Many countries feel particularly unease when a piece of their land comes into foreign possession. In general, this responds to some atavic instincts to protect oneself from predator greed – perhaps the need is not that out-of-place, if one only thinks of the expansion of the Chinese in large areas, in Africa and elsewhere. It comes to no surprise, so, that land acquisition by foreign entities is often subject to previous authorization, or forbidden at all.
In modern economies, however, this may amount to an annoying step, if not to a serious impediment to a nation’s growth. Hence to idea to have reciprocity working as a clearing factor – if your country allows my citizens to buy land down there, well, you can do the same here. Otherwise, forget it!
A good example is given by the rule governing (not only estate purchases, but) the exercise of rights in general, as stated in the Italian Provisions on the law in general (a preamble to the civil code, introduced in 1942, lately partially absorbed with modifications in the basic law 218/95 on international private law):
Lo straniero è ammesso a godere dei diritti civili attribuiti al cittadino a condizione di reciprocità e salve le disposizioni contenute in leggi speciali. Questa disposizione vale anche per le persone giuridiche straniere. (A foreigner is allowed to enjoy the civil rights attributed to a citizen, subject to reciprocity, and to provisions under specific statutes. This also applies to foreign legal persons) (art. 16, prel.).
Note the year! Before 1942, foreigners would fully enjoy the very same rights of Italian citizens. The reciprocity rule was introduced as a countermeasure in reaction to international sanctions applied to the Fascism regime. However, art. 16 prel. survived the demise of Mussolini, and even the coming into force of a new republican constitution in 1948. As a matter of fact, the scope of art. 16 has been progressively reduced, thanks on one hand, to the predominant application of the even-field level principle provided for in the EU founding treaties, and similar international arrangements (e.g. the European Economic Area and other cooperation agreements, such as the BITs Bilateral Investment Treaties); on the other hand, to an increased attitude of protection towards personal basic rights (e.g. the access to healthcare system) to the point that any alien legally residing in Italy enjoys the citizen’s same civil rights.
Still, reciprocity continues to play a role in respect of non-fundamental rights, such as the right to enter an agreement to buy a real estate[1]. A recent case discussed at the Court of Cassation level may help in understanding why, in relation with operation made by subjects based in Switzerland (where foreigners may only buy real estate under certain conditions).
All started in 1999 when ALVALLE AG, a Swiss company based in St. Moritz purchased a property near Como, in Northern Italy. Actually, the company was the vehicle the ultimate buyer was using to get the property of his mother’s estate. Some years after an inheritance lawsuit erupted among the lady’s (deceased) siblings, and one of the claims was exactly about the validity of that transaction, that in the eyes of the claimants amounted to a hidden donation. One of the arguments utilized by claimants was that the sale was null and void, on account of lack of reciprocity between Italy and Switzerland. In fact, as mentioned above, foreigners in Switzerland are not given total freedom in buying pieces of Swiss soil /buildings – in short, foreign nationals (unless EU/EFTA citizens, or non-EU/EFTA legally admitted foreign citizens, in any event resident in Switzerland) need a special authorization to directly or indirectly, purchase a real estate having non-business destination – so called Lex Koller[2].
The first instance court decided in favor of the claimant (Tr. Como, no.1452/2006). So, did the appellate court in Milan (no. 638/2013), and eventually the court of Cassation (no. 24923/2018 of Oct 9, 2018) as well. All judges, in fact, held that in order to benefit of reciprocity, ALVALLE should have given evidence of commercial utilization of the purchase estate. As a matter of fact, this never happened.
Interestingly, the Cassation court upheld the appellate dictum according to which, in the case at hands the reciprocity consists in the site utilization only, irrespective of the fact that special exemptions may be granted case by case under art. 2.2, a) of the Lex Koller. This aligns, in fact, to the prevalent opinion of the Italian authorities that
there is no reciprocity not only where aliens are barred from purchasing, but also in case the foreign law provides forms of control by means of adhoc permits and the like.
Switzerland is a notable case, as said. Among other countries it might be noted that there are countries where-
-
Aliens are subject to no particular restriction: therefore, investors or private individuals are not discriminated at all should they desire to purchase Italian real estate: it is the case of Argentina, Australia, Israel, Japan, Monaco, United Kingdom, United States, Taiwan, …)
-
Restrictions are in place, however the country is part of a cooperation treaty. Freedom to act is presumed, at least for the matters covered by the treaty; but specific restrictions imposed to foreigners might lead to a specular treatment in Italy (it is the case of Albania, China, Tunisia, Turkey, Saudi Arabia, …)
-
Some special estates are not open for sale to foreign entities: it is the case of countryside (rural) estates in Brazil and Canada, …
-
purchases are open to resident only (it is the case of India, New Zealand, …)
-
purchases are subject to authorization, so they are de facto deemed as barred (e.g. Singapore).
Those who are interested in receiving (free) full copy of the annotated decision, please write to newsletter@lexmill.com.
[1] The principle has been expressly established in the decision made by C. Cassation in the case San Carlo (no. 7210 of March 21, 2013)
[2] Federal Act “on Acquisition of Real Estate by Persons Abroad” of Dec 15, 1983. expressly stating in art. 1 its aim of “avoiding an excessive foreign domination of domestic soil”. In some cantons, there is no need for a prior authorization in case of purchase of holiday apartments, provided that their area does not exceed some given thresholds
