Bailment (comodato): one of the instruments for managing the congregation’s properties

The contract for the loan of immovable property is a very useful and agile tool for Religious Congregations (RC). In fact, unlike a lease or rental contract, bailment is subject to fewer formalities and can easily be used to manage one’s property assets.

Indeed, RCs may own or otherwise be in possession of property (flats, buildings, land, etc.) that remain unused for long periods of time. In such cases, it is advisable to check what possibilities exist for using and managing the property, since ownership exposes RCs to paying taxes, as well as the costs of maintaining the property, which can rise considerably if it has been neglected.

Renting or leasing unused buildings can at least serve to recoup the costs that the RC has to bear. A sale could also be envisaged if the RC’s situation is such that the unused property has no foreseeable future use.

But what happens if the RC fails to rent or sell the property after the appropriate investigations and consultations, which do cost something?

In that case, a bailment contract can be used, whereby the property is handed over free of charge to a party who takes care of it and uses it for a specific time and purpose.

Definition

Under the bailment contract, one party (the RC, which is referred to as the Bailor) hands over a property to another party.

The handover is made in order for the recipient of the property (who is called the Bailee) to use it for a specific time or a specific use, with the obligation to return the property received.

The bailment is essentially free of charge, and can be drawn up in writing or verbally, although we always advise against the latter.

What happens after signing a bailment contract?

The obligations of the RC

As seen above, the party who hands over something free of charge is called the Bailor, which in our case will be the RC. After signing the contract and handing over the property (i.e. handing over the keys), it can be said that the obligations of the RC vis-à-vis the Bailee (i.e. the person who receives the property free of charge) are over.

Of course, there are administrative obligations to be fulfilled (such as registering the contract with the Italian Revenue Agency, which we will see in a moment), but the obligations of the RC end after the handover to the Bailee.

One is, of course, expected to act in good faith. In particular, the RC must make the party receiving the property aware of any defects in the property. This is the only way to avoid liability claims for damage caused by such defects.

For instance, a danger of structural failure that was not made known to the Bailee at the time of signing the contract. If the defect is proved and damage occurs, the Bailee may claim damages from the RC which, having knowledge of the defect, had not made the danger known to the Bailee.

The obligations of the party receiving the property (Bailee)

Unlike a rental or lease contract, which would be for a sum of money, a bailment does not require the party receiving the property (Bailee) to pay rent, as this type of contract is essentially free of charge. However, this economic “disadvantage” for the RC is counterbalanced by the lesser formalities of a bailment compared to other contracts, which are burdensome.

In fact, the Bailee:

• must return the property on the expiry date stipulated in the contract
• must keep and preserve the property with all due diligence
• may use the property only for the purposes determined in the bailment contract
• may not grant anyone the use of the property without the Bailor’s prior consent

If the Bailee fails to fulfil these obligations, the RC may demand the immediate return of the property, as well as being able to claim any damages.

In addition, the Bailee must use the property at its own expense. Thus, for example, electricity, gas, water and telephone supplies will all be paid for by the recipient of the property. The Bailee will also take care of routine maintenance on the property. The only case in which the Bailee may claim compensation for extraordinary expenses incurred is when such expenses are necessary and urgent.

It is essential that the bailment is free of charge: if a fee were agreed, it would fall into the categories of rent or lease, with all the consequences that this entails.

The duration of the contract and intended use

As seen above, the duration of the contract may or may not be indicated in the bailment contract. If the duration is specified, the Bailee is obliged to return the property upon expiry. In this case, therefore, the RC will not be able to demand that the property is returned before the term expires, unless it has an urgent and unforeseeable need to use the property.

If the duration is not indicated, the recipient of the property is obliged to return it as soon as requested by the RC. Of course, one should behave in good faith and not expect the immediate eviction of a property that may have been occupied for months or years.

It is, therefore, always a good idea to include a notice period in the bailment contract, within which to request the release of the property. Thus, if a six-month time limit is set, for example, the RC can send a registered letter both (1) to warn the Bailee of the need to vacate the property and (2) to prove its good faith by observing that time limit.

As seen above, one of the obligations of the recipient of the property is to use it only for the purposes determined in the bailment contract. Thus, if the property were to be handed over for use as a shelter for the destitute, any other use by the Bailor would be unlawful, and the RC would therefore be entitled to demand the immediate return of the property.

Once again, the bailment contract proves to be much more agile and informal for the RC than rental and lease contracts. The legal system compensates for the absence of a fee in bailments by a scheme that is more favourable to the “landlord”.

The form of the contract and registration

As mentioned above, a bailment is a free-form contract. Thus, in theory, it is possible to hand over the property even only verbally, without a written agreement between the parties.

In effect, especially in the case of structured entities such as RCs, also so as to keep the accounts in order and for prudent management, the bailment contract will be subject to registration with the Italian Revenue Agency; it is, therefore, preferable to conclude it in writing.

Moreover, a written agreement makes it possible to include those clauses (such as the notice seen above) which would otherwise have to be proved by witnesses. The existence of a written and registered contract is therefore a guarantee of the certainty of the legal relationship between the parties and their respective obligations.

As the bailment contract is free of charge, there is no need to make the calculations for registering it that characterise rental or lease contracts, based on the agreed annual rent. In our case, it will be sufficient to pay a one-off registration fee of € 200.00 and stamp duty of € 16.00 for every four sheets of paper and in any case every 100 lines (it is important that the € 16.00 stamps are dated on or before the date on which the contract is signed). Registration must therefore take place within 20 days from the date of the deed being drawn up in writing.

For assistance in drafting and negotiating a bailment contract, please contact us at info@dikaios.international or on +39 06 3671 2232.