Real Estate 2018 Comparisons

Last Updated January 04, 2019

Law and Practice


BMA – Barbosa, Müssnich, Aragão 's real estate team is highly specialised in all matters relating to real estate. Areas of expertise include real estate development projects, M&A and real estate finance, including property acquisition, zoning and land use, complex lease transactions, built-to-suit, construction agreements, structuring of funds, securitisation of real estate receivables and analysis of related taxation issues. The BMA Real Estate team has been advising a great variety of hospitality developers, investors and operators, being market-leader in the regularisation of hospitality projects before Security Exchange Comission (Comissão de Valores Mobiliários – CVM). Recently, as a direct effect of the economic crisis, the Real Estate team has been advising big real estate developers as well as land-owners in huge real estate sector-related litigation disputes (judicial and arbitration).

The main sources of real estate law are the Brazilian Civil Code (Law 10,406/2002), the Real Estate Development Law (Law 4,591/1964), the Land Parcelling Law (Law 6,766/1979), the Public Register Law (Law 6,015/1977) and the Urban Lease Law (Law 8,245/1991). There are also other specific statutes.

The Brazilian real estate market has performed exceptionally over the last ten years, with economic stability and the two major sports events hosted by Brazil (the 2014 Fifa World Cup and the 2016 Olympics) driving significant growth in the market. Since 2016, however, the economic crisis in Brazil – brought on by the political crises and cases of government corruption – has depressed national markets generally, and especially in the real estate sector. The last 12 months have seen typical distressed asset transactions and the consolidation of certain economic groups taking advantage of good opportunities in the market, especially in the corporate sector, health care and shopping centres.

The real estate market is hoping that casinos will once again become legal in Brazil, and that foreign citizens and companies will be allowed to acquire rural property by controlling Brazilian companies. Both initiatives could generate new opportunities in the sector. The main bills are as follows:

  • Bill 4,059/2012 clarifies that the limitations for the acquisition or lease of rural lands by foreign persons or entities set out in Law 5,709/1971 are not applicable to Brazilian legal entities, even if they were established or are controlled directly or indirectly by foreign private individuals or legal entities, except for the legal entities held by non-governmental organisations or private foundations whose funds are derived from foreign individuals or legal entities, and sovereign funds created by foreign states. There are other Bills that would impose greater restrictions on the foreign acquisition of rural land, such as Bill 2,289/2007. This is a very politically sensitive issue and there is no estimate of when any Law will be approved.
  • Bill 186/2014 deals with games of chance, and also covers casinos. Under the Bill, the right to operate games of chance will be granted under concession by the States and the Federal District, in accordance with regulations established by the federal government. The Bill provides that casinos will be treated as tourism enterprises (like resorts) and confined to regions to be determined by the federal government. Like foreign ownership of rural land, the subject is extremely sensitive and will still see much debate.

The main category of property right that can be acquired in Brazil is ownership, which is absolute and perpetual until disposal of the property by the owner, who is free to enjoy it and dispose of it, subject only to third-party rights and legal restrictions. On the owner’s death, ownership transfers to the heirs.

However, there are other types of in rem rights, such as:

  • usufruct: full right of use and enjoyment, including the right to income generated by the property;
  • the acquisition right of the buyer under a purchase and sale commitment;
  • real right of use: a type of limited usufruct, giving the right to use the property for a specific purpose;
  • surface right: a specific right to build or cultivate, granted by the owner of the land in favour of a third party, segregating the ownership of a building or a plant from the land;
  • emphyteusis: the right of useful domain (domínio útil) over the property on a perpetual basis. Emphyteusis was abolished by the Civil Code of 2002, although existing emphyteutic liens remain valid; and
  • aforamento or occupation right (direito de ocupação) over properties held by the Federal Government, like those located in the coastal area.

In Brazil, the key laws that apply to transfers of title are the Brazilian Civil Code and Law 6015/1973 (“Public Register Law”), which are applicable on a general level to any type of real estate. There are also specific Laws that regulate special situations, depending on the seller (eg, government entities) and the location of the real estate (eg, in coastal areas or on the country’s borders).

As a rule, lawful and proper transfer of real estate must be made by a public deed drawn up in a Notary’s Office; conveyance of ownership and any other real estate right is only made on registration of the public deed with the competent Real Estate Registry Office, when it becomes effective and opposable to third parties. There are some exceptions provided for by law.

Each property has a specific title number (matrícula) in a certain Real Estate Registry Office, determined according to the region where the real estate is located.

An updated certificate for the title number, issued by the competent Registry Office, is evidence of good title to the property.

Title insurance is not common in Brazil.

Legal due diligence is usually performed by a real estate lawyer. Other specialists such as environmental consultants, surveyors and engineers may be involved, depending on the case.

Legal due diligence is required to obtain relevant information about the property and its owners (current and former), and involves the analysis of public certificates and other documents, such as:

  • Certificate of Title: issued by the relevant Real Estate Registry Office;
  • Lawsuit Distribution Certificates, in order to confirm the existence of any lawsuit or other proceeding before the courts involving the property or the seller (including previous owners) that could prevent or jeopardise the acquisition of title, covering at least the last ten years;
  • tax clearance certificates and proof of payment of expenses related to the property;
  • analysis of any agreement involving the property (eg, lease agreements, securities agreements); and
  • Environmental Certificates and technical surveys.

As a general rule, sellers are legally liable for any act or debt derived from any event occurring before the sale. The seller is also liable for eviction, which means that the buyer has recourse in damages against the seller if the property is lost to a third party by judicial decision. For this reason, representations and warranties are normally made in relation to title, the seller’s capacity, and the existence of any debt, restriction or encumbrance over the property. There is also usually a representation about the status of the property’s building and related conditions, including the activities carried out by the seller and previous owners on the property.     

The seller must indemnify the buyer for the losses resulting from any misrepresentation; otherwise, the buyer can file a legal proceeding against the seller to compel it to remedy the misrepresentation.

Depending on the purpose of the investment, the main areas of law for an investor to consider when purchasing real estate in Brazil are the civil law, the zoning and urban planning laws (which vary according to the city where the real estate is located), environmental law and tax law.

Under Brazilian environmental laws, all those who directly or indirectly cause damage to the environment can be held liable – jointly and severally – to repair the damage, regardless of fault. Civil environmental liability is also considered as propter remliability, meaning that it attaches to the property and, consequently, is inherited by any new owner (eg, buyer), who becomes jointly and severally liable for the remediation of pollution and the clean-up of contamination (duty to remediate).

According to the legislation in various states and the case law, the obligation to adopt remedial actions on contaminated or polluted areas can be imposed on the polluter and its successors, the owner of the contaminated area, the tenant, the holder of the area, and/or parties that benefit directly or indirectly from the activity carried out in the contaminated area, independently or simultaneously. This means that the obligation to remediate and compensate for environmental damage at a certain location can attach to any party that has occupied the property or benefited from activities carried out on the property at any given time.

Generally, the municipal authorities issue a certificate containing all permitted uses of a parcel of real estate under the applicable zoning or planning laws. The buyer can also specifically consult the competent authorities, depending on the use or project that the buyer intends to carry out or develop on the relevant property.

Some properties are part of Syndicated Urban Operations (Operação Urbana Consorciada), or are subject to special rules to promote urban revitalisation and development in certain areas. For these properties, there is the possibility of acquiring additional authorisation to construct (“outorga onerosa” or “solo criado”), in exchange for a cash payment or the undertaking of certain obligations by the developer.

For other situations in which development agreements are made with public authorities, please see 4.6 Agreements with Local or Governmental Authorities.

The government can acquire land through expropriation (governed by the Federal Constitution, Decree-Law 3,365/41 and Law 4,132/62) based on public need, or public or social interest. Fair compensation must be paid in cash before expropriation takes place, and expropriation must comply with applicable law.

The purchase and sale of real estate is subject to the municipal real estate transfer tax (Imposto de Transmissão de Bens Imóveis Inter-Vivos – ITBI), the rate of which varies according to the city in which the real estate is located (eg, in the cities of Rio de Janeiro and São Paulo, the rate is 3%) and is usually calculated on the higher of the property’s market value or tax appraised value. As a rule, the ITBI is paid by the buyer.

The transfer of ownership or rights in real estate to companies as capital contribution is usually exempt from ITBI, unless the company that receives the property engages in real estate activities that represent more than 50% of its revenues.

A standard purchase and sale of real estate also generates costs related to drawing up the public deed and registering the deed with the competent Real Estate Registry Office. These fees are usually calculated based on the market value of the property, and are normally paid by the buyer.

The transfer of rights over real estate located in the coastal area and/or held under emphytheusis is also subject to payment of a laudemium fee (laudêmio), which varies from 2.5% to 5%. The seller is legally liable for payment of the laudemium, although the parties can agree otherwise, provided that such agreement shall only be enforceable between the parties and shall not be opposed to the Federal authorities responsible for such areas.

There is no ITBI on the transfer of shares in a property-owning company, even if a partial ownership transfer results (eg, where there is a change of control in a legal entity). However, other taxes not related to the real estate transfer might be owed (eg, capital gain tax).

As a general rule, foreign investors (individuals or companies) are free to acquire and use urban real estate properties in Brazil as owners or lessees, or under any other title. However, there are some restrictions regarding the acquisition or lease of rural properties, the acquisition of urban properties located in the coastal area, and the acquisition and possession of properties located at the borders of Brazil.

Foreign persons or entities domiciled outside Brazil are not authorised to acquire or lease lands in rural areas; only foreign persons domiciled in Brazil and legal entities authorised to operate in Brazil are allowed to acquire or lease rural lands in Brazil, subject to restrictions related to the size of the property and its use (Law 5,709/71). In 2010, there was a change in the interpretation of Law 5709/71 and those restrictions were also extended to foreign-controlled Brazilian companies and/or to companies for which the majority of the capital is held by foreign entity(ies).

Foreign persons or entities are not authorised to own or possess lands or have any kind of in rem rights over lands along the seashore or borders of Brazil (the 150 km strip of land along the national border) without special governmental authorisation (Law 6,634/79 and Decree 85,064/1980).

Commercial real estate acquisitions are generally financed by the Real Estate Financing System (Sistema de Financiamento Imobiliario – SFI), governed by Law 9,514/1997 and operated by banks and other financial entities.

Some structured transactions through the capital markets are also used for financing the acquisition of commercial real estate, as well as large real estate portfolios or real estate companies.

In general, the most common securities for financing the acquisition or development of real estate are mortgages (hipoteca) and fiduciary sales (alienação fiduciária em garantia).

Mortgages are governed by the Civil Code. In this kind of security, the ownership and possession of the real estate remain with the debtor and, upon the registration of the mortgage deed with the competent Real Estate Registry Office, the secured debt will have priority over any other unregistered claim. In a fiduciary sale, the owner transfers fiduciary ownership to the creditor in order to guarantee payment of the debt, but the owner keeps the direct possession of the property. The fiduciary sale agreement can be made by a public deed or a private instrument but must be registered with the competent Real Estate Registry Office. A fiduciary sale allows the creditor to enforce the security out of court.

Other types of security are also used, such as a pledge (or fiduciary assignment) of receivables or shares in a special purpose company created to develop a specific real estate project.

Depending on the case, the same restrictions that apply to the acquisition of rural land by foreign entities will apply to security granted to foreign lenders. For example, because a fiduciary sale results in the transfer of ownership from the debtor to the creditor, the current restrictions referred to in 2.11 Legal Restrictions on Foreign Investors above will also be applicable to foreign lenders. In addition, security interests (or any other property right) in rural land located at the borders of the country (ie, within 150 km of Brazil’s borders) cannot be created in favour of foreign lenders without special government authorisation.

Individuals and legal entities resident, domiciled or headquartered in Brazil can obtain loans from individuals or legal entities resident, domiciled or headquartered abroad. Such loans must be registered with the Central Bank of Brazil in accordance with Law 4,131/62 and Law 11,371/2006, and the proceeds of the loan must be used in economic activity.

Instruments creating security interests in real estate must be registered on the record of title of the encumbered property in the competent Real Estate Registry Office. Depending on the type of security, the instrument may be public or private in form. Registration fees and notary fees are normally borne by the debtor. The costs vary from State to State, and are usually calculated on the basis of the amount of the secured debt. In addition to the fees payable to real estate registry offices, lenders must bear court costs, attorneys’ fees and ITBI (in case of security granted in the form of a fiduciary sale) when enforcing their security interests through the courts or in the real estate registry offices.

From a legal standpoint, specific authorisation is not required under the law for a company to give valid security over its real estate assets. The company’s articles of incorporation or by-laws, however, may usually contain a general provision requiring the granting of specific authorisation, to be given on a case-by-case basis by the company’s corporate bodies. It is common for a company’s by-laws or articles of incorporation to limit the grant of security of any kind to debts owed by the company itself or by its controlled and related companies, for example.

The enforcement of in rem securities requires the borrower to be given notice to pay the debt in default within the legal cure period. If the debt is not paid, the lender may begin enforcement of its security interest in the encumbered property. Mortgages are enforced by means of a specific court proceeding, and fiduciary sales are enforced through the competent Real Estate Registry Office.

The general rule is that a security interest’s priority is determined by the time at which the instrument creating the security is presented for registration at the competent Real Estate Registry Office, with instruments submitted earlier taking precedence over instruments submitted later, regardless of the date on which the instruments were signed.

Upon registration, a secured debt will have priority over all security interests registered later.

Nonetheless, certain claims have legal preference under Brazilian law, such as employment claims and tax claims.

As far as civil liability for environmental damages is concerned, Brazil applies the strict liability regime, so there is no requirement for proof of fault. Federal Law 6,938/1981 extends environmental liability to those who indirectly caused damage to the environment. This creates the “indirect polluter” doctrine, meaning that any entity that contributed in any way to the event that resulted in the damage may be held jointly liable for it, even if such entity was not responsible for any act or omission that directly caused the damage. 

Based on the indirect polluter doctrine, combined with the principle of “full reparation” of environmental damage, the Public Prosecutor’s Office has argued that financial institutions should be included as defendants in public civil actions where the financed project has caused environmental damage. Brazilian Courts have mostly taken the position that lenders can only be held jointly liable, as indirect polluters, when (i) they have released funds while aware of critical environmental damage (eg, pollution at levels that could compromise human health), or (ii) they have not enforced compliance with the environmental terms in the financing agreement. However, the environmental liability of lenders is a recent subject in Brazil’s case law, and the highest courts have yet to take a clear position on the matter.

In insolvency or bankruptcy, all recent transfers of property and creations of real estate security interests may be challenged by any of the creditors. Security interests may be voided through a specific court proceeding if it is shown that the borrower was already insolvent at the time the security interest was created.

The Federal Constitution of Brazil establishes that the strategic planning and zoning of urban regions is decided by each Municipality, but Federal Laws govern the guidelines for approval and implementation of strategic planning and zoning. Federal Law No 10,257/2001, known as the “City Statute” (“Estatuto da Cidade”), provides for the general rules and guidelines.

All cities with more than 20,000 citizens must have a local planning and zoning law approved by the municipal legislature that establishes rules to plan, organise and control the use, division and occupation of urban land. Cities with fewer than 20,000 citizens must also have local rules on planning and zoning matters, but a specific law is not required. In all cases, local rules must conform to the general principles contained in the City Statute. The legal framework formed by planning and zoning rules is referred to as the Urban Policy.

Along with the Urban Policy, there are specific laws and regulations (which will be discussed in more detail below), including with respect to the creation and preservation of green areas and cultural heritage.

To ensure compliance with the Urban Policy, all new construction, demolition or land division projects must be approved in advance. After construction, new buildings must be inspected and approved, as a condition for occupancy. The occupancy inspection ensures that the construction work has been executed in accordance with the approved plans and, if the work passes inspection, a Certificate of Occupancy will be issued.

Besides inspection and control of new developments, local authorities may also apply progressive sanctions and even expropriate private properties – through legal proceedings and in exchange for fair compensation – if the property is not fulfilling its social function, ie, if there is no construction on the land, or if the property is underused or unused.

Regarding the division of urban land, the Real Estate Registry Offices play an important role in controlling illegal allotment projects by denying registration of instruments that would alter the characteristics of registered parcels of land (such as division of the land, consolidation of properties, alteration of dimensions, new construction, demolition, etc) without evidence that such changes have been approved in advance by local authorities.

The guidelines for the design, appearance and method of construction for new buildings and for refurbishments are established by each Municipality in their respective Urban Policy, but there are technical rules and federal and state Laws that affect real estate development projects, such as environmental laws, traffic regulations, and construction practices and standards.

As a general rule, the construction of new buildings needs prior approval from the competent authorities, which include the Municipality, environmental authorities and the fire department, to name a few. Refurbishment projects may also require prior approval from competent authorities, depending on the extent of the works to be carried out on the existing building (as a rule, projects that contemplate simple renovations do not require prior approval, whereas projects encompassing modification of the number of units or changing the façade of existing buildings, for example, may require prior approval). If the building to be refurbished is itself a heritage site, or if a project for refurbishment or new construction is located in an area that is preserved due to its cultural and architectural interest (cultural heritage), the authorities responsible for cultural and architectural preservation at the federal, state or municipal level, as the case may be, must be consulted, and approval of the project will depend on their opinion.

Upon completion of a new building or refurbishment project, the municipal authorities and the fire department carry out an on-site inspection to confirm that the construction work was executed in accordance with the approved plans.

In general, the municipal authorities are responsible for regulating the development and designated use of individual parcels of real estate, and all administrative acts in such matters must abide by municipal rules. Depending on the zoning, there are minimum lot areas and dimensions that must be complied with when subdividing urban land. The designated uses for urban land are usually split into three major categories: residential, commercial and industrial. Depending on the Municipality, these major categories may have specific subcategories.

The process for obtaining entitlements to develop a new project or complete a major refurbishment is very often complex, with federal, state and municipal authorities being involved. The process is intended to check and remedy any adverse impacts of the new project on the development plan for the city and on the well-being of the population. The process is governed by the Urban Policy rules of each city, and the approval of new projects may not be discretionarily denied.

Depending on the size of the project, public hearings may be held at which third parties such as local neighbourhood associations, NGOs and members of the organised civil society can be heard.

Since every project must be analysed and approved abiding by Urban Policy, any authority’s decision that is discretionary or fails to conform to any applicable law can be appealed at the administrative level and through the courts.

Depending on the size and impact of the project, the authorities responsible for the approval of new development projects or even major refurbishment projects may require the developers to enter into agreements to promote the well-being of the population in the area, such as agreements for the construction of new roads, the planting of trees, or the construction or conservation of local parks, for example.

It is important to highlight that environmental and urban matters are not considered negotiable rights and, due to this principle, all such agreements shall be carried out within the boundaries of the Urban Policy and Environmental Law.

Restrictions on development and designated use are monitored by means of inspection on the real properties – either by  public authorities' spontaneous initiative or due to particular complaints. Once an irregularity on a certain property is verified by public authorities, the operation licences and occupancy certificate may be cancelled, a fine may be applied and – in more extreme cases – a demolition order may be issued by administrative or judicial authorities.

Brazilian law provides for several types of companies, but the most common forms available to hold real estate assets are limited liability companies (sociedade limitada), referred to here as limitadas, and corporations (sociedade por ações), referred to here as S/A. The other forms of companies are rare and are most often used for specific purposes.

The choice of the type of entity to be used as the vehicle to hold real estate assets will depend largely on such matters as the number of shareholders or quotaholders, the complexity of how control over the company is exercised, governance, and the profits distribution policy. Another vehicle that is commonly used to hold real estate assets is the real estate investment fund (Fundo de Investimento Imobiliário – FII).


Limitadas are governed by the Brazilian Civil Code. They are incorporated by means of Articles of Incorporation (at the time of incorporation), which must be registered with the competent Board of Trade for the state or territory in which the company is incorporated. A limitada requires at least two quotaholders (which, with a few exceptions, can be individuals or legal entities, resident in Brazil or in another country. In a limitada, the liability of each quotaholder is restricted to the value of its quotas subscribed and paid-up, but all quotaholders are jointly liable for paying in the company’s corporate capital. This limitation of liability is not absolute and, in exceptional circumstances, the quotaholders may be exposed to liability for the company’s obligations.


An S/A is governed by Law 6,404/1976 (the “Corporations Law”) and is a commercial corporation by legal definition. Its corporate capital is represented by shares, and it is incorporated by either private or public subscription, by at least two shareholders (which can be individuals or legal entities, resident in Brazil or in another country).

All incorporation documents must be filed with the competent Board of Trade and subsequently published in the Official Gazette and in another newspaper where the company has its principal place of business.

In general, common shares entitle the holder to both voting rights and the right to share in profit, while preferred shares have special rights of a financial or political nature and usually do not confer voting rights, and dividend right shares can be issued to replace fully amortised common or preferred shares.

Although the corporate form of an S/A is more flexible, particularly when negotiating dilution of defaulting shareholders, transfer of shares and so on, it also represents higher costs pertaining to formalities required by the Corporations Law, particularly regarding the publication of calls to shareholders’ meetings in the Official Gazette and other newspapers.

Real Estate Investment Funds (FII)

Real Estate Investment Funds (FII) are formed by investors, with the fund’s capital being invested in all types of real estate projects, including the development of new projects and ready-to-use properties such as commercial buildings, shopping malls and hospitals. The fund can hold a single property, multiple properties, or simply interests in real estate assets.

The objective of a FII is to obtain financial return from the lease or sale of property and other activities in the real estate market. Income and gains obtained by the FII from its portfolio of real estate assets are exempt from taxes, as long as certain requirements are met, including (i) distribution, at least every six months, of 95% of its cash income to the unit-holders; and (ii) that there is no investment in any real estate development in which the developer, constructor or co-owner is a unit-holder holding more than 25% of the Fund’s quotas, either individually or with a related party.

Investors in FIIs are taxed when they obtain a gain upon a sale of their units, or when they receive a distribution from the fund. Generally speaking, such gains are subject to withholding tax (WHT), at the rate of 20%, which is treated as an advance payment of federal taxes for investors that are legal entities domiciled in Brazil. For individual investors, the criteria for assessing such gain may depend on whether or not the transaction is carried out on a stock exchange.

Nonetheless, resident and non-resident individuals investing in a FII may benefit from a tax exemption on distributions made by the fund if the following conditions are met:

  • the FII must have at least 50 unit-holders;
  • the unit-holder must not hold more than 10% of the units in the FII and his or her units may not give rights to more than 10% of the total amount of the distributions made by the fund; and
  • the units in the FII must be traded exclusively on a stock exchange or an organised over-the-counter market.

Other Forms to Structure Investment in Real Estate Assets

The following structures may be combined with the entities/investment fund mentioned above.


SCP stands for Sociedade em Conta de Participação, a kind of silent partnership or unincorporated joint venture. It is a type of contractual entity formed by two or more individuals or entities willing to associate only for the purposes of sharing profits and losses of a specific project, without incorporating a new legal entity. SCPs are also governed by the Brazilian Civil Code, and only one partner – the ostensible, apparent partner – has the power to bind the joint venture to third parties; the other partners are liable only to the apparent partner for all the results of the transactions and partnership obligations undertaken under the terms of the SCP contract. Since there is no incorporation of a new entity, there are no legal formalities to be observed, and it is not necessary to register the SCP contract with the Board of Trade. SCPs are usually created for a limited term, with the objective of carrying out a certain project, and are extinguished upon completion or termination of the project.


A consortium is a contractual vehicle governed by the Corporations Law and is often used to carry out a specific project. Parties in the consortium are liable for taxes on their income from the consortium venture when it is distributed, in accordance with the provisions of the consortium agreement, and parties may elect their own tax regime. Although the consortium is not a legal entity, it may figure as a party to agreements related to its object, without joint liability among the consortium parties (except for labour liabilities which the courts often impose on all parties).

Condominium (or Co-Ownership)

It is very common to structure a deal by having two or more developers (or the original owner) as co-owners of the land. The co-owners create a special development condominium in order to carry out the development, and the condominium then enters into the construction agreement for the project. In this structure, all the decisions are taken by majority decision (although special majorities, higher than 50% + 1, may be required for certain decisions), depending on the provisions of the law, the Condominium Agreement and/or Transaction Documents.

There is no legal minimum capital requirement for setting up any of the entities usually used to invest in real estate.

Governance depends on the law applicable to each entity or fund, and its incorporating documents. Limitadas, S/As and SCPs can also have shareholders’ or quotaholders’ agreements to govern not only the management of the entity but also voting agreements and the transfer of shares, quotas or interests. In FIIs, the quotaholders, managers and real estate consultants must also comply with the offering document, the FII’s regulations, and the rules issued by the Brazilian securities and exchange commission (the CVM).

Annual entity maintenance and accounting compliance cost varies from case to case.

For the purposes of comparison, SCPs and consortiums are less costly, as they do not involve incorporation of a new entity or specific registration or filings with local bodies. Limitadas and S/As have the same level of cost and complexity for incorporation, but S/As usually have a higher maintenance and accounting compliance cost compared to Limitadas. Investment funds have the highest incorporation, maintenance and accounting compliance costs.

The main types of arrangements recognised by Brazilian law for the occupation and use of real estate for a limited period of time, without buying it outright, are as follows:

  • lease, which is a contractual right to use property owned by a third party upon payment of rent;
  • free lease (or loan for use), which is a contractual right to use property owned by a third party without payment of compensation for the use;
  • surface rights (mentioned in 2.1 Categories of Property Rights);
  • usufruct rights (mentioned in 2.1 Categories of Property Rights); and
  • real right of use (mentioned in 2.1 Categories of Property Rights).

Brazilian law recognises the following types of commercial leases:

  • commercial property;
  • spaces in shopping malls; and
  • built-to-suit agreements, under which a landlord acquires the property and develops or makes significant alterations to it in order to meet the tenant’s specific needs.

There are special rules that apply to leases of hospitals, schools and other social activities, and leases to government bodies.

Law 8245/91 governs general lease terms. Parties are free to establish the terms and conditions applicable to the lease, except for some tenant rights established in the Law, which are mandatory and may not be negotiated or waived by the parties.

Lease terms can be definite or indefinite. There is no minimum or maximum lease term: the term is established on a case-by-case basis.

As a general rule, the tenant is responsible for maintaining the leased property in the same condition it was delivered in by the landlord at the start of the lease, except for regular wear and tear, and the landlord is responsible for extraordinary maintenance, such as structural and safety repairs, as well as for any defects prior to the lease.

There are no restrictions regarding the frequency of rent payments. The common practice in Brazil is that rent is paid monthly in arrears. The landlord is not allowed to require payment in advance, except in the case of a commercial lease that is not guaranteed by any type of security.

The rent payable is usually adjusted during the lease term, as follows:

  • the parties may agree to reset the rent amount to the market value at any time;
  • it is a common market practice to provide for the adjustment of rent according to inflation, although Brazilian law prevents adjustment at intervals shorter than 12 months; and
  • any of the parties may apply to the courts to review the rent and reset it at market value after the expiry of three years under a commercial lease agreement or from the last rent review.

The new rent will be determined according to the type of rent review, as mentioned above. Rent amounts can be reviewed by:

  • mutual agreement of the parties – the parties may freely establish the new rent amount;
  • periodic adjustment of the rent amount according to inflation – according to the market practice, the parties usually elect an official index which is stipulated in the lease agreement (automatic adjustment of the rent); and
  • judicial review of the rent amount – either the tenant or the landlord may file a lawsuit asking the court to determine the new rent amount, which is based on reports prepared by experts appointed by the court, in accordance with specific rules established by Law 8.245/91 and the Code of Civil Procedure.

VAT is not payable on rent, but the rental income of the landlord is subject to income tax (Imposto sobre a Renda – IR). If the landlord is a legal entity, the income will be subject to Social Contribution (Contribuição Social sobre o Lucro Líquido – CSLL) and Social Security Taxes on Revenues (Contribuição para o PIS/Pasep and Contribuição para o Financiamento da Seguridade Social – PIS and COFINS) as well.

In the lease of commercial areas situated in shopping malls, it is common for the tenant to pay a fee to join the mall.

Otherwise, the only costs other than rent that the tenant is usually obliged to pay are real estate taxes that levy over the property and the ordinary costs and expenses related to the maintenance and use of the property (such as condominium expenses, public utilities, etc), which are payable throughout the entire lease.

As mentioned above, the ordinary costs and expenses related to the maintenance and use of the property are paid by the tenant.

Additionally, if the leased property is a unit of a condominium or built and managed as a condominium, the areas used by several tenants – such as parking lots – are considered common areas. The costs of maintenance and repair of common areas shared between the condominium owners is usually paid by the tenant.

The extraordinary costs and expenses such as gardening, fire and security equipment, and structural repairs, among others, are usually paid by the landlord.

Utilities and telecommunications are usually measured individually for each tenant and are charged by the supplier. When it is not possible to measure the consumption rate individually, the costs are usually divided proportionally between the tenants.

Unless otherwise agreed, the tenant is usually responsible for the cost of insuring the real estate. In condominiums, the condominium is responsible for obtaining insurance coverage for the building and, unless the lease agreement states otherwise, the landlord pays for this coverage, which usually covers damage caused by fire, lightning and explosions.

The landlord can impose restrictions on how the tenant uses the real estate by establishing in the lease agreement the activities that are allowed on the property.

As mentioned in 4.2 Legislative and Governmental Controls Applicable to Design, Appearance and Method of Construction, the activities carried out on leased properties must comply with the zoning regulations. Tenants are also required to obtain the necessary operating licences from the Municipality.

As a general rule, a tenant can alter or improve the real estate if the lease agreement does not limit that right.

Unless otherwise established in the lease agreement, the alterations and improvements are incorporated into the property, and the tenant is entitled to compensation for alterations or improvements that are necessary to prevent the deterioration of the property, regardless of whether the landlord’s consent to the alteration or improvement was obtained. The tenant is also entitled to retain the property until compensation for necessary improvements is paid. In the case of alterations or improvements that are not necessary to prevent deterioration but that increase or enhance the use of the property, the tenant will be entitled to compensation if the improvements were approved in advance by the landlord.

Residential (including temporary leases) and commercial leases (including offices, industrial, retail, built-to-suit and spaces in shopping malls) of urban properties are governed by the Urban Lease Law (Law 8,245/1991).

Leases of rural properties, rooms at hotels (or similar enterprises that include services to users) and leases that provide for the acquisition of the property by the tenant (arrendamento mercantil) are regulated by the Civil Code and/or special rules, as the case may be.

The tenant’s insolvency does not cause automatic termination of the lease, unless the lease agreement states otherwise. However, if the court-appointed trustee decides it is no longer beneficial to the bankrupt estate, the trustee has a statutory right to terminate the lease.

Law 8,245/1991 sets forth the forms of security that can be provided to the landlord in order to protect against a tenant's failure to meet its obligations, which can be one (and not more than one) of the following: personal guarantee, security deposit, (usually three times the monthly rental amount) lease guarantee insurance or fiduciary assignment of shares of investment funds.

Commercial leases with a term of five years or more can be renewed for an additional term of five years, at the tenant’s discretion. If the landlord does not want to renew the lease, the tenant can file a lease renewal action six months to one year prior to the expiry of the lease.

After the term of a commercial lease has expired, the tenant may continue to occupy the property if the landlord makes no opposition, in which case the lease will continue to run for an indefinite term. If the term of the lease becomes indefinite, the landlord can terminate the lease on 30 days’ notice.

According to the Urban Lease Law, the landlord can terminate the lease agreement before the expiry of its term in the following events:

  • breach of contract by the tenant;
  • failure to pay rent or other contractual costs and charges regarding the property; and
  • in order to carry out urgent repairs to the property, if such repairs cannot be undertaken while the tenant is occupying the premises or if the tenant does not agree with them, even if such repair can be undertaken while the tenant is occupying the premises.

Furthermore, if the leased property is sold, the new owner can terminate the lease agreement on 90 days’ notice, unless the lease has a fixed term, contains an express provision that the lease will continue in effect on transfer of title, and  is registered on the records of the leased property with the Real Estate Registry Office within the period of time fixed by law.

The tenant may terminate the lease before the end of its term if the landlord does not comply with its contractual duties. In fixed-term leases, the tenant is entitled to terminate the lease early, at the tenant’s discretion, on paying a penalty provided for in the lease itself or determined by law or the courts. The penalty is always calculated in proportion to the unexpired portion of the lease’s term.

Additionally, as mentioned above, leases with an indefinite term can be terminated on 30 days’ notice, by either the landlord or the tenant.

The lease agreement may contain further termination events, as agreed upon by the parties.

In the event of a tenant’s default, said tenant can be forced to leave the property prior to the lease expiry date. In order to obtain the possession over the leased property in the event of tenant default, the landlord has to bring an eviction action (ação de despejo) in order to evict the tenant. The time it takes effectively to evict the tenant can vary depending on the jurisdiction where the property is located.

A preliminary injunction for eviction can be obtained in certain circumstances, including:

  • breach of the agreement between the landlord and the tenant for surrender of the leased property within a term of at least six months;
  • failure to replace security for the lease within the period established by law; and
  • expiry of the term set forth in commercial leases, or lack of payment of rent and other lease charges if the lease is not guaranteed by any type of security.

A lease agreement cannot be terminated by the government or a municipal authority, but termination of the lease may result from expropriation, eviction or a demand by government or a municipal authority for urgent repairs to the property, as mentioned above.

The structures used to price construction projects can vary depending on the industry and the project owner. For pricing private developments, the most common structure is cost-plus-a-fee, with a guaranteed maximum price (upset price clause). In infrastructure projects – in which the project owner is a legal entity under public law, such as governmental entities, bodies or agencies – the most common structure is fixed price or lump sum.

Responsibility is generally assigned in two ways in construction projects:

  • when there is a design-build agreement, the construction company is responsible for the whole project, including all studies, tests, design, specification of materials, and so on; and
  • when the construction agreement does not include design, the construction company is responsible for the construction work itself and any error in the pre-construction phase (including design) is at the project-owner’s risk. In this second scenario, the project-owner will have a design agreement with a third party and may have insurance for design-related risks.

In some cases, the construction company may do value engineering during the design phase, in which case limited responsibility may be allocated to the construction company.

Construction risks on a project can vary depending on the degree of certainty in the plans and designs. The more studies, tests and value engineering carried out during the pre-construction phase, the less uncertainty – and fewer risks – there will be during the construction phase. Risk is usually managed through contractual protections and a construction management consultant engaged by the project-owner to monitor all construction methods and materials that are being used, among other mechanisms.

Another very common instrument to control risks in construction projects is insurance policies in favour of the project -owner, providing coverage for civil liability, and performance and completion bonds.

It is common practice to establish milestones associated with completion dates in a Construction and Financial Schedule. If milestones are not achieved, the owner becomes entitled to receive a penalty from the constructor, to withhold the compensation owed to the construction company or – in some extreme cases – to terminate the construction agreement in advance and hire another construction company to complete the project. Replacing the contractor is an extreme action and creates many difficulties when determining responsibility for construction work.

As mentioned above, another common way to control risks in construction projects is for the owner to have insurance in the form of performance and completion bonds.

If the owner fails to make payment to the construction company or the designer, the property can be encumbered by means of a legal proceeding, if no other security interests have been created over the property in connection with loans or financing for the construction project itself.

Please see 4.1 Legislative and Governmental Controls Applicable to Strategic Planning and Zoning.

VAT is not payable on the sale and purchase of real estate in Brazil. However, onerous transfers are subject to Real Estate Transfer Tax (ITBI), a municipal tax payable by the buyer when acquiring property. The ITBI rates vary from city to city but are generally around 2% to 3%. Gratuitous transfers are subject to Gift and Inheritance Tax (ITD), a state tax payable by the person who receives assets or rights (including real estate) by gift, inheritance or bequest. The rate varies from state to state but is generally around 4% to 8%.

These taxes are usually calculated based on the market value of the property or its appraised value, whichever is higher.

For properties held under the emphyteusis system, aforamento or right of occupation, onerous transfer of the useful domain (domínio útil) is also subject to payment of a laudemium fee (laudêmio). Depending on the case, this fee could be 2.5% or 5% of the current value of property. The seller is legally responsible for this payment, but the parties may agree otherwise.

The most effective way of mitigating tax liability on acquisitions of real estate properties is by conducting thorough due diligence.

There are no municipal taxes based on occupation for business purposes.

However, property-owners in urban areas are subject to an annual municipal tax on the appraised value of the property, called the Urban Property Tax (IPTU), which is levied on the ownership of the property, with no distinction regarding how the property is used.

Owners and possessors of land in rural areas are subject to an annual municipal tax, called the Rural Property Tax (ITR), which is levied on properties located outside urban perimeters. The amount of the tax varies according to the value, size, location and use of the land.

Rates and exemptions vary from city to city. Some municipalities impose additional levies on property to cover the cost of economic activities and waste disposal.

There are annual fees for occupancy of properties held under the emphyteusis system and aforamento, which are payable by the holder of the useful domain, and occupation rates (taxa de ocupação) payable by the occupant of land under occupation rights.

Rental income earned by foreign investors who own property in Brazil is generally subject to withholding tax at a rate of 15%, unless the rate is reduced under a tax treaty.

Capital gains earned by foreign investors from the sale of real estate located in Brazil are subject to withholding tax according to the following progressive rates:

  • 15%: capital gains up to BRL5 million;
  • 17.5%: capital gains between BRL5 million and BRL10 million;
  • 20%: capital gains between BRL10 million and BRL30 million; and
  • 22.5%: capital gains over BRL30 million.

Capital gains and rental income earned by non-resident investors located in tax haven jurisdictions are subject to withholding tax at a rate of 25%.

The tax on capital gains must be withheld by the acquirer if the acquirer is a Brazilian resident, or by the seller’s attorney-in-fact if the acquirer is a non-resident.

Although Brazilian companies are allowed to record depreciation of real estate, whether or not depreciation is considered a tax benefit depends on the circumstances.

Barbosa Mussnich Aragao

Av. Almirante Barroso, 52
31º andar - Cep: 20031-000 – Centro
Rio de Janeiro - RJ

+55 21 38245841

+55 21 2262-5536
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Law and Practice


BMA – Barbosa, Müssnich, Aragão 's real estate team is highly specialised in all matters relating to real estate. Areas of expertise include real estate development projects, M&A and real estate finance, including property acquisition, zoning and land use, complex lease transactions, built-to-suit, construction agreements, structuring of funds, securitisation of real estate receivables and analysis of related taxation issues. The BMA Real Estate team has been advising a great variety of hospitality developers, investors and operators, being market-leader in the regularisation of hospitality projects before Security Exchange Comission (Comissão de Valores Mobiliários – CVM). Recently, as a direct effect of the economic crisis, the Real Estate team has been advising big real estate developers as well as land-owners in huge real estate sector-related litigation disputes (judicial and arbitration).


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