Italian Supreme Court endorses ICC international arbitration clause for non-residential real estate leases

The Italian Supreme Court (by order No. 14861/2017) recently upheld the validity of an ICC international arbitration clause set forth in a lease agreement of an Italian resort entered into by a leading hotel & resort manager (the Tenant) and a major real estate player (the Landlord).

The Tenant issued proceedings before Italian Courts requesting, inter alia, a declaratory judgment on the voidness of the indexation clause of the lease agreement, due to its being allegedly in breach of Article 32 of Law 392/78. The Landlord objected the lack of jurisdiction of Italian courts on the basis of an ICC international arbitration clause contained in the lease agreement, which provides that all disputes arising out from or relating to the lease agreement shall be referred to ICC arbitration.

The Tenant then issued proceedings before the joint divisions of the Supreme Court and requested the court to rule on the existence of Italian jurisdiction.

In particular the Tenant maintained that Italian Court would have jurisdiction on the basis of two arguments. Firstly the arbitration clause would allegedly be void pursuant to Article 54 of Law 392/1978 which prohibits to refer to arbitration any dispute on the determination and/or indexation of the rent. Secondly the Tenant pleaded that since the indexation clause was in breach of mandatory law provision and thus null and void, all disputes on this matter could not be referred to arbitration pursuant to Article 806 of the Italian Code of civil procedure.

The Landlord objected that Article 54 of Law 392/78 was repealed by Article 14 of Law 431/98 (the so called Residential Lease Act) and hence the parties were allowed under the arbitration clause to refer to arbitration all disputes regarding the determination of the rent.

The subject matter on which the Supreme Court ruled is twofold.

On one side the Supreme Court cleared the previous existing debate within Italian Courts as to whether Article 54 had to be considered repealed by Article 14 of Law 431/1998 just for residential leases or also for non-residential real estate leases. In particular, the Supreme Court took the view that Article 14 of Law 392/78 was to be construed as intended to repeal a number of provisions on non-residential leases including the rule (ie, Article 54) which prohibited to arbitrate disputes on the determination of the rent.

On the other side the Supreme Court excluded that disputes on rent indexation are prevented from being referred to arbitration pursuant to Article 806 of the Italian Code of Civil procedure. The Supreme Court clarified that disputes which cannot be referred to arbitration are those involving very personal rights and/or legal status and/or rights that parties cannot dispose of or waive and at the same time it also stated that the breach of mandatory rules which trigger the voidness of an agreement and/or a clause does not per se prevent the parties from referring the relevant dispute to arbitration. In the case at stake, in fact the Supreme Court upheld that the dispute on the rent indexation did not refer to legal status/entitlements or personal rights and hence made the principle that the parties are free to agree that disputes on rents, including on its determination, can validly be settled by way of arbitration

The possibility for tenants and landords to refer their disputes to arbitration was introduced by Law 431/1998 only with reference to residential leases, whilst as anticipated it was controversial whether the same possibility was legally valid for non-residential leases. Hence the Supreme Court’s decision is quite important in that it finally admitted the possibility also with respect to non-residential leases (which often entail very high value transactions) to make use of arbitration to settle all relevant disputes with obvious benefits in terms of timing of the proceedings, specialism of the arbitrators and not least in terms of wider acknowledgment and enforceability of the arbitration award pursuant to the New York Convention of 10 June 1958.