A notional figure, not an actual cost
Article 16 of the code provides that issue of the permit entails payment of a contribution measured against the incidence of infrastructure charges and against the construction cost. The contribution has two distinct components.
The second component answers a different question from the first: not how much the project weighs on the city, but what is being built worth. Historically it derives from the 1977 statute that introduced it alongside the charges already provided a decade earlier.
The point to fix at once is that the construction cost for contribution purposes does not coincide with the cost of the works resulting from the bill of quantities. It is a figure determined periodically by the regions, applied to the extent of the project under the parameters laid down, to which the municipality applies its own rates.
Conflating the two produces two mirror errors. Estimating the contribution from the bill total overstates or understates it unpredictably. And reading the contribution's construction cost as a market reference leads to unfounded conclusions about what the project actually costs.
Regional determination and municipal rates
The determination chain has two levels and should be followed in order. The regional level precedes the municipal one.
The region determines the construction cost periodically, by reference to the maximum admissible costs for subsidised housing under its own determination. The reference is to the maximum admissible costs for subsidised housing.
The municipality applies its own rates to that base, within the applicable statutory framework. Without the regional determination the municipal rate has nothing to apply to.
It follows that an estimate requires two distinct documents: the regional determination in force and the municipal resolution on rates. Obtaining only the second, which is the more readily accessible, is not sufficient.
One element practice overlooks should be added. The extent to which the base applies depends on parameters, typically of area or volume, whose definition may be refined by the municipal building regulation in ways differing from what the professional assumes by habit. Checking the local definition is part of the estimate and not an incidental control.
The timing of payment
On this aspect the rules differ from those on infrastructure charges, and the difference should be carried into the cash flow. The difference belongs in the cash flow of the operation.
The portion of the contribution relating to construction cost, determined on issue, is paid during construction on the terms and against the security set by the municipality, and no later than sixty days from completion of the building. The outlay therefore does not coincide with issue of the consent.
Two practical consequences. The amount is known on issue of the consent, so it enters the budget with certainty from the outset. But the outlay is deferred and spread over the construction period, with a final deadline anchored to completion.
This structure is favourable to the operator compared with that of infrastructure charges, which are paid on issue. Presenting both components as a single initial outlay therefore overstates the funding requirement at start up.
Municipal discretion on rehabilitation works
One element significant for anyone working on existing stock deserves isolating. It concerns a municipal discretion to reduce.
In order to encourage the reuse of existing building stock, for building restructuring works municipalities have discretion to resolve that the construction costs relating to them shall not exceed the values determined for new construction. The discretion must be exercised by resolution.
It is a discretion and not an obligation, which means its existence must be checked municipality by municipality. Where exercised, it sets a ceiling making the contribution on rehabilitation no higher than that on new build, correcting an effect that would otherwise penalise refurbishment.
Checking for that resolution is one of the four documents to obtain at estimating stage, and omitting it leads to overstating the contribution on a rehabilitation project. Omitting it leads to overstating the contribution.
Non residential works
The code devotes a separate provision to the contribution for works or installations not intended for residential use, with a regime of its own. The basis of measurement is different.
The distinction has immediate practical significance: a productive, retail or office project does not follow the same determination basis as a residential one, and assuming the residential regime by analogy is a recurring source of error in preliminary estimates on non residential projects. A productive scheme does not follow the residential basis.
Checking the regime applicable to the project's use therefore precedes the calculation, and connects with the rules on functional categories. It connects with the rules on change of use.
The connection with change of use
A change towards a functional category carrying a higher incidence triggers payment of the difference in contribution, and this applies to both components. The balance must be calculated before filing.
On the construction cost component the effect operates through the municipal rates attributed to the different uses. On a conversion project covering large floor areas the balancing payment can be the item determining whether the project is viable, and checking it belongs to the feasibility stage rather than the filing stage.
The documents to obtain
Since determination has two levels and the extent depends on local definitions, the estimate runs through a documentary exercise worth setting up at the start of the project. Four documents are needed and none is dispensable.
| Document | Where it is found | What it provides |
|---|---|---|
| Regional determination of construction cost in force | Acts of the competent region | The calculation base |
| Municipal resolution on rates | Acts of the competent municipality | The percentages applicable by use |
| Any municipal resolution on rehabilitation | Acts of the competent municipality | The ceiling on construction costs for restructuring |
| Municipal building regulation | Acts of the competent municipality | The definitions of area and volume to apply |
The order of retrieval is not immaterial. The regional determination is the most stable document and should be sought first. The municipal resolution on rates changes most often and should be checked for its date of effect. The building regulation is the one most easily overlooked and the one producing the least intuitive divergences.
One note on advising the client. The contribution's construction cost component should be presented as a separate item with its own source and timing, and not as a percentage of the cost of the works. Presenting it as a percentage is convenient at preliminary stage and becomes a source of dispute when the municipal determination departs from it.
The most frequent errors
Estimating the contribution's construction cost from the bill of quantities total is the first, and conflates two figures with no relationship of derivation. The two quantities do not coincide.
Obtaining the municipal resolution without the regional determination is the second, and leaves the calculation without its base. The calculation is left without its base.
Applying area and volume definitions by habit rather than from the municipal building regulation is the third, and produces a divergence that surfaces at the municipality's determination. Local definitions prevail over any custom.
Overlooking the municipal discretion on rehabilitation is the fourth, and overstates the contribution on restructuring projects in municipalities that have exercised it. The contribution comes out overstated on restructuring work.
Placing the outlay on issue of the consent is the fifth, and brings forward in the cash flow a payment the rules place during construction. The cash flow brings forward a payment the rules place during construction.
Note: the legislative references in this page relate to Italy and are current as at the date of publication. The construction cost is determined periodically by the regions and the rates are municipal: the regional determination in force, the municipal resolution and the municipal building regulation should be consulted before any operational use.