In Brief (TL;DR)
A purchase with retention of title is a contract that allows you to take immediate possession of a property, paying for it in installments, but only becoming the full owner upon payment of the final installment.
This way, the buyer gets immediate enjoyment of the property by paying in installments, but actual ownership only transfers upon full payment of the price.
Discover how this contract works, its advantages, and the protections provided for both the seller and the buyer.
The devil is in the details. 👇 Keep reading to discover the critical steps and practical tips to avoid mistakes.
Buying a property is a milestone in many people’s lives, but the paths to achieve it are not always traditional. In an ever-evolving real estate market, solutions are emerging that blend the wisdom of tradition with the needs of innovation. One of these is the purchase with retention of title, also known as a conditional sale agreement. This is a contractual formula that allows you to take immediate possession of the home, paying for it in installments, but only becoming the full owner upon payment of the final installment.
This method is a viable alternative for those who, for various reasons, cannot or do not want to take out a bank mortgage. It offers flexibility that adapts to the needs of buyers with non-traditional work situations or sellers who want a solid guarantee on the collection of the agreed-upon price. Fully understanding this tool means discovering a bridge between the Mediterranean value of “building a house one brick at a time” and innovative responses to a complex economic context.
What Is a Purchase with Retention of Title
A purchase with retention of title is a specific type of sale governed by Article 1523 of the Italian Civil Code. Its main feature is the separation between the time of delivery of the asset and the time of the transfer of ownership. The buyer immediately obtains physical possession of the property and assumes its risks, such as those related to damage or deterioration, but the seller legally remains the owner until the agreed-upon price is paid in full.
This mechanism offers a very strong guarantee to the seller, whose ownership right is protected until the end of the transaction. For the buyer, it represents an opportunity to enjoy the property right away, gradually building their path to ownership. Although the regulation is included in the section dedicated to movable goods, its application is widely accepted and extended to the real estate market as well.
How It Works in Practice
The purchase process with retention of title is formalized through a notarial deed, just like a traditional sale. Here, the parties define all the essential elements: the total price of the property, the amount of any down payment, and the number, amount, and due date of the installments. It is also possible to agree on the application of interest on the installment amount.
Once the deed is signed, the buyer takes possession of the house, beginning to live in it and bear the costs of ordinary and extraordinary maintenance. The seller, while retaining title to the property, is obliged to deliver it free of encumbrances. The crucial moment is the payment of the final installment: only then does ownership automatically and legally pass to the buyer, without the need for a further deed. The transcription of the contract in the property registries is essential to make it enforceable against third parties, such as any creditors of either party.
Advantages for the Buyer
For the buyer, this formula offers significant benefits. The most obvious advantage is the ability to purchase a property without a mortgage, overcoming the difficulties associated with accessing bank credit. You get immediate enjoyment of the home, being able to live in it or use it from the moment the contract is signed.
Another positive aspect is that the sale price is locked in at the time of the agreement, shielding the buyer from potential increases in the real estate market. Furthermore, the rights acquired through the transcription of the contract are enforceable against third parties, protecting the investment from possible claims by the seller’s creditors. This option is ideal for those with a good income capacity but not the immediate liquidity or the requirements for traditional financing.
Advantages for the Seller
The seller also reaps considerable advantages from this type of contract. The main guarantee is the retention of ownership of the property until full payment, a much stronger protection than a mortgage in case of the buyer’s default. This security allows for broadening the pool of potential buyers to include people who would not have access to classic financing channels.
The seller is immediately freed from maintenance costs and the risks associated with the property’s deterioration, which are transferred to the buyer from the moment of delivery. In the event of non-payment by the buyer, the seller can request the termination of the contract and regain full possession of their property, retaining part of the installments paid as compensation for its use.
Risks and Disadvantages to Consider
Despite the benefits, it is essential to carefully evaluate the risks. For the buyer, the greatest danger is default: failure to pay a number of installments exceeding one-eighth of the total price can lead to the termination of the contract. In this scenario, you lose not only the right to purchase but also a portion of the sums already paid, although the seller is required to return the collected installments minus fair compensation for use.
For the seller, the main risk is related to the buyer’s default. Although protected by the retention of title, the process of repossessing the property can be time-consuming and require legal procedures. Furthermore, until the final transfer of ownership, major property taxes, such as IMU (Italian property tax), remain their responsibility.
Differences with Other Purchase Formulas
It is important not to confuse a purchase with retention of title with other alternative formulas, such as rent-to-own or lease-to-buy. In a rent-to-own agreement, the purchase is an option, not an obligation: at the end of the lease period, the tenant can decide whether or not to buy the property. In a sale with retention of title, however, the purchase is an obligation from the outset; the transfer of ownership is only postponed and occurs automatically upon payment of the final installment.
Compared to a traditional sale with a mortgage, the substantial difference lies in the role of the lender. In a purchase with retention of title, it is the seller who effectively “finances” the buyer by deferring payment. This makes it one of the most interesting options for those looking to buy a house without a mortgage, but it requires deep trust and an extremely clear contract between the parties.
Legal and Tax Aspects Not to Be Underestimated
From a tax perspective, a sale with retention of title has a peculiar feature. For the purposes of indirect taxes (registration, mortgage, and cadastral taxes), the transaction is treated as an immediate transfer. This means the buyer must pay all these taxes at the time of signing the notarial deed, as in a normal sale. As for direct taxes and local levies, such as IMU, these remain the seller’s responsibility until the actual transfer of ownership occurs.
The transcription of the deed in the property registries is a crucial legal step. It ensures the contract is enforceable against third parties, protecting the buyer from any subsequent sales or liens on the property by the seller’s creditors. Likewise, the buyer’s creditors cannot place a lien on the property until they become the owner. In case of default, if the buyer fails to pay the installments, the consequences can be serious, similar to those of a missed mortgage payment.
A Bridge Between Tradition and Innovation in the Real Estate Market
The purchase with retention of title embodies a perfect balance between traditional values and innovative responses to current market challenges. Mediterranean culture, and Italian culture in particular, is deeply tied to the idea of the home as a primary asset and the satisfaction of “earning” it over time. This contractual formula echoes this sentiment, allowing for a gradual and considered purchase, similar to how it was done in the past.
At the same time, it stands as a modern and flexible solution in a European context where access to credit has become more rigid and selective. It offers a creative way out for sellers struggling to find financeable buyers and for buyers who desire housing stability without waiting for the ideal conditions for a mortgage. It is a demonstration of how established legal tools can be rediscovered and adapted to successfully navigate the complexities of the present.
Conclusions
A purchase with retention of title is a powerful and versatile tool, capable of offering concrete solutions to both sellers and buyers. It is not a shortcut, but an alternative path that requires awareness, transparency, and careful planning. Its advantages, such as immediate access to the property and financial flexibility, are undeniable, but they must be weighed against the risks, particularly those related to default and tax burdens.
This formula proves to be particularly effective in specific market niches and for buyer and seller profiles with special needs. Like any complex financial and legal instrument, its success depends on the clarity of the contract and the advice of experienced professionals, such as a notary. Ultimately, it represents a valuable option in the real estate landscape, a bridge between the tradition of ownership and the innovation of purchase methods, perfectly suited to the Italian and European socio-economic context.
Frequently Asked Questions
A purchase with retention of title, or a conditional sale agreement, is a sales contract where the buyer gets immediate possession of the property but only becomes the full owner after paying the final installment of the agreed-upon price. Until then, ownership formally remains with the seller as a guarantee. The buyer immediately assumes all risks associated with the property, such as damage or deterioration.
The main difference lies in the obligation to purchase. In a sale with retention of title, the transfer of ownership is automatic and mandatory once the final installment is paid. In a rent-to-own (or lease-to-buy) agreement, however, the tenant has the option, but not the obligation, to purchase the property at the end of the agreed-upon period. A retention of title sale is a true sales contract with a postponed effect, while rent-to-own is a lease agreement with a future purchase option.
If the buyer fails to pay the installments, the seller can request the termination of the contract and the return of the property. However, according to the Civil Code (Art. 1525), termination cannot occur for the non-payment of a single installment that does not exceed one-eighth of the total price. In case of termination, the seller must return the installments already collected but is entitled to fair compensation for the use of the property and any damages.
The buyer, from the moment they take possession of the property, is responsible for paying for ordinary and extraordinary maintenance, utilities, and taxes like the TARI (waste tax). However, the IMU (Municipal Property Tax) remains the seller’s responsibility until the final transfer of ownership occurs with the payment of the last installment. The taxes on the sale (registration, mortgage, and cadastral taxes) are due from the buyer at the time of signing the initial contract.
The main risk for the buyer is losing the property and the installments paid (net of fair compensation for use) in case of payment default. Additionally, they immediately assume responsibility for any damage or deterioration of the property and must bear its maintenance costs, even though they are not yet the legal owner. Another aspect to consider is that, in the event of the seller’s bankruptcy, the situation can become complicated, although the law provides protections for the buyer who is regularly paying the installments.
Did you find this article helpful? Is there another topic you'd like to see me cover?
Write it in the comments below! I take inspiration directly from your suggestions.