Hotel transactions in Italy are governed by a wide range of legal sources, including the following.

• Italian Civil Code (Codice Civile) is the main source of law regulating property rights and contractual agreements and, in particular, real estate purchase agreements, business (and business units) transfers and lease agreements.
• Leases Law (Legge sulle locazioni) No 392/1978 specifically regulates the lease of commercial properties, including hotels. It has a crucial role in hotel transactions, should the hotel be not owned but operated under a long-term lease agreement.
• Franchising Law No 129/2004 governs franchising agreements in Italy, a widely adopted business model in the hospitality sector where the hotel owner licenses a brand, marketing system and operational model from the franchisor.

Certain structures ‒ increasingly used in the hospitality sector, particularly by major international hotel groups, such as hotel management agreements ‒ originate from common law jurisdictions and do not have a specific Italian regulation. However, the relevant agreements in Italy are treated as an “atypical agreement”, meaning that such contracts are valid in accordance with the general principle of freedom of contract pursuant to Article 1322 of the Italian Civil Code.

Despite their growth in the hospitality market, such structures may suffer from a lack of a comprehensive legal framework in Italy. As will be further highlighted in the following sections, it is crucial for the operators and investors to properly rule the contractual clauses of the atypical agreements, so as to ensure they are legally valid pursuant to Italian laws and to avoid any potential legal and operational risks.

The most common legal structures adopted in Italy in the sale and purchase, related to hotel transactions, are share deals and asset deals.

Both structures are commonly used, but the choice between them often depends on the specific circumstances of the transaction, the targets of the parties involved, and the type of hotel or property being sold.

By way of principle, the share deals are preferred by the major groups in the hospitality industry, both domestic and international, while the asset deals are preferred by smaller legal entities, mostly active on a national basis.

In the share deal, the buyer purchases the shares (or quotas) of the company that owns the hotel property, rather than the hotel property itself. By doing so, the buyer essentially purchases the entire legal entity, including its assets and liabilities, of any kind, rather than ‒ directly ‒ the underlying real estate and operations. In contrast, in the asset deal, the buyer might freely purchase directly the specific assets of the hotel, such as the real estate property, but also (or alternatively) the operational agreements, the intellectual property rights, and/or any other tangible and intangible assets associated with the hotel.

Each structure offers different advantages and challenges, as briefly outlined below.

Share Deal

• Advantages:
1. the transfer of ownership is more straightforward in a share deal, as it only refers to the transfer of shares (or quotas) of a legal entity, rather than the transfer of individual assets (properties or other assets); and
2. operational and business structures, including ongoing agreements, relationships with employees, intellectual property rights and licences, generally remain the same, constituting an advantage in the continuity of the business.
• Disadvantages:
1. purchase of shares (or quotas) requires the buyer to bear, if not properly regulated in the agreements between the parties through the representations and warranties and indemnification procedures, the potential liabilities deriving from the activities preceding the completion of the transaction.

Asset Deal

• Advantages:
1. the buyer may choose specific assets to purchase, such as the land, building, or even key operational contracts, in line with the buyer’s specific needs and by excluding liabilities related to other unnecessary assets, which remain outside the scope of the transaction;
2. the buyer does not assume any of the company’s previous liabilities (such as debts, pending legal matters or prejudicial circumstances of any kind), reducing the risks related to the transaction; and
3. operators and investors may also consider purchasing the property through specific entities, eg, the general partnership (società semplice), in order to benefit from additional advantages.
• Disadvantages:
1. based on the assets to be purchased, such deals might require compliance with specific legal, tax and administrative requirements; and
2. asset deals do not usually ensure the continuity of business operations, since the buyer will have to independently provide all assets needed to run the hotel, such as employees, operational agreements, supplier, permits and licences.

Both share deals (principally) and asset deals require the purchaser to conduct due diligence activities on the legal entity or the asset to be purchased, as the case may be, in order to highlight the potential liabilities deriving from the transaction before proceeding with the completion of the deal. In the light of the activities underlying the due diligence, however, the procedure related to the share deals requires essentially more time than the due diligence to be performed in the asset deals.

Generally, details of hotel transactions, including their terms (such as identity of the parties, the consideration paid and general undertakings), are not subject to mandatory public disclosure in Italy.

However, based on the legal form and structure of the transaction, certain elements may become publicly available. Such transparency is based on several factors such as the nature of the deal (share or asset deal) or applicable statutory or regulatory disclosure obligations (for instance, those concerning transactions completed by listed companies).

Most of time, agreements finalised between the parties contain confidentiality clauses which prevent the parties from disclosing the terms and conditions of the transaction, including the existence of the deal itself, until closing. Buyers and sellers often prefer to keep the transaction confidential, especially when the agreements contain reference to sensitive business information.

Transactions involving the transfer of real estate property (asset deals) have to be finalised through a notarial deed and then registered with the Italian Lands or Buildings Registry (Catasto terreni o fabbricati), which is a public record. Such registration includes details about the real estate property, such as its location, cadastral details and description, as well as the transfer of ownership, rather than specific business details (the purchase price or the further terms of the deal). However, considering that such details are included in a notarial deed, third parties requiring access to the document may submit a request to the authority.

In share deals, whereby the transaction involves the transfer of shares or quotas in a company owning the real estate (rather than the property itself), no registration, integration or amendment of the details recorded in the Lands or Buildings Registry is required. The transfer of shares or quotas is recorded in the Companies Register (Registro delle Imprese), but, in this case, the only details that can be disclosed, and therefore made public, are those related to the purchaser of the shares or quotas. No further information, such as that concerning the asset transferred indirectly or the terms and conditions of the transaction, becomes public.

Notwithstanding the above, should one or more parties to a transaction be a listed company, additional disclosure obligations may apply. In particular, completion of material transactions, as well as information including the identity of the counterparty, purchase price and strategic rationale of the deal (especially if the transaction may influence the company’s stock price or market perception), are required to be disclosed to the market.

Foreign investments in the hotel industry in Italy are generally allowed and are free from restrictions. Foreign investors can generally own real estate in Italy, but non-EU investors may be required to consider reciprocity requirements (meaning that purchasing of real estate properties is allowed only to entities from countries that permit Italian entities to invest in their real estate market).

However, investments promoted by foreign parties may face certain restrictions with regard to the object of the transfer.

In particular, the so-called Code of Cultural Heritage and Landscape (Legislative Decree 42/2004) governs the landscape or architectural constraints aimed at preserving Italy’s cultural and natural heritage, and may impose significant limitations on the manner according to which real estate properties having particular historical or cultural value may be developed, renovated or ‒ in particular ‒ transferred.

Such restrictions protect Italian landscapes, amongst other things, from transactions that might negatively affect the natural beauty or traditional views, and apply to certain geographical areas, which are often the main locations targeted by the foreign investors for their initiatives.

It is therefore particularly relevant for foreign investors to evaluate their hotel transactions, especially in locations with high historical, cultural or environmental value, and to carefully assess urban planning, landscape protection laws, and heritage restrictions during the due diligence process, as these may significantly influence the feasibility of an initiative, as well as cost and timing.

Compliance with the applicable restrictions is overseen by the authorities. Foreign investors are required to work closely with these authorities so as to ensure that any initiative complies with the applicable laws. Failure to do so may result in fines, sanctions, delays or even the suspension of the work, as provided under Article 28 of the Code of Cultural Heritage and Landscape, which allows the authority to order the suspension of unauthorised works, or those conducted in breach of granted authorisations.

The Italian hospitality market is characterised by different forms of hotel ownership and management structures.

The most common models are –

• independent or privately owned hotels;
• hotel management agreements;
• lease agreements; and
• franchise agreements.

The hospitality industry in Italy is still largely dominated by domestic independent owners (mostly, family business or boutique hotels), but in recent years lease agreements, hotel management agreements and franchising agreements have become more common, particularly in the main tourist cities and resort destinations.

A clear understanding of the models listed above is essential for investors and operators.

The choice and prevalence of each of the models above may vary depending on factors such as the geographic location of the hotel, property size, target market and clients, expected decision-making process and whether the hotel operates under a domestic or international brand.

Before describing the specific key differences between the various models, it is important to clarify what is meant by each of the models, as follows.

• Independent or privately owned hotels – this model refers to hotels owned and operated by individuals or legal entities without being affiliated with a hotel chain or a brand. The operator has full control over the hotel’s operations, branding and strategic decisions.
• Hotel management agreements – under this model, the hotel owner retains ownership of the real estate property but appoints an operator (acting professionally in the hospitality industry) for the day-by-day management of the hotel. The operator runs the hotel on behalf of the owner, earning a fixed management fee and an incentive fee (based on the performance of the hotel), while the owner is liable for the financial risk and general performance of the hotel.
• Lease agreements – this model refers to an agreement whereby the property owner (lessor) grants an operator (lessee) the right to use the real estate property for a fixed term, in exchange for rent to be paid in accordance with the contract. The operator has the business risk and runs the hotel independently and at its own discretion.
• Franchise agreements – through this agreement the hotel owner (the franchisee) is allowed by the operator (generally, a leading company active in the hospitality industry), as franchisor, to use the latter’s well-recognised name, its brands and intellectual property rights, systems and support services, while the former still retains ownership of and operational responsibility for the business. The franchisee is required to pay royalties and fees to the franchisor for having the right to use the above-mentioned assets and being part of the franchisor’s network.

Each model has its own set of characteristics, advantages and disadvantages, as well as its own challenges, which influence aspects such as operational management, financial performance and strategic decision-making.

Hotel management agreement is a contractual relationship between the owner of a real estate property and a hotel operator or management company, according to which the latter will be responsible for running the hotel and for day-to-day management, while the owner of the property retains ownership.

By way of principle, the key items of a hotel management agreement are the following.

• Hotel owner – usually a real estate investor, active in the sector of construction or development, or a real estate fund with no experience in hotel management.
• Hotel manager – usually part of the domestic or international hospitality group, with a well-recognised brand.
• Owner’s main obligations – fund capital expenditure, as agreed with the manager, managing and executing the maintenance of the property, paying the fee(s) to the manager.
• Manager’s main obligations – running and managing the hotel according to brand standards, recruiting and managing the staff; managing relationships with customers and suppliers, ensuring compliance with applicable laws.
• Duration – usually, the term of a hotel management agreement is long, so as to allow the manager to plan its activity on a long-term basis.
• Fee(s) – the manager has the right to receive a management fee, fixed and unrelated to the performance of its activity, and an incentive fee, as a percentage, which may be driven by the performance and revenues of the hotel.
• Brand – the brand, and generally the intellectual property rights, used in the management of the hotel are those of the manager.
• Termination clauses – usually, these refer to specific breaches of the hotel management agreement (such as failure in meeting the targets agreed by the parties).

Hotel management agreements in Italy are treated as an “atypical agreement” under the Italian Civil Code, meaning that such contract is not specifically regulated by codified laws or regulations, but is valid based on the general principle of freedom of contract pursuant to Article 1322 of the Italian Civil Code.

The lack of specific regulation of hotel management agreements in Italy creates a challenge for operators and investors interested in promoting initiatives in Italy, requiring greater care in drafting the agreement. The absence of codified provisions of law may indeed raise issues in the case of a dispute (for instance, in respect to termination and parties’ liabilities).

If a particular provision is not included in the hotel management agreement, there are no Italian laws or regulations that may be applied by analogy. Depending on the structure of the relationship, however, hotel management agreements may include features of the service contract (contratto di prestazione d’opera), of the mandate (contratto di mandato), of the agency (contratto di agenzia), and even of the franchising agreement, as described in more detail in 3.4 Hotel Franchising Agreements.

This leads to a flexible, but ‒ at the same time ‒ uncertain legal framework, where interpretation relies on the contract wording and case law, rather than specific and codified provisions of law; courts will be required to evaluate the matter by relying on international practice (which may be unfamiliar to local judges).

Notwithstanding the above, hotel management agreements are increasingly used in Italy ‒ in particular, for luxury hotels and resorts operated by international hotel groups.

Considering the nature of “atypical agreement”, operators and investors are required to properly draft the contractual clauses of the hotel management agreement, so as to ensure they are legally valid pursuant to Italian laws and to avoid any potential legal and operational risks.

In Italy, the hotel lease agreement is one of the most common contractual models adopted by hotel operators (mainly domestic, but also international) for the operation of hospitality properties.

Unlike hotel management agreements, hotel leasing agreements are governed by specific provisions set forth by –

• the Italian Civil Code, through Articles 1571 et seq, which govern the leases in general, and, if applicable, Articles 2561 et seq, which specifically govern the lease of an operating business (affitto d’azienda); and
• the Leases Law (Legge sulle locazioni) No 392/1978.

Therefore, these agreements are typically governed by a combination of provisions provided by the Italian Civil Code and specific legislation relating to commercial leases.

Hotel lease agreements are structured within a certain legal framework, offering operators and investors a clear overview of the discipline they may be subject to.

The lease may refer to the sole property (Articles 1571 et seq) or it may include the transfer of the business unit itself (affitto d’azienda), including the hotel’s operational infrastructures staff, licences, goodwill and the brand (Articles 2561 et seq).

Regardless of the structure, however, hotel leases in Italy are typically long-term relationships, renewable upon expiration.

Rental may be fixed or indexed to inflation, but in more sophisticated agreements it may be linked to the hotel’s turnover or to certain performance targets, thereby aligning both parties’ interests.

Pursuant to Article 1541 of the Italian Civil Code, the lease agreement is an agreement according to which the owner of a real estate property (the landlord or lessor) grants a party (the tenant or lessee) the right to use the property, which may be a hotel, for a fixed term, in return for payment of rent.

In such an agreement, the tenant runs the hotel and the day-to-day operations, in its own name and at its own risk, and is bound to pay the rent to the landlord.

Italian law imposes certain mandatory terms, particularly under Law No 392/1978 governing leases of commercial real estate. These are mostly in the interest of the tenant, as the latter enjoys significant protections pursuant to laws ‒ given that it is considered the weaker party in the relationship.

Amongst such terms, it is important to mention the following.

• Lease term – pursuant to Article 27 of Law No 392/1978, the minimum commercial lease duration for a hotel is nine years, renewable for another nine years and upon expiry of such period, the lease automatically renews for the same period of time. Non-renewal by a landlord is allowed only upon specific circumstances defined by law.
• Withdrawal – it may be conventionally permitted for the tenant and, in any case, is a right of the tenant upon the occurrence of justified reasons (gravi motivi) by giving the landlord six months prior written notice.
• Rental adjustment – the rent may be indexed to ISTAT (inflation index) even if such adjustment is usually limited to 75% of the inflation index, pursuant to Article 32 of Law No 392/1978 (unless the duration of the lease exceeds the minimum duration, as indicated above).
• Indemnity for loss of commercial goodwill (indennità per la perdita dell’avviamento commerciale) – Article 34 of Law No 392/1978 provides that the tenant is entitled to an indemnity equal to 21 months of the last paid rent (for businesses in the hospitality sector), unless the lease is terminated due to a breach by the tenant or the landlord gives notice of its intention not to renew the agreement for valid statutory reasons.
• Maintenance – by way of principle (Article 1576 of the Italian Civil Code), unless otherwise agreed by the parties, the tenant is generally responsible for ordinary maintenance, while the landlord is responsible for the extraordinary maintenance.
• Improvements – the tenant may be entitled to make improvements to the property (according to the provisions of the lease agreement, with or without the landlord’s prior consent), and in such a cases, it may have the right to reimbursement for the relevant costs or to remove improvements at the end of the lease (Articles 1592 and 1593 of the Italian Civil Code).
• Subleasing and assignment – notwithstanding that the parties may agree that any subleasing must be subject to the landlord’s authorisation, Article 36 of Law No 392/1978 provides that the lease agreement may be freely assigned to third parties, if such assignment occurs in the context of a transfer of a business unit.
• Deposit – it is considered as a guarantee for the tenant’s obligations under the lease and must not exceed three months of rent (Article 11 of Law No 392/1978). At the end of the lease, it will be returned to the tenant, unless there is damage to the property or there is unpaid rent.
• Pre-emption right – Article 38 of Law No 392/1978 provides that, should the landlord intend to transfer the property to third parties, the tenant may have the right to purchase it on the same terms and conditions. The landlord is required to give the tenant proper notice in order to allow the latter to do so.

Under Italian law, commercial leases are subject to a regime that strongly favours the tenant. The protection granted to the tenant may prevent the owner from regaining possession of the real estate property without litigation.

By way of example, although a breach of the tenant’s payment obligations constitutes a material breach of the agreement under Italian law, the procedure aimed at terminating the lease and at recovering the possession of the property due to the tenant’s default may be significantly ‒ and also strategically ‒ delayed by the tenant. This may result in potential loss of income for the landlord and, also, higher costs for recovering possession due to the long litigation.

In addition to the foregoing, most of the above-mentionedprovisions are mandatory. Therefore, they cannot be waived to the tenant’s disadvantage.

Such principle is, however, applicable to the lease if its value (in terms of rent) is less than EUR250,000.

Beyond that threshold, Article 79, paragraph 3 of Law No 392/1978 provides that parties are free to derogate from the above-listed mandatory provisions by offering operators and investors interested in running high-value real estate properties a good option to consider in their assessment.

In addition to the property lease, operators may opt to lease the business unit. Through such model, the owner grants a third party the right to use the entire business unit and therefore not only the real estate, but also the hotel’s additional facilities, personnel, licences, goodwill and any further tangible and intangible assets (such as the brand), allowing the third party to run the business without any substantial change.

From a legal point of view, the lease of the business unit grants the operator the right to use a comprehensive business, instead of the sole property (as per lease of the real estate).

A hotel franchising agreement is another contractual model adopted by hotel operators.

Unlike the hotel management agreement, which constitutes an “atypical agreement” under Italian law, and the hotel leasing agreement, which is ‒ by contrast ‒ fully regulated by Italian law, the hotel franchising agreements are not expressly provided for under the Italian Civil Code, but ruled, in principle, by the Franchise Law (Law No 129/2004).

Law No 129/2004 outlines the general rules regarding franchise agreements in Italy, even if not specifically for the hospitality industry.

As per Article 1 of Law No 129/2004, a franchising agreement is a contract between two parties, whereby the first party, the “franchisor”, grants to the other, the “franchisee”, the right to use a set of industrial and/or IP rights, along with technical and commercial assistance and support, incorporating the franchisee in a specific and existing business system. In return, the franchisee undertakes to pay the franchisor a consideration to be agreed by the parties.

Therefore, it is essential that the franchisor already owns a proven and well-recognised business model, characterised by a set of industrial and/or intellectual property rights, and the franchisee is interested and willing to adopt such a model in a specific territory.

Given the nature of the agreement, and the unavoidable disclosure of confidential information from the franchisor to the franchisee, the latter is usually required to enter into a non-disclosure agreement before commencing the exchange of the franchisor’s confidential information. This sharing of information is essential for the franchisee to evaluate the business model and may include a description of the business, its strategies and lists of clients and suppliers.

Furthermore, Article 4 of Law No 129/2004 states that at least 30 days before the signing of the agreement, the franchisor has to provide the franchisee with a disclosure package, including the draft of the contract and general information concerning the business. These disclosure obligations are important in order to ensure that the franchisee has a full knowledge of the business.

Each party to the franchising agreements has specific obligations that characterise the contract.

The franchisor is required to:

• grant the franchisee a set of industrial and/or intellectual property rights, constituting a franchisor’s distinctive signs, such as:
1. trade marks;
2. patents;
3. trade names;
4. designs; and
5. generally know-how; and
• provide the franchisee with assistance and support, not only in the start-up phase (such as the layout of the renovations or furniture) but throughout the duration of the agreement (such as the support in the staff’s hiring and training procedures).

The know-how is a key item in the franchising agreement. Article 1, paragraph 3, letter d) of the Franchise Law provides for a detailed description of the same, requiring that it is:

• confidential – it must be not publicly available or known;
• substantial – it must be essential to carry on the franchisor’s business;
• identifiable – it must be described clearly and in exhaustive manner, so as to verify the occurrence of the previous requirements.

On the other hand, the franchisee is required to pay to the franchisor the amount (freely agreed by the parties) as per the franchising agreement. The agreement usually envisages:

• an initial fee, covering the start-up phase; and
• royalties, based on the revenues deriving from the activity carried on by the franchisee.

The franchisee must strictly comply with the guidelines set forth by the franchisor, in order to maintain consistency with the franchisor’s business model.

The agreement must be finalised in written form.

Although the duration is not strictly provided in the leasing agreement, franchising relationships usually require significant investment, and therefore the agreements are expected to last several years. Article 3, paragraph 3 of the Franchise Law states that, unless the agreement has an indefinite term, the relationship must have a minimum duration of three years, so as to allow the franchisee to recover the investment.

Franchising agreements in Italy are a popular model for hotel owners seeking to exploit existing and reliable business models of hotel chains, mostly international, including their successful know-how, without spending time and resources building their own business model and brand.

However, drafting of the franchising agreement requires that both parties carefully evaluate the respective undertakings and obligations to avoid strict clauses that may prevent or slow down the proper execution of the project. For instance, particular attention should be given to:

• in the interest of the franchisee, avoiding excessive control of the franchisor over the franchisee’s activity; and
• in the interest of the franchisor, providing for an exhaustive list of the terms and conditions according to which the franchisee may use the industrial and/or IP rights, ensuring the right to terminate the agreement or take legal action to protect such rights.

Different financing instruments are available for investors and operators, depending on the nature of the initiative (acquisition, constructing, renovation, development, or ‒ in general ‒ liquidity), the risk profile and the business structure.

The main options of financing used in the Italian hospitality market are the following.

Senior Financing

Senior financing is the most used financing option in hotel transactions in Italy and typically falls under the category of medium/long-term loans.

The financing is granted by the financial institution permitted to do so pursuant to Articles 38 et seq of Legislative Decree No 385/1993 (the Banking Act, or Testo Unico Bancario, or TUB).

Such a solution is a typical agreement under the Italian jurisdiction and is primarily governed by Italian Civil Code through the provisions on the financing contract (Articles 1813 et seq).

The legal protections granted by Legislative Decree No 385/1993 and Italian Civil Code make bank loans a preferred instrument for hotel transactions and, in general, for real estate financing.

The most used form of loan in the hospitality industry is the so-called mortgage loan (mutuo ipotecario), typically granted by banks for the purpose of acquisition, constructing, renovation, development of real estate, and secured by a first-degree mortgage on the property.

Such loans usually envisage long-term repayment plans and fixed or variable interest rate loans, depending on the borrower’s risk evaluation, strategic decisions and market conditions.

Other forms of loan solutions may include:

• bridge loans, typically used in transitional acquisitions or redevelopment initiatives;
• revolving credit facilities, generally used for operational liquidity management; and
• financial leasing.

Real estate leasing is a financial agreement in which a leasing company (lessor) owns or acquires a property and grants its use to a client (lessee) for a fixed period, for periodic payment (usually on a monthly basis). At the end of the lease term, the lessee typically has the option to purchase the property for a predetermined residual value from the lessor, or alternatively return it to the lessor.

In Italy, leasing agreements are mainly regulated by:

• Italian Civil Code, particularly Articles 1571 et seq, which provide general rules on lease contracts;
• Law No 183/1976, which first introduced regulations on financial leasing; and
• Law No 124/2017, which provides definitions and clarifications on financial leasing.

Leasing arrangements, and particularly real estate leasing, are widely used in the hospitality industry when operators wish to have the availability of the property (hotel) while avoiding large upfront capital expenditure for the relevant acquisition.

Through the leasing, the lessor retains legal ownership of the property during the lease term, and the operator has the right to use the hotel for its business by paying an amount to the lessor, with the opportunity to purchase the property upon expiry of the lease.

Private Capital

Funding solutions may also be offered in the private capital market.

Such solutions are flexible financing solutions in the Italian hotel industry ‒ in particular, when traditional option such as bank loans are not suitable for the needs of the operators. These solutions are typically structured by equity contributions, convertible instruments or mezzanine financing (or other hybrid items).

Such options represent strategic financing alternatives which differ significantly from traditional debt financing solutions, as they include equity participation from the fund (as the new shareholder in the initiative) and, often, the participation of the fund in the management of the hotel. This promotes joint initiatives between the operator and the fund (acting as financial sponsor).

The offer of the financing services provided by private equity and venture capital ‒ when funds operate through regulated investment vehicles ‒ is subject to Legislative Decree No 58/1998 (the Finance Act or TUF), imposing, amongst other things, the authorisation and supervision by CONSOB (the Italian securities authority), transparency, compliance and risk management rules, as well as fund’s management requirements.

Unitranche Debt Facility

Unitranche debt facility is a hybrid funding solution, characterised by a structure which combines both senior and subordinated types of loans into a single tranche debt, with a single, blended interest rate.

Through such a model, the lender (typically a credit fund, which may also act as leader, on behalf of the other lenders participating in the financing) offers the borrower a more flexible and fast funding solution, compared to a traditional bank. In particular, it removes the need for intercreditor relationships among the lenders and reduces the costs related to funding.

Hotel transactions may be also financed by foreign financers, since there are generally no specific restrictions on the performance of financing services from foreign operators.

Pursuant to Italian laws and regulations, foreign providers of financial services, based in EU and non-EU countries, may legally provide loans or financing to entities operating in the hospitality industry, provided that applicable banking and financial laws and regulations are complied with.

In particular, foreign financial institutions are required to comply with the Bank of Italy and EU regulations, which impose, amongst other requirements, that the entity is properly authorised, licensed or registered with the relevant supervisory authorities (depending on the services it offers) and that specific regulatory requirements, in terms of corporate governance, transparency and financial position are adhered to.

Non-compliance with such provisions may result in administrative sanctions, restrictions on the operations or even revocation of the authorisations.

Additional assessments related to applicable restrictions may be required if the borrower is not an Italian entity.

The choice of operating structure ‒ hotel management agreement, lease agreement or franchise agreement ‒ influences how the taxation is distributed between the property owner and the operator/brand. Each model presents distinct profiles regarding income tax liability, property tax responsibility (IMU and TARI), withholding taxes on cross-border payments, and the configuration of a permanent establishment (PE) in Italy for foreign entities.

Managed Hotels (Hotel Management Agreements)

According to a typical hotel management agreement, the owner retains ownership of the property and the business, engaging a professional management company (the operator or manager) to run the hotel on its behalf in exchange for fees, typically comprising a base fee (percentage of revenue) and an incentive fee (percentage of profit).

Operator (or manager)’s tax position

• Income tax – the operator earns management fees. If the operator is an Italian resident company or operates through an Italian PE, these fees constitute taxable income subject to IRES (24%) and IRAP (3.9%). The fees received are also subject to the standard 22% VAT.
• Withholding tax (WHT) – assuming that the activity carried out in Italy by a non-resident manager configures a permanent establishment in Italy (considering the dedicated office space within the hotel, the duration of activity at the site, and the degree of authority exercised by the operator’s personnel on-site), there will be  no issues related to cross-border payment of the management fee from an Italian owner will be. 

Owner’s tax position

• Income tax – the owner bears the full financial risk and reward for the hotel operation. The net operating profit (Gross Operating Profit less management fees and other owner expenses) or loss generated by the hotel is directly included in the owner’s taxable income, subject to IRES (24%) and IRAP (3.9%) if the owner is a corporate entity.
• Deductibility of fees – management fees (base and incentive) due to the operator are deductible business expenses for the owner when calculating IRES and IRAP.
• Property taxes – the owner is legally liable for IMU on the hotel property. The owner (as the operator of the business in this structure, even if through a manager) is also typically liable for TARI, unless otherwise agreed with the manager.

Leased Hotels (Lease Agreements)

In a lease structure, the owner (landlord) grants the right to use the hotel property to an operator (tenant) for a specified term in exchange for rent. The tenant typically runs the hotel business independently.

Landlord’s tax position

• Income tax – the landlord receives rental income. Assuming that the landlord is a corporate entity, this rental income is subject to IRES (24%) and, if it is also tax resident in Italy, IRAP (3.9%).
• VAT on rent – leases of commercial properties are generally VAT-exempt. However, the landlord can opt to apply VAT to the rent in the lease agreement. If VAT is opted for, the standard 22% rate applies.
• Lease registration – lease agreements must be registered with the tax authorities. Assuming that the hotel is a commercial building held by an entity identified for VAT purposes in Italy, registration tax is due at a rate of 1% of the annual rent, even if the parties have opted to apply VAT.
• Property taxes – the landlord, as the legal owner, is liable for IMU. However, lease agreements frequently include clauses requiring the tenant to reimburse the landlord for IMU payments.

Tenant’s tax position

• Income taxation – the entity operating the hotel business and earning the operating profits is the tenant. If this tenant is a non-resident entity, it will necessarily have a permanent establishment in Italy. These profits are subject to IRES (24%) and IRAP (3.9%).
• Rental deductibility – rental payments due to the landlord are deductible business expenses for the tenant in calculating both IRES and IRAP.
• VAT recovery – if the landlord opts to charge VAT on the rental, the tenant (if VAT registered) can generally recover VAT.
• Property taxes – the tenant is liable for TARI as the occupier of the property. The tenant may also be contractually obligated, via a specific lease clause, to bear the economic cost of IMU by reimbursing the landlord.

Franchised Hotels (Franchise Agreements)

Under a franchise model, the property owner (or a lessee acting as operator) operates the hotel under a brand name owned by a franchisor. The franchisee pays fees to the franchisor for the use of the brand, systems and support services.

Franchisor’s tax position

• Income tax – the franchisor receives various fees, including initial franchise fees, ongoing royalties (often a percentage of revenue), marketing contributions, and potentially fees for other services. If the franchisor is an Italian entity or has a permanent establishment in Italy, this income is subject to IRES (24%) and IRAP (3.9%). Fees are also subject to 22% VAT.
• WHT – this is a major consideration for non-resident franchisors receiving payments from Italian franchisees.
1. Royalties – payments classified as royalties (typically for the use of trademarks, know-how, brand standards) are subject to a 30% withholding tax under Italian domestic law (it is generally applied to 75% of the gross royalty amount, resulting in an effective tax rate of 22.5%).
2. WHT reduction/elimination – this domestic WHT rate can often be significantly reduced by applying (if existing) a double tax treaty between Italy and the franchisor’s country of residence. Treaty rates for royalties vary but are frequently lower (eg, 0%, 5%, 8%, 10%). Furthermore, royalty payments between associated companies within the EU may be fully exempt from WHT under the EU Interest and Royalties Directive, provided specific conditions (regarding shareholding, beneficial ownership, etc) are met.
3. Other fees – fees for specific services (eg, marketing, training, reservation system access) might be characterised as service fees rather than royalties. If so, under many double tax treaties, these fees would be treated as business profits taxable only in the franchisor’s home country, provided the franchisor does not have a PE in Italy. The characterisation of these fees is crucial and depends on the specifics of the agreement and the services provided.
• PE configurability – the probability of a non-resident franchisor creating a permanent establishment in Italy is generally considered lower than under a management agreement because the franchisor typically has less direct involvement in the hotel’s day-to-day operations and less physical presence.

Franchisee (Owner/Operator) Tax Position

• Income tax – the franchisee operates the hotel business and earns the operating profits, which are subject to IRES (24%) and IRAP (3.9%).
• Fee deductibility – franchise fees, royalties, marketing contributions, and other payments made to the franchisor under the agreement are generally deductible business expenses for the franchisee when calculating IRES and IRAP.
• WHT obligation – the Italian franchisee is legally responsible for withholding the applicable tax on royalty payments made to a non-resident franchisor and remitting it to the Italian tax authorities. The franchisee must obtain documentation from the franchisor (eg, tax residency certificate, beneficial ownership declaration) to apply reduced treaty rates or exemptions.
• Property taxes – the franchisee is liable for IMU if they own the hotel property. If the franchisee leases the property from a third-party owner, they will pay rent (deductible) and likely bear the economic burden of IMU through reimbursement clauses. The franchisee is also liable for TARI as the occupier.

Tax Incentives, Abatements, and Grants for Italian Hotel Projects

• ZES Unica (Single Special Economic Zone) – established to boost investment in Italy’s southern regions (Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardegna, Sicilia), this scheme offers a tax credit for qualifying investments made between 1 January 2025 and 15 November 2025. It is open to companies of all sizes across most productive sectors, explicitly including tourism and hospitality. Eligible investments include the acquisition (including via leasing) of new machinery, plants, equipment, and the acquisition or construction of instrumental buildings and land (with limits on building/land value). The minimum investment project cost is EUR200,000. It requires a two-step communication process with the Agenzia delle Entrate (initial notification between 31 March 2025 and 30 May 2025, and final confirmation by 15 November 2025). Tax credit rates vary significantly by region and company size, ranging from 15% (large enterprises in Abruzzo) to 60% (small enterprises in Campania, Puglia, Calabria, Sicilia), with potential increases up to 70% in specific areas. Beneficiaries must carry out the activity for five years.
• Transition 4.0/Industry 5.0 – these programmes, part of the broader PNRR framework, provide tax credits for investments in specific categories of technologically advanced tangible and intangible assets aimed at fostering digital transformation, automation, and green transition. They are applicable to all businesses based in Italy. Rates and eligible cost ceilings vary depending on the type of asset and the year of investment, with rates generally decreasing over time. For tangible “4.0” assets, the credit in 2025 is 20% for investments up to EUR2.5 million, 10% for the portion between EUR2.5 million and EUR10 million, and 5% for the portion between EUR10 million and EUR20 million. Intangible “4.0” assets receive a 10% credit in 2025 (up to a ceiling of EUR1 million). The Industry 5.0 component offers tax credits for specific green transition investments in 2025. Accessing these credits requires specific certifications regarding the assets’ characteristics and interconnections, as well as communications to the relevant ministry.
• “Mini-IRES” (Reduced Corporate Tax Rate) – a temporary reduced IRES rate of 20% (instead of 24%) is available for the 2025 fiscal year. Eligibility is conditional upon the company setting aside at least 80% of its FY 2024 profits into a specific equity reserve for at least two years, reinvesting a significant amount of it (generally speaking, not less than 30%) in new qualifying tangible or intangible assets, and increasing employment levels. Recapture rules apply if conditions are breached.

• Hiring incentive – a measure providing an additional tax deduction (super-deduction) for the cost of new permanent hires made in 2025, 2026, and 2027. The deduction applies if employee numbers increase compared to the previous year.

In Italy, running a hotel is typically permitted in accordance with a specific zoning classification, defined by the applicable urban planning instruments, the Piani Regolatori Generali (PRG) or equivalent instruments.

The main zoning classifications, allowing hotel activities, include:

• tourist zones;
• commercial zones; and
• mixed-use zones, areas intended to allow a combination of residential, commercial and hospitality uses.

If a hotel transaction involves hotel activity in a non-permitted zone, operators may consider starting a procedure aimed at varying the zone classification.

Such a procedure is usually complex due to:

• the detailed technical documentation, including architectural plans, environmental assessments and legal opinions needed to address the process effectively; and
• the participation of different authorities.

Hotel construction and refurbishment in Italy requires operators to comply with specific building and development regulations.

Such regulations may be based on national legislation and regional/local urban planning instruments.

Amongst the aspects to be considered, operators must take the following into account.

• The height, density, floor ratio parameters are set by the local zoning plans (PRG) defining the limits for building height, density and the floor area ratio (as the case may be). These parameters vary significantly depending on the location and environmental/cultural constraints.
• Parking requirements should be proportional to the number of rooms and guest capacity. Regions and municipalities may impose stricter requirements.
• Fire protection requires fire alarms, emergency exits, extinguishing systems and specific fire resistance ratings for materials, as well as the certification from the fire department before opening the hotel.
• Disability and accessibility factors ‒ full accessibility for people with disabilities must be ensured and this should include barrier-free entrances, accessible bathrooms, elevators and dedicated rooms. Non-compliance may prevent the issuance of the required permits and authorisations to run the hotel.
• Health and safety factors – these should include regulations on hygiene (eg, air quality, lighting and water systems), structural safety and emergency procedures, subject to inspections and approvals of the local health authorities (ASL).
• Room numbers ‒ although there is no minimum threshold at a national level, regional regulations may be established (eg, for hotels’ star classification).

Hotel refurbishment or new construction requires that operators obtain a building permit (permesso di costruire).

This permit is the result of a structured administrative process governed by the Building Act (DPR 380/2001).

The process commences through the submission, from the operators, of a formal application to the local municipality (comune). The application must include a detailed architectural plan, the environmental impact assessments (if required) as well as the documentation proving compliance with zoning and building regulations.

If the hotel is located in a protected area, due to historic or environmental reasons, additional approvals from heritage and environmental authorities may be required.

The application must be signed by a qualified professional (typically, an architect or engineer) and include proof of payment of the applicable administrative duties.

Once submitted, the municipality reviews the application within the following 60 days, pursuant to Article 20, paragraph 3 of DPR 380/2001. The time period may be extended if additional documents are requested or if other authorities are required to participate in the process.

If no objections arise and all requirements are met, the permit is granted. Otherwise, the operators may need to revise the application and the underlying documentation, so as to comply with the (if any) guidelines provided by the authority.

The average duration of the procedure ranges from 90 to 120 days. However, it is difficult to predict the duration of the procedure, since it depends on the complexity of the project, the efficiency of the authorities involved and the (if any) additional requests that authorities may submit.

The right to object to a building permit (permesso di costruire) for the refurbishment or construction of a hotel is governed by legal frameworks, including the Law No 241/1990 and the Building Act (DPR No 380/2001), as well as regional/municipal urban planning instruments.

Entities entitled to object to a building permit are mainly:

• local authorities, such as municipalities, which may oppose projects that do not comply with zoning or planning instruments;
• regulatory authorities, such as the Soprintendenza and the Regional Environmental Protection Agencies (ARPA), which have the authority to issue binding opinions if the project involves protected real estate properties or affects environmental interests; and
• private entities, whose legitimate interests are directly affected by refurbishment or construction of the hotel, pursuant to Law No 241/1990.

Objections may significantly delay the procedure and the release of the building permit and, therefore, the operators’ interests in connection with the initiative.

Therefore, in order to avoid possible delays, operators may act so as to limit as much as possible potential objections. In particular, they may:

• carry out prior consultation with relevant authorities and stakeholders, which allows the identification and resolution of potential legal issues;
• unless it is mandatory pursuant to law, conduct environmental impact assessments (Valutazione di Impatto Ambientale or VIA) under Legislative Decree No 152/2006, a procedure aimed at identifying, describing, and evaluating the effects of the project on the environment, as well as determining the measures necessary to prevent, eliminate or minimise (if any) the environmental impacts; and
• conduct due diligence activities, so as to ensure compliance with urban planning instruments and the provisions of the Building Act (DPR No 380/2001).

Hotel transactions may also be structured through the conversion of a building originally intended for residential or commercial use into a hotel. This option has enabled operators to repurpose several properties over the years, instead of the building of new structures.

In Italy, the conversion of hotels into buildings with different intended-use, and vice versa, is generally allowed, but subject to several regulatory requirements, such as those set forth by urban planning, zoning and building regulations.

In principle, the permitted use of real estate property in a specific territory is determined by the local zoning and urban planning instruments, such as the PRG.

Should the conversion of the intended-use of a building (such as a residential building) into a different one (a hotel) not be aligned with the provisions of such instruments, the operators ‒ before any activity aimed at renovating the real estate ‒ must apply to the authority to approve the change of intended-use of the building (cambio di destinazione d’uso).

The procedure, which is based also on applicable regional laws (depending on the region where the property is located), may require the operators to modify certain features of the structure in order to ensure compliance with specific regulations, including, by way of example, minimum space, hygiene and accessibility standards.

Furthermore, if the change of the intended use also requires structural modification of the building, or in general other kinds of renovation, the procedure may require the release of the building permits (permesso di costruire).

Therefore, conversions are generally legally feasible, but subject to compliance with urban, zoning and building regulations, which may vary significantly across different municipalities, based on regional laws.

Heritage preservation is an essential point to be considered by operators in their evaluation to run a hotel, insofar the structure is located in historically or architecturally significant buildings.

In fact, the Code of Cultural heritage and Landscape (Legislative Decree 42/2004), governing the protection and conservation of historical and cultural heritage, may impose significant limitations to the operators on the real estate properties having a particular historical and cultural value.

Such limitations impose that any modification, innovation, addition or renovation must be approved by the Soprintendenza Archeologia, Belle Arti e Paesaggio, the regional heritage authority. This includes even minor changes to the external and interior layout, as well as to the materials, and in general when the expected works may affect the nature, character or integrity of the property.

Upon the occurrence of any of the foregoing, before starting any works, hotel operators must submit a detailed plan to the authority – reporting the expected activities to be carried on – for its evaluation.

The authority may approve the activities, require modifications or integrations, or deny its approval.

Unauthorised activities may result in fines, sanctions, delays or even the suspension of the activities.

In Italy, operating a hotel requires that operators comply with both national and regional laws and regulations, as tourism is a matter of legislative power shared between the State and regions.

The operator which is interested in running a hotel is required to:

• register its business with the Companies’ Register at the local Chamber of Commerce;
• file a SCIA (Segnalazione Certificata di Inizio Attività) before the local municipality (comune), through which the operator is allowed to start the business and, therefore, operate the hotel, subject to regulatory compliance verified by the competent authorities;
• comply with zoning, building, safety (which includes the fire safety certification (Certificato Prevenzione Incendi)) and hygiene regulations; and
• if applicable, comply with the classification standards defining the rating of the hotel, which are set by regional laws based on specific criteria such as the number and size of the rooms, as well as the list of services and facilities provided by the operator.

In the submission of the SCIA, which is a key item in the preliminary formalities for running a hotel, the operator may be required to provide the local municipality with certain information and documentation, for example:

• details of the real estate property and the legal title entitling the operator to use the structure;
• proof of compliance with applicable laws and regulations, such as safety and hygiene; and
• certification of compliance with regional hotel classification requirements.

Upon filing the SCIA, the municipality has the right to review the documentation, and ‒ even following the opening of the hotel ‒ to carry out inspections on the information, documentation and the structure, in order to verify compliance.

SCIA submission is recorded in public registries. Therefore, the authorisation granted by the municipality to the operator to run a hotel is generally public information, available to the public through municipal or regional platforms.

Italian law does not establish any mandatory sustainability certifications for hotels.

However, within the hospitality industry (in particular, among the international hotel chains), it is customary to adopt several standards and voluntary certifications to promote environmental and social responsibility.

Furthermore, obtaining sustainability certification shows the operators’ commitment to sustainability.

Among the certifications, the following can be mentioned:

• LEED (Leadership in Energy and Environmental Design) is a globally recognised certification for sustainable buildings which promotes a reduction of their environmental impact;
• ISO 14001 is aimed at allowing hotels to minimise their environmental impact through systematic planning and performance evaluation; and

• EU Ecolabel is an official European certification for eco-friendly products and services, including the hotels.

By way of such certifications, certain key areas such as energy efficiency, water conservation and usage, sustainable construction materials and indoor air quality are evaluated.

In the hospitality industry, hotels with a certification are recognised for their efforts to minimise energy use and waste, without affecting the comfort of the guests.

Hotels can obtain the above-mentioned certification by meeting specific criteria during the relevant construction or renovation.

In summary ‒ although not legally required ‒ many operators in the industry today seek to obtain sustainability certifications to promote environmental awareness and responsible tourism.       

Although no special laws or regulations apply exclusively to hotel transactions, investors and operators are required to consider and comply with Italian employment laws and regulations when structuring the transaction. In fact, within the evaluation of the purchase or sale of a hotel, or investment in a hotel transaction in Italy, it is essential to consider the applicable legal framework related to the personnel.

In principle, Italian employment laws and regulations provide strong and strict protections for the employees. Non-compliance may result in material legal and financial consequences for both the parties to the transaction.

Among the business models related to hotel transactions, specific provisions concerning employee retention apply to the business unit transfer (both sale and lease).

Article 2112 of the Italian Civil Code refers, in particular, to the effects of the business unit transfer on the employees, stating that ‒ in the event of a transfer ‒ the employment relationships of the employee(s) of the transferred business unit will be automatically transferred to the purchaser (or lessee, as the case may be), without any interruption.

In a hotel transaction, therefore, purchasing or leasing a business unit means that the entire staff tied to the transferor will be transferred to the transferee.

Upon transfer, the employees retain all rights arising from their employment agreement with the transferor, including, by way of example:

• salary;
• duties;
• working hours;
• seniority; and
• any accrued benefits and other entitlements/rights.

Furthermore, it is important to highlight that the new employer is bound by the same collective bargaining agreement (so-called CCNL (Contratto Collettivo Nazionale di Lavoro)), applied under the previous employer.

The transfer of employment relationships does not require consent from the employees.

In addition, employees cannot be dismissed as a result of the transfer.

The transferor and the transferee are jointly and severally liable for all claims that employees may have at the time of the transfer, including the ones for unpaid salaries, wages, severance pay and any other accrued benefits. Any agreement between the parties aimed at derogating such provisions will not be valid, unless it occurs in accordance with the specific procedures provided for by law.

In light of the above, it is essential for the investors and operators to carry out thorough labour due diligence before completing a hotel acquisition through a business unit transfer, since the application of Article 2112 cannot be waived, in order to properly evaluate benefits and potential risks of the transaction.