This section shares some real life experiences to help you understand the problems and opportunities when buying and renovating property.

Case Study 1

A rustic farmhouse near Lucca with many nasty surprises!

Frank & Joan were searching for a home in Tuscany for over a year without much luck. In the spring of 2005, they came across an interesting rustic farmhouse located in quite a charming area near Lucca. They were very enthusiastic about the potential of renovating the building, installing a pool and perhaps setting up a B&B to generate some additional income.

The property in question was advertised as a two-storey farmhouse building with a floor area of 210m2 and was composed of a 40m2 renovated section, an adjoining derelict barn and civil dwelling. The Vendor also highlighted the potential for extending the building thus making it an even more attractive investment. The property also included 2 hectares (20,000m2) of agricultural land for sale and the asking price was set at 180,000 euro.

After much thought Frank & Joan placed an offer on the property applying a few conditional clauses. Such clauses addressed the suitable outcome of initial searches which included clean title, feasibility of planning permission for conversion to a civil dwelling and a pre-emption rights waiver. Within a couple of days, the Vendor accepted the offer. Now it was simply a case of doing the right due diligence and moving onto the compromesso!

After a site survey and some initial due diligence, a number of interesting facts quickly transpired. It became apparent that the Vendor did not have title to sell the entire property and that the farmhouse was composed of three distinct legal properties each with its own owners … none of whom was the so-called “Vendor”.

The farmhouse was composed of property A, B & C. On further investigation, the “Vendor” was granted power of attorney by his brother who owned the renovated property B. Property A belonged to the “Vendors” ex-partner who had verbally agreed to let him sell and the owners of property C apparently wanted to “tag along” if the commercial conditions were right.

After consulting with Frank & Joan, it was obvious that there were lots of hurdles to get over and the deal would certainly be somewhat “complex” for want of a better word! In any case, they felt that it was worth pursuing once the right precautions were taken. The next step was to drill down a layer and to uncover the details of each property and associated circumstances.

Upon consulting the provincial title & mortgage registry, we discovered that property A had a mortgage of over 60,000 euro entered against it! This mortgage was taken out on the basis that the property was recently registered as a dwelling (i.e. requiring at least a kitchen, living room, bathroom and bedroom). Physically, we were looking at a dilapidated house with not even the slightest sign of a bathrooms or kitchen! The property was registered as a dwelling without authorization from the local authorities. Upon querying the “Vendor's” Geometra as to how he managed to organise such a loan, he replied “if you need a loan I can get you one easily!” . . . no comment!

Moving onto property B (the renovated one) a search revealed a judicial lien of just over 40,000 euro against it as the brother got into trouble with the tax man over his import-export business. Upon checking with the local authorities, we discovered that no building permits were issued for the renovation in question. Retrospective planning was also out of the question as the property was in a protected area. Property B was destined to be categorized a storeroom and literally couldn't be touched until somebody paid the fines not to mention the risk of legal proceedings!

Property C (the “tag alongs”) was owned by an elderly man who had arranged power of attorney from his co-owner sister living in Brazil. At last, somebody with clean title! Unfortunately, it turned out that he had passed away 12 months previous and the inheritance procedure was not carried out within the statutory timeframe! This meant further fines for the heir and lots of waiting.

Again it was back to the drawing board with Frank & Joan to decide whether to abandon ship or move on to the next step. After much thought, they decided to see what was feasible from a technical/planning perspective before proceeding.

One of the first issues encountered was that the upper floor of all three properties did not have the minimum net height requirements of 2.7m as prescribed by the local regulations. This was a necessary requisite for converting from agricultural use to dwelling use. Fortunately, planning regulations allowed an increase in volume for such farmhouses by raising the eaves/roof level to overcome this problem.

The second task was to understand if it were really possible to extend. Local planning regulations allowed the net floor area to be extended up to 130m2 once one of the following two conditions were met, namely the property had to have an initial volume greater than 200m3 for an agricultural building or an initial floor area greater than 40m2 for a civil dwelling. The only property with such characteristics was Property A having a volume of 205m3. This extra 5m3 triggered the possibility for an extension. Finally some good news!!

The only concern at this point, was the presence of a gas pipeline passing near to property A. Given the developments to date, we decided to leave no stone unturned. On contacting the pipeline company (Snam) armed with land registry details, they faxed us a servitude contract prohibiting any sort of construction for a minimum distance of 20 meters on both sides of the pipeline! Property A was located at 18m . . . another dead end!!

The final nail in the coffin was the 20,000m2 of land. On verification, the total area amounted to just over 10,000m2 of which a significant part was dislocated in several isolated fields far away from the property!

Unfortunately this was all devastating news for Frank & Joan yet somehow a blessing in disguise. Now that they were thoroughly informed on the property's defects and potential, they were able to place a new offer that reflected its real value. The “Vendor” did not accept this new offer and is silently waiting for an easier victim.

Conclusion

Unfortunately such complications combined with a certain amount of cunningness is not all that unusual (especially the former). There are many old properties out there which have accumulated frightful complications due to circumstances that have developed over the years. Having said that, if the buyer is determined and patient such issues can be overcome and resolved by correctly managing the whole buying process. In this particular case, the unusual combination of such issues significantly deteriorated the value of the property and making it commercially unattractive. Frank & Joan have since moved to Italy with their children and have rented accommodation to get more acquainted with the area before embarking on a new search.