need to be evaluated also on the basis of the effects of the new law.
New Developments in Insolvency Law
By Irene Grassi
Italy has recently adopted a comprehensive reform of Insolvency Law, the “Code of Crisis and Insolvency”, which was due to become effective on 1 September 2021. However the Government with a decree of 24 August 2021 (D.L. 118/2021), considering the ongoing pandemic emergency, postponed the entry into force of the new Code to 16 May 2022.
In the same measure, a completely new procedure has been introduced, designed to facilitate the emergence of crisis situations and resolve them promptly, even without the intervention of the judicial authority: this is the ‘Negotiated Crisis Resolution’ (Composizione Negoziata della Crisi), which should ensure limited costs, no excessive time and above all relative confidentiality.
A company in difficulty can ask the Chamber of Commerce to appoint an independent expert to assist it in managing the crisis. The expert will first of all assess the existence of a concrete prospect of recovery and, if so, will guide the company in the choice of possible intervention strategies, starting negotiations with creditors. If the expert does not see any prospect of reorganisation or if no suitable solutions are found, the procedure is closed without further consequences.
During the negotiations, the entrepreneur retains the management of the company, but is obliged to inform the expert in advance of certain transactions. Finally, the negotiations may lead to the signing of different possible types of agreements with creditors enabling the crisis to be overcome.
The intervention of the judicial authority is purely optional: the entrepreneur can ask the court, for example, to grant protective measures (prohibition on creditors starting or continuing enforcement or interim measures) or the redetermination of contractual conditions which have become particularly onerous as a result of the pandemic.
It is expected that the new procedure (which is an early implementation of Directive 2019/1023/EU) will enter into force on 15 November 2021. Before that, however, the decree must be approved by Parliament, which may introduce amendments.