The ‘appalt ’ today : is more regulation needed?

Abstract

Our civil code does not define a contract of works; however, it can be described as an agreement in which one of the parties (the contractor or artificer) agrees to execute a specific work or render a service in exchange for payment of a reward, with no relationship of subordination to the other party (the employer or customer). While contracts of works, or 'appalti,' trace their origins to Roman times and have always been used, they have particularly gained significant popularity in recent years for acquiring immovable property and also developing property and are being done concurrently with promise of sales, which is what this report will focus on. It has become a trend in Malta, for a contractor to purchase a plot of land or an old house with the intention of demolishing it and constructing a block of apartments in its place. When transferring these individual units, the purchaser and contractor also enter into a private agreement (this being the contract of works- although it is not a contract at all), outlining the finishing works that will be completed on the property being transferred. Thus, in this case, the Vendor and the Contractor are one and the same. Apart from this, a contract of works is frequently utilized in a datio in solutum arrangement. In a datio in solutum contract, property is transferred to satisfy and extinguish an existing obligation or debt. This approach is often applied in transactions involving the trading of demolition, construction as well as finishing works on properties. A common scenario might involve a homeowner engaging a contractor to demolish their house and build a block of flats for instance. Instead of paying the contractor in cash, the homeowner transfers ownership of an airspace or a portion of the newly constructed property to the contractor as full settlement for the work performed. This method allows both parties to fulfil their obligations through the exchange of property rights rather than monetary payment. Another common scenario in which a contract of works is used is when a purchaser intends to buy airspace or when one is acquiring off-plan and the development in question has not yet been constructed, and thus an agreement concerning the works is also entered into alongside the sale, for the development and construction of the property. These ‘appalti’ are typically carried out informally, often through a brief private agreement that delineates the scope of work to be undertaken and specifies a deadline for completion. While this method is convenient, it lacks the formalities and legal protections that could safeguard all parties involved, potentially resulting in misunderstandings, disputes, and the need for court intervention, especially for the clients who engages such works. The informal nature of these contracts can leave purchasers/customers vulnerable, as critical elements such as payment terms, completion timelines, and liability issues may not be adequately addressed. This has led to an increase in court disputes where, despite the property being transferred to the purchasers, the promised finishing works were either never started or left incomplete, leaving property owners in a difficult and unresolved situation. For this reason, this report aims to thoroughly examine the challenges associated with the current execution of contracts for works, specifically on immovable properties being sold and transferred in Malta. It seeks to highlight the legal and financial vulnerabilities faced by Purchasers when buying immovable property directly from a contractor, due to the lack of safeguards, such as incomplete or substandard work, and disputes over payment and timelines. Using Black letter law methodology, the report further aims to explore how and if the introduction of notarial formalities can offer stronger legal protections, ensuring that clients' interests are safeguarded and obligations are fulfilled. The first chapter will focus on evaluating the current legal framework in Malta concerning contracts of work. This will include a thorough overview of the existing laws that regulate such contracts. Additionally, this chapter will analyse relevant court decisions to understand how legal disputes related to contracts of work have arisen as well resolved. This section will also examine the current practices in drafting these contracts. The second chapter will expand the scope of analysis by exploring how other legal systems approach the regulation of contracts of work regarding immovable property. This comparative study will seek to identify whether similar contracts are regulated in other jurisdictions and, if so, how these regulations are structured. The chapter will highlight best practices and innovative strategies from these legal systems that could be adapted to the Maltese context. The final chapter will propose a strategic way forward for Malta. Building on the insights gained from the previous chapters, this section will suggest practical measures to improve the regulation of contracts of work. Recommendations will include specific legal reforms, such as the mandatory registration of hypothecs to secure clients' interests, and guidelines for better contract drafting to ensure clarity and fairness.