Real Estate 2019 Comparisons

Last Updated April 30, 2019

Contributed By VBD Advogados

Law and Practice


VBD Advogados is a multidisciplinary Brazilian firm located in São Paulo that has a team of over 40 specialised professionals. The real estate practice works closely with other practices of the firm, such as arbitration and litigation; corporate and M&A; environmental law; labour, public and regulatory law; and tax law. Its partners are active members of the Instituto Brasileiro de Direito Imobiliário (the Brazilian Institute of Real Estate Law, or IBRADIM;, the Sindicato da Habitação (the Real Estate Management Association, or SECOVI;, the Sindicato da Indústria da Construção Civil do Estado de São Paulo (the Civil Construction Syndicate, or SINDUSCON/SP; and the Confederação Nacional da Indústria (the Brazilian Industry National Confederation, or CNI; The partners are also professors at the most renowned universities in the country, such as USP, and authors of several papers published in technical publications about real estate.

The main sources of law are the Federal Constitution and the Civil Code, which provide fundamental principles and general rules.

In addition to these, there are – specifically for real estate law – important laws within the federal sphere, such as a Public Registration Law, a Forest Code, a Fiduciary Lien Law, a Lease Law, an Incorporation Law and a Land Development Law.

After a few years of crisis, this firm expects the Brazilian real estate market to grow again.

There was an increase in structured real estate operations in the second half of 2018.

In the retail market, the acquisition of real estate properties aiming at the approval and launch of new land developments within a period of one to two years has already been retaken by medium and large-sized real estate developers, and an improvement has been verified in the figures related to real estate operations among individuals.

Still in the retail market, the approval in late December 2018 of Law 13.786 sought to give greater assurance to real estate developers who had been suffering with the crisis and the withdrawals of purchasers of property units.

Public and private banks also point to a strong interest in increasing loan grants to the real estate industry, both to the institutional and final purchaser.

Real estate investment funds have increased their search for new assets, either in sale and leaseback structured operations or investment in future projects together with developers.

A change in the Civil Code was also approved in late 2018 that sought to constitute the multi-property, which will foster the development of hotel industry enterprises.

In relation to overseas interest, in a short while it is expected that it will be more reliant again on this growth and will again strongly invest in Brazil.

Despite the optimistic scenario and improvements already felt, there are various matters that still need to be modified to attract even more foreign investors:

  • programmes for entering into a greater number of PPP;
  • final positioning by the Superior Court of Justice in respect of the impossibility to undo a fiduciary lien, such as a purchase and sale commitment;
  • homogenisation of notary fees and costs throughout the country; and
  • greater promptness in the processes for approval of environmental procedures/interventions.

A property in Brazil confers on its incumbent the right to use, enjoy, build and earn income as long as the environmental ordinances, and municipal and neighbourhood building restrictions are obviously respected.

The slab right has recently been approved in Brazilian legislation, by means of which the owner of a base construction assigns, on a free or burdensome basis, the upper or lower surface of his or her construction, in order for the slab incumbent to keep a real estate unit other than that originally built on the ground, with the real estate units taking a vertical projection. The slab incumbent may assign the surface of his construction for the institution of a new slab right as long as there is an express authorisation by the incumbents of the base construction and the other slabs, and the city planning restrictions are observed.

There are also property rights that may be transferred by the owner to third parties, on a temporary or perpetual, free or burdensome basis.

  • Surface property right – greatly used in structured real estate operations, through which the property owner authorises a third party to build and use the asset for a certain period and once such time has expired, the construction shall belong to the owner without the need for any indemnification. The grant may be on a free or burdensome basis and the tenant shall honour all taxes and charges throughout the property occupation period.
  • Fruition – greatly used in succession planning and inheritance acceleration, the beneficiary retains over someone else’s asset full capacity of possession, use, management and enjoyment of the proceeds deriving thereof.
  • Use property right – by means of which a third party retains an authorisation to use the property on behalf of a specific interest, previously stipulated and within the necessary limits to attain the envisaged purposes. The grantee shall honour all civil, administrative and tax charges during the property occupation.
  • Leasing – a right granted by the Federal Union to individuals on areas of its property (usually areas on the coastline and, sparsely, at some locations away from the coastline that used to be occupied by Indians).
  • Fiduciary property or resolutive property – a right by means of which the debtor transfers the title to the irreplaceable real estate property to the creditor as a guarantee for them to have full possession in the event of default, but remains in direct possession of the asset and, with this, may use and enjoy the property during the debt payments.

The general rules referring to the transfer of property and the requirements to be observed for such action are contained in the Civil Code.

The payment of any contingent income tax for whoever sells or assigns the property right to third parties is regulated by the Brazilian Inland Revenue Service (IRS, the Receita Federal).

As a general rule, when transferring a property or a real estate right, real estate transfer tax shall be paid to the municipality where the asset is located. Because it is a municipal tax, its percentage varies according to each municipal entity.

For properties under leasing, in addition to the tax due to the municipality, there is also a payment of one more tax for the transfer on behalf of the Federal Union.

Taxes due for the transfer of property or a property right should not be confused with taxes possibly due for the profit/revenue from the sale or assignment of a property right on this same real property.

The Brazilian territory consists of various Real Estate Registries, whose competence is territorial. All real properties belonging to the district and its competence are enrolled with the Real Estate Registry Offices.

Property enrolment details all its history and covers the acts for transferring title or real estate rights, real estate guarantees provided by the owner, pledges on behalf of third parties, constructions, restrictions to land development from which it has originated, legal reserves and easements.

The ownership of a real property worth above 30 minimum wages in effect in the country (which currently corresponds to approximately USD8,000) may only be transferred by means of a public deed.

The great majority of real estate rights may only be established by means of a public deed.

After a property transfer, or a right constitute, the title shall be immediately registered with the property enrolment to make it known to third parties.

The acquisition of a real property or a property right over a real property, or even the lease of a real property, shall be formalised only after a due diligence is conducted in such a way as to rule out any risks of a future sale nullity due to fraud in the execution or fraud against creditors, or due to the impossibility to use it for the intended purpose.

The due diligence shall comprise a survey on the property, property owners and the preceding owners.

It is important to note that the due diligence may not be restricted to reviewing court certificates, as there are possible liabilities that could affect an operation that could not be verified by reviewing court certificates, such as arbitration processes, which is why it is imperative to engage a specialised counsel for the job.

Depending on the property characteristics and the purpose it will be intended for, in addition to a counsel, who will carry out the due diligence, it is also necessary to contract with technical professionals to analyse the soil, tree specimens, measurement survey and municipal building restrictions, and environmental advisers in decontamination.

The seller, as a general rule, accounts before the buyer for the eviction and debts previous to the disposal.

However, such responsibilities may be reduced or simply excluded, depending on the conditions agreed upon during the negotiations.

In addition to the general representations above, depending on the purpose of the acquisition or the person who is acquiring, representations are commonly negotiated and inserted, where the seller:

  • undertakes not to be, nor to have been, involved in corrupt acts;
  • represents that they have not become aware of any penalty fines and restrictions on the real property not indicated in the registration and other documents reviewed in the due diligence;
  • represents that they have not become aware of issues related to the breach of neighbourhood right and do not have any doubt with regard to boundaries and possession;
  • represents that they are not aware that the property has been used for activities that may pose a risk of contamination; and
  • represents that they have the financial capacity to support any contingent lawsuit brought by a third party that affects the sale and undertakes to hold the buyer harmless against this. 

In the event of misrepresentations, the buyer may claim a due indemnification from the seller.

Any investor, whether native or a foreigner, who intends to purchase a real estate property or a property right shall, from a legal perspective, conclude a legal due diligence on a satisfactory basis as well as define the investment method and fiscal effects of the operation.

An investor shall concurrently complete a survey on building restrictions/use permits and complete an environmental survey of the area, soil quality and existing constructions.

The environmental remediation shall be performed by everyone who contributes directly or indirectly to the damage, regardless of culpability (objective responsibility).

The duty of remediation is tied to the property, not to the individual, which is why the buyer of a contaminated property has the duty to remedy it even though he or she has not caused the damage him or herself.

In view of the duty of environmental remedial action, and to impart effectiveness to such responsibility, all those who are, or have been, directly or indirectly owners or proprietors of such property are jointly responsible before the public entity for the reparation, either by contamination or infringement (such as the cutting of trees).

Although in certain instances there are exceptions to the joint responsibility, this occurs in a punctual way and may not be regarded absolutely by someone who intends to acquire a property known to be contaminated or that entails an environmental infringement.

Prior to purchasing a real estate property for a certain purpose, the buyer should contract a technician for checking its use-possibility, in keeping with the applicable legislation.

In addition to the building restrictions, an individual who acquires a property, or a property right on a property for a non-residential purpose, should make sure that the municipal legislation allows the intended activity to be performed in the region, which will permit him or her to obtain the use licence for the intended purpose.

There are no previous agreements in Brazil to be executed with the public entity to make it easy for a project; however, if there is a project with a relevant social interest that brings benefit and jobs to a certain community, its approval may be accelerated and fiscal benefits may be granted to the enterprise when this is ready.

The public entities (federal union, state and municipality) may compulsorily acquire urban or rural areas as long as the need is justified and the specific legal procedure is observed.

In any instance of expropriation, the owner is entitled to have the indemnification paid by the public entity and if the owner does not agree with the sum proposed by the public entity, the indemnification amount will be discussed in court; without this, however, the other actions related to the expropriation will be suspended, such as the taking of possession of the area by the public entity.

As covered in 8 Tax, the sale or assignment of a property right on a real estate asset results in, as a general rule, the duty to pay transfer tax on the real estate asset on behalf of the municipality where the asset is located.

The tax rate varies according to the legislation of each municipality.

The tax passive subject is the real estate purchaser. On the other hand, the parties involved may negotiate who will be responsible for collection of the amounts.

In addition to the municipal tax due in this type of transaction, for certain real estates under leasing, there will also be the payment of a federal obligation due for the transfer of the real estate asset.

In the event of total or partial disposal of a shareholding interest of a company that owns the real estate, there shall be a taxation bearing on the contingent profit and revenue generated in the operation; however, there shall be no transfer tax.

In the case of the other corporate operations (split-off, merger or incorporation), there shall only be transfer tax if the purchasing company performs a predominantly real estate activity.

In addition to the taxes referred to above, the disposal operation, concerning the real estate asset or property right, generates to the buyer the payment of costs with deed and deed registering with the real estate enrolment. Such costs are calculated according to the table defined by each state and vary according to the operation amount.

There are restrictions to the acquisition/grant for use/lease by foreigners of rural areas, coastal areas and frontier areas.

For the purpose of such restrictions, even Brazilian legal entities controlled by foreign companies are regarded as foreigners.

For rural properties, the restrictions to foreigners apply only to those with a measurement greater than that defined by the Instituto Nacional de Colonização e Reforma Agrária (the National Institute of Colonisation and Agrarian Reform, or INCRA) and the limit, despite being defined by the Federal Union, varies according to the region and is, for example, greater in the Amazonas region than in São Paulo. Therefore, a foreigner or a Brazilian legal entity with capital controlled by a foreigner may acquire a rural property with no restriction provided that its dimension is smaller than the limit defined by INCRA for that region.

However, such a restriction does not assume an absolute ban on the acquisition/grant for use/lease, but only requires authorisation by the federal government for its consummation, which may take a long time and not be granted.

With regard to urban real properties, there is no restriction to acquisition/lease by foreigners.

The great majority of the country’s financial institutions rely on credit lines for financing commercial real properties, both for construction and for conducting structured operations with commercial properties (such as sale and leaseback).

In addition, some enterprise developers and promoters use proceeds obtained directly from investment funds, which may require, as the case may be, active participation in managing values and making relevant decisions for the project in order to set a predetermined rate of return or according to the enterprise's success.

Guarantees falling on real estate itself or on the company that owns the property are commonly negotiated in the country.

The guarantees on the real property may be a mortgage or fiduciary lien.

A mortgage is a guarantee property right and, if the debtor is in default, is constituted by a public deed, and may only be executed in court.

A fiduciary lien transfers the resolutive ownership to the creditor and consists of a public deed or private instrument, and, if the debtor is in default, is executed out of court, that is, in a faster way.

The creation of a fiduciary lien was an important milestone for commercial relations as, for many years, it brought a greater assurance to the creditors. Some court decisions, recently and unfortunately, brought a different interpretation to the institute, which caused fear on the part of some investors. However, it is not believed that such judgments have changed or reduced their use.

As a general rule, a mortgage does not prevent various actions from being taken, including a sale, while a fiduciary lien prevents certain actions (such as registration of a real estate incorporation), which is why the latter often ends up not being used.

Both the fiduciary lien and mortgage shall be registered with the property enrolment, for effectiveness and for being enforceable against third parties.

In addition to the guarantees above, it is common in operations with investment funds or structured operations, where the real estate was already provided as a guarantee, that the pledge/fiduciary lien is for quotas/shares of the company that owns the property, in such a way that, in the event of default, the company’s control can be taken over by the creditor and, depending on the operation, there is a fiduciary assignment of receivables.

The restrictions mentioned in 2.11 Legal Restrictions on Foreign Investors comprise the acquisition/grant for use/lease. A rural property can be provided as a security for certain operations executed with a foreigner.

However, in the event of a default by the debtor, the foreigner could not excuss the property provided as a security on his behalf, as a security excussion that culminates in a property transfer to the foreign creditor could be an unduly used means to bypass the legal restriction.

The impossibility of acquiring the title of a rural property due to a security excussion is not universally agreed upon among subject scholars and judiciary members, and there are some Real Estate Registry Offices that provide the transfer.

However, the registration of a property transfer to a foreigner, as a result of a security excussion, does not prevent the action from being questioned and federal authorisation for such is imperative.

In the event of operations involving foreigners, there are also peculiarities involving the proceeds allocation and the ingress of values in the country.

As mentioned above, the securities may be established by a public deed (mortgage and fiduciary lien) or a private instrument (fiduciary lien).

The securities established by a public deed require the payment of fees to the registry office that draws them up, which are calculated according to the table of court costs defined by each state.

After the instrument execution, such document shall be registered with the property enrolment and the registration costs vary according to the same table of court costs defined by each state, considering the operation sum.

Upon constitution of a mortgage and fiduciary lien, no transfer tax applies in view of a constitutional immunity.

In the case of a property consolidation in the name of a creditor, as a result of the fiduciary lien excussion, the payment of transfer tax on the property to the municipality already mentioned above is required and a new registration before the Real Estate Office Registry.

In the case of a mortgage security excussion, there is a new registering act to be paid.

It is appropriate to point out that this office has been a forerunner in lawsuits, questioning the occurrence of transfer tax in the event of the creditor’s property consolidation, in the case of a fiduciary lien excussion, with several favourable decisions having been obtained. However, the matter has not been reviewed yet by the superior courts.

Prior to formalising the securities deriving from a legal entity, the security taker must (i) review the corporate documents in such a way as to make sure there is no need for prior approval of the security and (ii) obtain court certificates for the legal entity in such a way as to confirm if the security may be questioned by a third-party creditor.

Depending on the security, its formalisation should be by a public deed.

Furthermore, for effectiveness and validity against third parties, the security shall be duly registered and the registry office where the registration will be done will depend on the security mode.

The security formalisation instrument usually provides for the procedure to be adopted in the event of default by the debtor/guarantor. The aggrieved party, as a rule, sends a notification to the defaulting party granting it a time period to clear the arrears and if the arrears are not cleared within such time, the default will become characterised and the security may then be enforced.

The enforcement should take place in or out of court, depending on the security mode.

In Brazil, the preference among creditors with the same kind of credit is determined by the registration order.

Among the various types of creditors, fiscal and labour-related creditors are preferable to the others.

According to Brazilian legislation, anyone who has contributed to the harmful event accounts for it jointly with the others regardless of culpability (objective responsibility).

In addition, Brazilian legislation imposes on the responsible individuals the obligation to remedy the environmental damage in full, which includes accountability for diffuse and collective damages.

Within this context, although there are instances where financiers of projects/companies that cause environmental damage were included in the passive side of lawsuits to repair the environmental damage jointly with the other involved persons, the Brazilian courts have not yet taken a unanimous stand with regard to such matters and have, in many instances, discharged the responsibility of such financiers because of the failure to demonstrate their awareness of the possible damages deriving from the activity and their consent to the environmental procedures of the company that caused the environmental damage.

In the case of a legal recovery, certain credits/securities are excluded from such procedure and may be enforced by the creditor without being subject to the legal recovery effects.

In instances of insolvency, it shall be incumbent upon the creditor to demonstrate that, by the time of constituting his or her credit and formalising his or her security, the debtor was not regarded as insolvent and, thereby, keeps his or her security unaffected.

In bankruptcy, all debts are submitted to universal judgment, with the creditors being differentiated in view of their credit type. Moreover, all transfers and disposals done in a certain period preceding the bankruptcy may be cancelled if it is demonstrated that they were done as a fraud against the other creditors.

With regard to urban real properties, the general rules emanate from the Federal Constitution and a federal law called the City Statute, and the specific rules, always in compliance with the general rules, containing the policies in planning, orderly growth, zoning and building restrictions emanate from each municipality in the country upon observing their own characteristics and peculiarities.

The municipalities in Brazil, totalling above 5,500, are also responsible for the approval of new constructions, works inspection, operating authorisation and inspection of activities developed in real properties.

The restrictions, as a rule, are greater or lower according to the neighbourhood and, within the neighbourhood, the location of the property itself (eg, closeness to major avenues and subway stations).

In addition, the municipal legislation in large cities covers consideration payment instruments to increase the construction potential of a given land area, in case this is inserted in a zone in which growth is fostered by the municipal authority.

The municipalities from time to time review the growth rules, pillars and city planning restrictions for new constructions.

It is important to note that already existing constructions, if regular, are not affected by any future change in the zoning of the area where the property is located.

In some instances (depending on the enterprise size, location or existence of a contaminated or permanent protection area), prior to issuing the authorisation for a new construction, the municipality requires approval by the state or federal entity.

As a rule, refurbishments do not require an approval permit, unless there is a change of area or an intervention in a listed asset or an asset in the listed asset surroundings.

The operating authorisations are, from time to time, renewed as the occupant needs constantly to demonstrate compliance with the legal requirements, the validity of the safety equipment, firefighting provisions, accessibility and toilet equipment, etc.

The federal legislation seeks to set forth the minimum parameters to be observed for new constructions of urban real properties and it is incumbent upon each municipality to stipulate rules supplementing the federal ones.

For being a 'new world' country, in Brazil there are almost no restrictions from public bodies with respect to the appearance of the new constructions and this is noticed in listed assets or in an area surrounding the listed assets only.

The intervention in and refurbishment of listed assets or assets located around listed assets require a prior authorisation by the federal, state or local entity, as the case may be.

With regard to the construction methods, the existing rules address the minimum standards to be observed in the construction of residential units (such as minimum floor-ceiling height and ventilation) and, for any kind of construction, provisions about firefighting and emergency routes.

As a general rule, the restrictions to be observed by anyone who intends to build or refurbish result much more from city planning issues, as addressed above, than from construction methods or aesthetics.

The municipalities, as mentioned above, approve the new constructions; however, there are specific instances (usually in view of size, location or existence of a permanent protection area) where a federal or state approval will also be necessary.

As mentioned above, even though they created the restrictions, the municipalities are responsible for all regulatory issues concerning urban properties related to soil occupation and use.

Depending on the municipality size, the administrative activities are performed by various departments and, in these instances, it is quite common that a project under approval goes through various such departments (eg, city planning, environment and traffic) in order to be granted.

Subjects referring to contaminated areas, decontamination and management processes are, as a rule, regulated, inspected and controlled by the state.

The states may also handle issues referring to the listing of certain areas or constructions.

Inspection in rural areas is conducted by a federal body.

Obtaining an authorisation to make a new construction requires a prior approval by the relevant public bodies.

Depending on the project size, land size, area location, existing contamination and listing restrictions, in addition to the city approval, federal and state approval will also be necessary.

The larger the project and its impact on the region, the more time-consuming and complex its approval process will be.

For approval of projects in big land parcels, with a great number of residential units – implying interventions in green areas, tree suppression and a greater impact on the local traffic – a consideration or compensation will be required, to be negotiated and defined with the public entity based on parameters set forth in the legislation.

Also, in some areas of certain cities, there is still the possibility of paying an amount to the municipality to increase the construction potential and it is certain that such prerogative should, when possible, be necessarily exercised prior to the new construction approval.

In the administrative approval process, a third party is not entitled to oppose; however, such party may question it in court in case the approval is granted not in compliance with the law.

If a new construction or refurbishment project is not approved by the responsible public agency and the applicant understands that the substantiation used by the public agent for the denial is mistaken, an administrative appeal may be lodged aiming at a decision review or even the possibility of filing a lawsuit.

In addition to the possibility of filing a suit in the case of a denial, due to the delay often experienced in a proceeding aimed at a project or refurbishment approval, the use of an urgent legal action has become more and more usual to force certain public agencies to review the project within the time to be stipulated by the judge.

Depending on the number of land lots where the project will be conducted, the number of residential units, a need to intervene in a green area, tree suppression and a greater impact on the local traffic, a consideration or compensation will be required, to be negotiated and defined with the public entity based on parameters set forth in the legislation. However, the purpose of such agreement is not to facilitate the project approval but consists of a true condition for its approval.

The municipality may, by means of its inspectors, promote the inspection of works in progress and if it is verified that a certain work is performed without a specific permit, a fine will be imposed and it will be subsequently embargoed until the situation is made regular.

The inspection can be spontaneous or through a complaint by any citizen.

Construction projects completed without the due prior approval will not allow their occupants to obtain a certificate of completion and operating licence, and are subject to a fine, ban and even demolition in the case of inspection.

An irregularly completed construction may, if compliant with the applicable legal ordinances, be made regular, but this takes time and does not avoid an inspection and the consequences resulting thereof in this period.

As mentioned above, with regard to use, the operating licence is from time to time renewed and the occupant has to show, from time to time, compliance with the applicable public ordinances for a renewal. The lack of a licence may cause the imposition of a fine and a ban on the site.

Not all companies in Brazil may own real estate assets.

The types of companies commonly used by investors for acquisition and exploitation of real estate assets are stock corporations (S/A) or limited liability companies (Ltda).

The choice of an S/A or Ltda will depend on the investor mode, the method of profit distribution agreed upon and the management rules to be observed by the company, among others.

Depending on the acquisition purpose, an S/A and Ltda may be set up with a single specific purpose and, in this case, it is called an spe (specific purpose company). The setting up of an spe company may even be required by an investor or financial institution who grants loans to investors, as it segregates the accounting and administration of each one of the enterprises.

Other Forms to Structure Investment in Real Estate Assets

Real estate investment fund

A real estate investment fund may also be used by investors for the acquisition and exploitation of real estate but, in this case, the option for this medium should be even more judicious as the rules concerning the number of quota holders, sum involved, type of investors and fiscal impact need to be strictly observed, besides the fact that their costs of creation and maintenance are higher.

Real estate investment funds are governed by the Securities and Exchange Commission (CVM) and are a pooling of resources captured for real estate investments, set up by an officer, with their general meeting of incorporation and regulation registered with the Real Estate Registry Office and the Brazilian IRS.

Real estate investment funds further need an authorisation by the CVM and, together with the regulation and general meeting of incorporation, the officer must submit to the CVM a number of documents, such as a brochure and a list of acting professionals.

The real estate investment fund may have only one quota holder and may be set up, exclusively, for qualified investors.

A real estate fund intended for a qualified investor is released from complying with certain obligations imposed by the CVM and may have quota classes with distinctive criteria as to the performance and management fee.

Real estate investment funds grant fiscal benefits to their quota holders as long as the fund and quota holders fall into the conditions set forth in the applicable legislation.

Joint venture company

A joint venture company (JVC) is governed by the Civil Code, has no legal personality and is set up by means of an agreement entered into between its members.

An investor (participating member) associates with a person (ostensible member) by means of a JVC, with the only purpose of investing money or assets in order for the ostensible member to carry out a certain project or enterprise.

The participating member does not participate in the management actions, has no responsibility before third parties in the case of damages resulting from the project or enterprise performance and only receives dividends when and if these are ascertained.

The ostensible member shall periodically render accounts to the participating member.

Until not long ago, a JVC did not require even a registration with the Brazilian IRS’s corporate taxpayers register but, since 2016, registration is required and their participations shall be stated by its members in their corresponding income tax returns.


A consortium is governed by Law No 6.404/76 (the Corporation Law) and is set up by an agreement where two or more companies join together for a specific purpose.

A consortium is greatly used to carry out public works, concessions of roads and airports.

Just like a JVC, a consortium has no legal personality, but is bound to have a registration number with the Brazilian IRS.

The members in a consortium are bound within the agreement scope.

Each member in a consortium will tax his or her income according to the selected tax regime. Therefore, it is possible that there are member companies in a consortium that will tax the profit by a given regime and others that will tax their revenues from the project according to another tax regime selected by them.

An S/A is regulated by the Corporation Law. An S/A is set up by a shareholders’ general meeting and its governance rules are set forth in a by-law, which shall be registered with the state trade board of its seat, and published in a major newspaper and the local official gazette.

An S/A may be an open or closed joint stock company.

The shares of stock may be of different classes and confer on their respective incumbent bearers certain vote and dividend prerogatives.

An Ltda is regulated by the Civil Code and is set up through articles of association, which shall be registered with the state trade board of its seat.

Other than certain exceptions, both for setting up an S/A and an Ltda, a plurality of stockholders/members, natural persons or legal entities, national or foreign, is necessary.

There is no legal requirement of minimum corporate capital for setting up a company.

The corporate capital shall be stipulated in national currency and may, depending on the social contract/by-law, be set up with contributions in cash or any kind of assets liable to cash assessment.

Although there is no minimum legal capital, depending on the company purpose, a minimum capital will be required to perform its activity.

The companies’ corporate documents are already drawn up, covering all the governance rules under the law and those agreed upon by its members.

Depending on the relationship between the members, the type of company and duty of each member in the company, the existence of separate agreements concerning specific vote and governance rules in certain matters and situations is usual. However, these separate agreements may not be entered into to impair third parties or bypass the law.

The real estate officers and consultants have the duty to observe all obligations and restrictions imposed by the CVM and the fund regulation.

The costs of maintenance are not identical among companies.

As a rule, taking similar-sized companies as a basis, an S/A presents the highest maintenance cost.

Still as a general rule, investment fund maintenance costs are, in turn, higher than company maintenance costs.

In addition, the costs of accountants and auditors vary according to the company’s size and state of its seat, in such a way that a large-sized Ltda might have a much higher cost than a small-sized S/A.

The main methods for a third party to use a real property for a given period are:

  • a lease, which may be typical or atypical (such as build to suit or sale leaseback);
  • a surface property right, as stated in 2.1 Categories of Property Rights;
  • a usage property right, as stated in 2.1 Categories of Property Rights;
  • fruition, as stated in 2.1 Categories of Property Rights; and
  • a loan for use, which consists of lending the property for free.

According to the Lease Law, leases of urban real property are intended for residential or non-residential purpose.

Then, a non-residential lease comprises all leases of urban property that has no residential purpose, such as the lease of properties intended for commercial purposes, providing of services, distribution centres, industry and shopping malls.

There is a typical commercial lease of a 'ready' property and atypical, where the lessor makes a great investment ('built to suit') to satisfy the lessee and in this latter mode the rent amount also comprises the investment reimbursement.

The Lease Law covers the general rules applicable to the lease of urban real estate, with the Civil Code applying on a subsidiary basis.

Lease of rural property and lease by the time-sharing system are regulated by the Civil Code.

Most of the provisions under the Lease Law are binding; that is, they may not be waived in the lease of urban real property for a residential purpose and the typical lease for a non-residential purpose.

In a lease for an atypical non-residential purpose, the Lease Law itself stipulates that the parties may freely negotiate their conditions, which is why most of the binding provisos are not applicable.

The legislation contemplates only a minimum validity time on behalf of the lessor in a lease intended for a residential purpose and a maximum time for a seasonal lease (usually for tourism purposes). For a lease intended for a non-residential purpose and a lease of a rural property, there is no minimum or maximum validity time but, as a rule, a typical lease is agreed for a minimum period of five years and an atypical lease is agreed for a minimum period not shorter than 15 years.

With regard to the maintenance and repair of the real estate occupied by the tenant, unless otherwise expressly stated in a contract, the lessor is bound, in the leases, by the building's soundness and safety, while the lessee is responsible for the upkeep and maintenance expenses throughout the leasing period. The lease may be secured by one of the security modes under the law; however, establishing more than one guarantee is forbidden, under the pain of nullity.

As a rule, rent is paid on a monthly basis and may not be charged in advance unless there is no leasing security.

The lowest periodicity possible to readjust the rent monetarily is annual, according to the applicable legislation.

Upon executing a contract, the lessor and lessee usually agree on the index to be used for the monetary rent readjustment.

In typical leases, in addition to the rent readjustment, unless otherwise contemplated in a contract, the lessor and lessee may, every three years, claim in court a rent review, plus or minus, for rearrangement as to the market value.

In atypical leases, there are usually provisions that expressly rule out the possibility of reviewing the rent amount during the agreed initial time.

In typical leases, unless otherwise expressly stated, both the lessor and lessee may claim a rent review in court every three years.

Without prejudice to the possibility of reviewing the rent in court, the parties may, at any given time and against a common agreement, formalise the new rent to be charged by means of an addendum.

As an intermediate way to a review and judicialisation, with a view to avoiding possible judicialisations of issues, it is increasingly common that the parties, when executing the first lease contract, contemplate a procedure for reviewing the rent without going to court, by contracting with companies specialised in ascertaining a leasing fair value for real estate properties.

There is no occurrence of VAT or an equivalent tax on the lease.

As will be addressed in 8 Tax, amounts received by way of a lease are subject to federal taxation. In these instances, the tax burden will be due from the proper lessor.

No specific cost is due from the lessor early in the lease.

In the case of shops leased in consolidated shopping malls, the payment by the lessee of 'key money' for the commercial site is common and legal.

In a typical lease, unless otherwise expressly stated, the property maintenance costs are under the lessee's responsibility throughout the lease term.

With a view to avoiding any possible future discussions, it is recommended that a detailed expert’s report is drawn up with the property conditions, in order for the lessee to be fully aware of the conditions and problems prior to the start of the lease.

In addition, the lessee is compelled to return the property at the end of the lease term in the same condition as the lessee received it.

Also, as a rule, in leases of condominium properties, the lessee is also responsible for the payment of the ordinary expenses of the commonly used areas, while the lessor is responsible for bearing expenses regarded as extra expenses.

The payment of such expenses is usually made directly by the lessee to the service providers.

Exceptionally in the case of a common supply (such as water supply in a condominium), the expenses are paid to the lessor, who is then responsible for payment directly to the supplier.

Contracting an insurance for the property is mandatory concerning a lease intended for non-residential use and, as a rule, is paid directly by the lessee.

In real estate properties located inside a condominium, the entire building is usually insured by the condominium and the payment is pro rated among the condominium members.

The usage restrictions may derive from the municipal legislation, condominium or be imposed by the lessor.

Restrictions deriving from a public authority and the condominium may not be negotiated by the lessee, while any contingent restrictions imposed by the lessor may be negotiated and modified in common agreement between the parties at any given time.

The performance of works (improvements) by the lessee is usually addressed in the lease contract itself by means of an express clause covering the permission for and the right to an indemnification for the improvements or covering the non-permission/indemnification for the improvements.

Improvements in Brazil are classed as necessary (they refer to conservation), useful (improve their use) and voluptuary (embellishment).

As a general rule, necessary improvements are under the lessor's responsibility and, if done by the lessee, confer on them the right to indemnification.

Useful or voluptuary improvements can be done by the lessee as long as they do not change the construction structure.

Useful improvements done by the lessee require a prior authorisation of the lessor so as to be liable to an indemnification.

Voluptuary improvements done by the lessee are not liable to indemnification.

At the end of the lease, if a prior authorisation by the lessor to make useful improvements has not occurred, the lessor may require their removal so as to receive the property in the same condition as it was originally received.

If a prior authorisation by the lessor for necessary improvements or useful improvements has occurred, the lessee enjoys the retention right.

The improvements introduced in the property, if they cannot be removed without destroying other items, will be incorporated into same.

Leases of urban real estates are regulated by the Lease Law, with the Civil Code being subsidiarily applied, while leases of rural property and leases by the time-sharing system are regulated by the Civil Code.

Some breaches allow a penalty to be imposed regardless of the time for curing the arrears, such as a penalty and interests for late payment of rent.

Other breaches require, for their previous characterisation, a notification by the lessee to cure the arrears within a given timeframe under the pain of characterising its default, with the consequences resulting thereof.

A typical lease may be secured by one of the following securities: pledge, collateral or surety bond. No more than one security may be established for a typical lease.

Considering their peculiarities, atypical leases may be secured in a diverse way and by more than one security.

In a non-residential lease with a five-year term or above, a lessee who intends to remain in the property for an identical period may, as long as the lessee meets his obligations, in the case of refusal or slowness by the lessor in renewing it, file a lease renewal lawsuit. The suit shall be filed between twelve and six months before the lease term expiration and, if such time is not observed, the suit will be extinguished without renewal.

If the lease is not renewed in writing for an equal period and the lessee has not filed a rent renewal lawsuit, the lease will then take effect for an indeterminate time and the lessor may retrieve the real property by sending a plain notification granting the lessee a 30-day period to vacate the property.

If the contract is effective for an indeterminate time, the lessor is not entitled to an early termination of the lease contract, except if:

  • it is by mutual agreement with the lessee;
  • there is a legal or contractual failure to meet any obligation of the lessee;
  • there is no payment of rent and other charges by the lessee; and
  • there is a need for carrying out urgent works determined by a public authority, which cannot be done with the lessee in the property or, if possible, the lessee does not allow it.

The lessee, in turn, is entitled to terminate the contract in advance, paying an agreed penalty proportional to the contract performance period; and this penalty may not be imposed depending on the negotiation between the parties.

In the event of the sale of the property, still during the lease term, if the lease contract is not annotated in the enrolment, the purchaser is also entitled to retrieve the property by sending a plain notification to the lessee with a 90-day vacancy time.

If the contract is in effect for an indeterminate time, either party may terminate it without a due cause and at any given time, provided that such party reports the other party within a 30-day period of the property vacancy.

Regardless of the termination reason, the competent proceeding to remove a tenant is an eviction proceeding.

Depending on the termination substantiation (a burdensome list under the law) and the existence of a security, the court (against a three months' rent bond deposit by the lessor) will grant a 15-day time limit for the lessee to settle the arrears under pain of an injunctive eviction.

Should there be no substantiated termination for the injunctive vacancy, the eviction will be determined in the sentence only. If the proceeding is judged as granted, the lessee shall have a 30-day time period for the vacancy, also against a bond deposit of three months' rent.

Should there be a subsequent reversal of the decision that granted the injunctive eviction or the sentence, the deposited bond shall be reverted to the lessee by way of minimum indemnification for losses and damages, and they may claim any possible difference in a proper proceeding.

Once the time for the voluntary property vacancy is ended, eviction may be performed by using force, including a break-in.

The average time for a first instance sentence in an eviction proceeding is twelve months.

A lease contract may not, as a general rule, be terminated by a third party. If, however, during the lease it becomes necessary to make an emergency work ordered by the public authorities, or if the property is expropriated, the lease may be terminated early.

The most common contracting modes in Brazil to carry out a construction are a turnkey contract or a management construction contract with a maximum guaranteed price.

In Brazil, there is a technical responsibility for the project and a technical responsibility for the work.

With regard to the technical responsibility for the work, its segregation is not uncommon; for example, in a large-sized work there may be a technical responsibility for the foundation, another technical responsibility for the hydraulics and a technical responsibility for the electrics.

If there is more than one technical responsibility at the same work, it is important to emphasise that, before third parties, particularly in the case of an error or corruption, all parties may be regarded as supportive and evidencing the exclusive culpability of one of them is very difficult to defend.

The preliminary studies of soil, declivity, contracting of good professionals to make the calculations and definition of constructive methods to be used, and the breakdown of the projects for preparing the budget, though costs, usually reduce the risks of error in a project.

With regard to the construction, contracting insurance by the performance insurance contractor, engineering risk insurance and third-party risk insurance are usually required.

It is usual in construction contracts to set out milestones and corresponding deadlines for verification.

If the milestones are not verified on their respective dates, it is also possible to stipulate penalties with the contract maintenance or even penalties with the possibility of contract termination.

As mentioned above, it is usual to stipulate the obligation to procure engineering insurance, performance insurance and third-party risk insurance.

If the property has not been encumbered on behalf of a third party (such as a financial institution), it is quite common in the development of a real estate undertaking for a contractor to file a lawsuit and seek the property encumbrance as a guarantee for the due payment.

The construction may only be occupied upon issuance of a work completion certificate, issued by the municipal government. In order to issue this certificate, in addition to the work completion itself, the city government checks that all requirements, considerations and conditioning factors have been met, as well as that the owner has already obtained a fire department inspection certificate.

The owner or occupying third party shall, upon obtaining a certificate of completion, obtain an operating licence from the city government and, in the case of health control and environmental issues, from the federal or state government.

According to Brazilian tax legislation, there is no VAT (or equivalent) due on the sale or purchase of corporate real estate.

There are some methods used to mitigate or postpone tax impacts on the acquisitions of large real estate portfolios. Usually, buyers and sellers analyse different types of business models that can be adjusted before settling large deals. Depending on the business model adopted, companies can mitigate tax impacts over the business and contribute to minimise the effects of high expenditure involving these acquisitions.

There are no taxes charged over the occupation of business premises in Brazil. However, real estate owners must pay annually the Municipal Real Property Tax (IPTU) due to property ownership as well as an Establishment Inspection Fee.

The enforceability of the withholding tax will depend on the nature of the investment. Usually there will be withholding tax, which should be levied on remittances destined to foreign investors.

Regarding rental income, income tax is levied over these earnings and should be collected by the property owner. However, in the case of a foreign investor, the tenant will be responsible for collecting such amount. Applicable rates are normally levied at 15% but depend on where the property owner is placed (if the country is considered a tax haven, the applicable rate is set at 25%).

Gains from the disposition of real property are levied by capital gains tax, with no exemption. The applicable rate for foreign investors is also established at 15% (if the country is considered a tax haven, the applicable rate is set at 25%). Besides the federal taxation of capital gains, there is also a municipal taxation due to the transfer of real estate property, levied at a 3% rate in São Paulo. In this specific case, it is possible to question the tax basis calculation in certain situations.

If, however, the operation is carried out by a Brazilian company, the taxation for rental revenues up to BRL78 million can be levied by rates that range from 11.33% to 14.53%. In these cases, the foreign controlling partner can receive dividends without any taxation in Brazil.

Brazilian legislation grants real estate owners (companies located in the country) the benefit of deducting the depreciation costs from the income tax calculation basis.

VBD Advogados

R. Leopoldo Couto de Magalhães Junior
758, CJ. 131
Itaim Bibi
São Paulo - SP
CEP 04542-000

+55 11 3181 8833

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Law and Practice in Brazil


VBD Advogados is a multidisciplinary Brazilian firm located in São Paulo that has a team of over 40 specialised professionals. The real estate practice works closely with other practices of the firm, such as arbitration and litigation; corporate and M&A; environmental law; labour, public and regulatory law; and tax law. Its partners are active members of the Instituto Brasileiro de Direito Imobiliário (the Brazilian Institute of Real Estate Law, or IBRADIM;, the Sindicato da Habitação (the Real Estate Management Association, or SECOVI;, the Sindicato da Indústria da Construção Civil do Estado de São Paulo (the Civil Construction Syndicate, or SINDUSCON/SP; and the Confederação Nacional da Indústria (the Brazilian Industry National Confederation, or CNI; The partners are also professors at the most renowned universities in the country, such as USP, and authors of several papers published in technical publications about real estate.