Real Estate 2024 Comparisons

The main sources of Real Estate Law in Brazil are: 

• the Federal Constitution (1988); 
• the Civil Code (Federal Law No 10,406/2002); 
• the Urban Land Statute (Federal Law No 10,257/2001); 
• the Public Registration Law (Federal Law No 6,015/1973); 
• the Real Estate Development Law (Federal Law No 4,591/1964); 
• the Urban Ground Parcelling Law (Federal Law No 6,766/1979); 
• the Urban Lease Law (Federal Law No 8,245/1991); 
• the Rural Land Statute (Federal Law No 4,504/1964); 
• the Forestry Code (Federal Law No 12,651/2012); 
• the Security Framework Law (Federal Law No 14,711/2023);  
• municipal laws on construction and zoning rules; and
• case law. 

Inflation has improved and a downward trajectory in interest rates was initiated by the Brazilian Central Bank in the second half of 2023.  

This has bolstered investor confidence and increased real estate transaction activity. Other factors that may influence the pace of the 2024 market include the upcoming elections around the world and the ongoing geopolitical tensions. Brazil is less exposed to such factors and therefore more attractive to investments in the near-term, as compared to other jurisdictions. 

The accelerated growth of AI is driving the increase in the demand for data storage and data centres. As a result, there has been a growth in the data centre sector. 

Once considered a subsector, the cash and carry business has become mainstream in the retail sector and fund allocations have shifted accordingly to replace, remodel or expand underperforming core asset classes, such as local markets and supermarkets. 

In 2023, there was a decrease in new hotel launches compared to 2022, when Perse was at its peak. The hotel sector is warming up and the economy and super economy segment makes up the majority of new launches. The business and events segment is expected to perform better than in the years immediately following the COVID-19 pandemic. The performance of the leisure segment performance depends on the respective region. High-end hospitality at leisure destinations (eg, the North East) has seen an upward trend. 

Climate change effects have been seen all over the globe, as evidenced by natural disasters. As 40% of the emissions originate from real estate projects, stakeholders are driving investments aiming their reduction or the generation of carbon credits. 

These are some significant real estate deals in the last 12 months in which Mattos Filho has participated. 

• Logistics: sale, by GTIS Brazil Logistics FII to CSHG Logística FII of its BRL1.37 billion logistics portfolio comprising four logistic buildings in the state of São Paulo. 
• Cash and carry: highly complex, multidisciplinary and multijurisdictional transaction for the acquisition by the Muffato Group (fourth largest retail group in Brazil) from Makro (Dutch SHV Group) of 16 stores, 11 petrol stations and other assets located in the state of São Paulo. 
• Hospitality: entrance of the Anantara (Minor Group) for the operation of the super high-end brand, located in the states of Bahia and Ceará.
• Carbon credits: acquisition of rural property of approximately 150,000 hectares and respective forestry assets located in the Amazon region (state of Acre) for the purpose of conservation of the native forest and issuance of carbon credits thought a highly complex project finance transaction. 

Mattos Filho also participated in the sale of Faria Lima 3500, an AAA office building that was originally built to suit the headquarters of Itaú BBA, considered the largest Brazilian office building deal in 2023 (BRL1.5 billion). 

The most relevant legislative proposal that may affect real estate law is the so-called Tax Reform and reform of the Civil Code. 

The Civil Code Amendment Bill is still in its early stages and will likely undergo a series of changes until its approval by the National Congress. Based on proposals so far, the limit on the acquisition of rural land by way of adverse possession per person would have a significant impact on real estate ownership.  

Ownership

The property right that grants to the owner the exclusive right to use, enjoy, dispose of, and reclaim the property. Co-ownership is permitted and each co-owner has rights over an ideal share/percentage of a property ‒ similar to a common law tenancy in common. 

The Real Estate Development Law also contemplates a specific kind of co-ownership, under which each owner has full ownership of its independent unit and an undivided interest in the land and in any common areas of the development.  

Co-ownership can also be in the form of timeshare – each owner holds a fraction of time in which they can exercise exclusive rights over the property.  

Useful Domain

The useful domain of a specific public property may be granted to private persons by the relevant governmental authority. 

Surface Rights

Once created, the landowner continues to own the land and the grantee of the surface right becomes the owner of its surface.  

Other In Rem Rights 

• Right of the buyer to a commitment of purchase and sale (deed or agreement): provided the deed/agreement is irrevocable, its registration in the relevant real estate record file grants in rem rights in favour of the buyer, but ownership is not transferred until the purchase and sale deed is executed and registered in the respective real estate record file (or a court order is entered in favour of the buyer determining the transfer, in case the seller refuses to grant the deed). 
• Usufruct: may be granted by the owner of a property to a person (usufructuary) to use and collect profits from the property for a definite period and under certain conditions mandatory by law. 
• Easement: is a right established between properties. The owners of the dominant and the servient properties must be different persons.  

The transfer of title of real properties in Brazil is essentially governed by the Civil Code and the Public Registration Law. As a rule, these laws apply to all types of property transfers. 

Acquisitions of federal real properties by private persons are subject to specific rules under Law Nos 9,636/1998 and 13,240/2015. 

Except as provided in specific laws (eg, Law on the Housing Finance System, Corporations Law), transfer of title requires a deed. 

Real estate is subject to a registration system that records all forms of property rights and most events involving them. This system is centred on judicial districts, which may have one or more real estate registration offices. This is particularly important in case of due diligence because information must be obtained from the relevant judicial district of each property that is analysed.  

Transfer of title is only perfected upon its registration in the appropriate real estate record file of the relevant real estate registration office of the judicial district of the real estate. 

The limitations caused by the COVID-19 pandemic resulted in important improvements to the process of completing real estate transactions in Brazil, such as remote online deeds which are still being used. 

Title insurance is not common in Brazil. Local insurance companies do not offer it as a product.

Real estate legal due diligence is carried out by lawyers retained by the buyers. It analyses, at least, in relation to:

• real estate: the ownership, existence of liens, compliance with zoning rules, licences, construction and environmental issues and tax debts; and
• owners aiming to identify:
1. the existence of debts exceeding its assets, which could result in the annulment of the acquisition of the real estate by a court for fraud; and
2. the existence of any legal proceedings that could prevent or jeopardise the acquisition of title, the exercise of any in rem rights or its possession.

For the same reasons, the chain of title and its previous owners are analysed. 

Main and most common representations and warranties made by the seller in connection with the real estate refer to:

• lawful, valid and good ownership and/or possession;
• no liens, legal and administrative proceedings, disputes, agreements, debts or other claims that could otherwise affect the sale; and
• compliance with the municipal, state and federal laws in respect of licences, construction, zoning and environmental matters.

In connection with the seller, they include at least:

• legal capacity and authority;
• solvency; and
• compliance with anti-corruption laws.  

The seller is liable for the indemnification in the case of loss of title. This is the most typical indemnification due by the seller. Only when expressly waived is the indemnification not due by the seller. Usually, the cap is the price paid by the buyer for the real estate plus adjustment for inflation. The statute of limitation is ten years from the transfer of title.   

It is also usual that the seller be liable for losses and damages incurred by a buyer due to misrepresentation and patent or latent defects. The parties often cap damages at the price of the transaction.  

Representations and warranties commonly survive until the lapse of each item’s statute of limitations, which is usually five years, but in certain cases may be up to ten years. 

Standard representations and warranties were not affected by the pandemic. However, parties now negotiate whether they would accept a pandemic as a material adverse effect which may prevent a transaction from closing.  

In addition to the Civil Code and the laws mentioned in items 1.1 Main Sources of Law and 2.2 Main Market Trends and Deals, the most important areas of law that investors should consider are corporate, tax, environmental and compliance laws. 

As a rule, from an environmental law perspective and considering legal precedents in Brazil’s Superior Tribunal of Justice, the liability for soil pollution or environmental contamination is propter rem. Therefore, it is connected to the real estate asset itself.  

As a result, the buyer of a real estate asset is liable for pollution or contamination even if it did not cause it.  

Propter rem liability does not affect the buyer’s right of redress against the seller, provided that the real estate purchase and sale agreement contemplates this right. 

Each municipality is competent to legislate on land use, zoning and parcelling in accordance with its territorial planning. Buyers can ascertain the permitted uses of a parcel of real estate under applicable zoning or planning laws by either consulting such local legislation, or the relevant municipality or urban planning authorities directly. Zoning maps and guidelines should be provided in the municipal legislation and can be freely consulted.  

During the process of issuance of the relevant licences an integration between the developer and local authorities is common by means of the appropriate proceedings. 

Under the Federal Constitution public authorities may expropriate private land. 

There are two types of expropriation in Brazil, both must be preceded by legal proceedings.  

• Expropriation on the grounds of public need, public utility or social interest. They can be carried out by federal, state, or local governments subject to: 
1. the takings clause, requiring fair prior compensation.
2. the due process clause, which requires a legal proceeding that allows the landowner to challenge (i) the public interest; or (ii) the amount of the compensation offered.  
• Expropriation as a penalty (less common) where: 
1. land (urban or rural) is not used according to its social function; or 
2. unlawful psychotropic plants are cultivated or slave work is exploited.   

In a purchase and sale of real estate through an asset transaction, the applicable taxes and fees are: 

• notary fees (when documented through a deed);  
• registration fees: for registration of the transfer instrument with the real estate registration office;
• ITBI: municipal tax owed on transfers of real property or property rights ‒ rates and exemptions depend on each municipality; and
• laudêmio: transfers of useful domain of public land to or between private parties trigger this tax, payable to the government.  

Notary and registration fees are determined at the State level, and, as a rule, are calculated based on the highest value of either the price of the transaction or the value of the real estate property as determined by the municipality. 

Transfers of shares in the property owning company and partial ownership transfers (eg, change of control) are usually documented in private instruments, and therefore notary fees do not apply.  

If there is a change of control in the property owning company but the real estate continues to be owned by the same entity, ITBI is not applicable.   

ITBI immunity and exemption may be available in certain cases of transfer of real estate or rights of a legal entity in a capital increase, or transfer of assets or rights resulting from the merger, incorporation, spin-off or split-off, or termination of an entity.  

Usually, it is the buyer that bears the tax and fees for transfer of title and seller that bears the broker fees and its income tax on any profit made on the sale of the real estate. 

On the due diligence side, the seller bears the costs relating to data room (documents and certificates), whereas the buyer pays the costs of the professionals that will perform the due diligence. Parties share certain specific costs, such as environmental studies.  

• Urban real properties: there are no restrictions on foreign investors acquiring or creating in remrights over urban real estate in Brazil.  
• Rural real properties: Federal Law No 5,709/1971 and Federal Decree No 74,965/1974 establish certain conditions for the direct or indirect acquisition of rural properties by foreign entities and individuals. There are ongoing discussions before the Brazilian Supreme Court and within the executive branch of the government concerning the applicability or not of such conditions to the acquisition of rural real properties by Brazilian companies whose majority of the capital stock is held by foreign companies or individuals or that are controlled by such foreign parties.  
• Rural real properties located in the Brazilian border strip: pursuant to Federal Law No 6,634/1979 and Federal Decree No 85,064/1980, prior consent from the National Defense Council is required for the direct or indirect acquisition of ownership, possession or any other in rem right over rural real properties located within 150 km of the country’s national border. Such consent is also required for the participation of a foreign entity or individual in any manner in a company which owns, possesses or holds any in rem right over rural properties located in the Brazilian border strip. 

Usually, private funding finances the acquisition of commercial real estate. Private funding has been boosted by Federal Law No 9,514/1997, which introduced Brazil’s Housing Finance System. Commercial real estate is generally financed by (i) the circulation of bonds and securities backed by real estate receivables, negotiable on the capital markets; and (ii) more effective types of security, such as fiduciary sale, discussed in 3.2 Typical Security Created by Commercial Investors.  

Two forms of security are typically created by a commercial real estate investor who is borrowing funds to acquire or develop real estate: mortgages and fiduciary sales (alienação fiduciária).  

A fiduciary sale has been the most typical security as it transfers to the creditor the fiduciary/conditional ownership of the property (therefore, the property is not affected by the insolvency of the debtor) and allows a nonjudicial foreclosure procedure. 

There are no restrictions on the granting and foreclosing of security over urban and rural land for foreign lenders.  

ITBI does not apply to the creation of security, but is levied on the enforcement of fiduciary sales because in this case an actual transfer of full title to the creditor occurs.  

Notary fees are owed in the event of execution of deeds, and registration fees are owed upon registration of the security documents with the relevant Real Estate Registration Office. Such fees are determined at the State level and vary in accordance with the amount of the debt.  

There are no legal rules or requirements that must be complied with before an entity can give valid security over its real estate assets. 

In 2023, the Security Framework Law implemented important amendments to the security laws. One of the most relevant changes was to allow mortgages to be foreclosed out of court, which makes the procedure less time-consuming: a nonjudicial foreclosure may be completed in three to six months.  

The nonjudicial foreclosure procedure works as follows.  

• After the debtor is in default, in accordance with the relevant loan agreement, the creditor requests the competent Real Estate Registration Officer to notify the debtor to cure the default within 15 days.  
• In the case of fiduciary sales, if debtor fails to cure the default, the Real Estate Registration Officer will request the creditor to pay ITBI and perfect the transfer of full title in the name of the creditor.  
• Subsequently, the first auction will be scheduled and, if it is not successful, another auction must occur. If both auctions are unsuccessful, in the case of a fiduciary sale, the lender will keep the full title to property and, in case of a mortgage, the creditor will receive the property as payment-in-kind of the debt.

Secured claims are affected by judicial reorganisation and can be restructured under an approved reorganisation plan. During this period, enforcement proceedings are typically suspended until the debtor fulfils its obligations under the reorganisation plan. However, security of the credit remains in place unless stated otherwise in the reorganisation plan or consented to by the relevant creditor. 

Fiduciary sales are not subject to reorganisation or bankruptcy proceedings.

See 2.7 Soil Pollution or Environmental Contamination. 

Security interests created over real estate in favour of a lender cannot be made void if the borrower becomes insolvent. However, in a bankruptcy scenario, creditors are categorised based on the nature of their claims and some of them have priority over secured claims, such as labour claims. 

Fiduciary sales are not affected by insolvency. 

See 2.10 Taxes Applicable to a Transaction and 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security. 

The Federal Constitution recognises the competence of municipalities to promote adequate territorial planning. The Urban Land Statute, which is a federal law, provides the general rules that should be applied in the municipal laws. For example, it provides that the parcelling, use and occupation of the land should follow the municipality’s planning (“Master Plan”), which is mandatory for municipalities with more than 20,000 inhabitants. The Master Plan should be reviewed at least every ten years to reflect urban growth and development. 

Therefore, municipalities are authorised to legislate, issue licences and inspect the compliance of real estate developments with their zoning rules, except for in relation to environmental aspects, which are, in general, under the competence of states.  

Each municipality has its Land Use and Occupation Law, which is the statute that provides rules for land use with the aim of guiding and ordering the growth of municipalities, controlling urban spaces and establishing zoning rules. 

The Land Use and Occupation Law also governs the design and construction of buildings. These regulations may include requirements for allowances, building height limitations and other construction parameters.  

The Building Code is the municipal statute that provides for the general and specific rules to be followed in relation to the design, permitting, building and maintenance of buildings.  

Additionally, the Brazilian Association for Technical Standards has issued standards addressing methodologies and guidelines to standardise construction processes. 

Each municipality has a Housing Secretariat and the Representative Body, which are responsible for regulating the development and designated use of individual parcels of real estate. 

Please also refer to 4.1 Legislative and Governmental Controls Applicable to Strategic Planning and Zoning and 4.2 Legislative and Governmental Controls Applicable to Design, Appearance and Method of Construction for the applicable legislation. 

For parcelling of real estate, certain legal requirements should be observed, among them, the size and minimum boundaries of the lot and the need of an environmental impact study for projects over 100 hectares. For commercial and residential developments, among other urban parameters, the developer should observe the building height, occupancy rate and the maximum built area allowed. 

Obtaining entitlements for development projects involves initial planning and analysis of local legislation, followed by the submission of technical and graphic design to the Housing Secretariat of the Municipality, which will analyse whether the project is within legal parameters and its impacts, and which licences and authorisations will be required. This process also provides an opportunity to know if a project is viable. Depending on the project's impact, public participation is mandatory, usually through public hearings, allowing interested parties to express their concerns. Municipal authorities make the final decision, which can be appealed, if necessary. Third parties retain the right to participate and raise objections throughout the process if they believe the project could adversely affect their interests or the community. The Public Prosecutor and neighbourhood associations can seek to protect diffuse or collective interests and hold liable any person responsible for damages to protected property. 

An administrative appeal is available against the approval of a construction project or issuance of an operating licence authorising activities in a property. It is also possible to apply for injunctive relief in court. 

To obtain permits and approvals, it may be possible or necessary to enter into agreements with local or other governmental authorities, agencies or utility suppliers. Some projects invariably depend on the municipality to guarantee some compensation from the developer, to contribute to society, and mitigate as many impacts of the project as possible. These agreements are entered into by and between the developer, the municipality and related parties to cover infrastructure impacts, development guidelines, planned urbanisation and other obligations. 

Enforcement of restrictions on development and designated use by the municipality involves refusal to issue licences, inspections, shutdowns, charge of penalties and legal action. 

Additionally, the Public Prosecutor or neighbourhood associations may participate by filing judicial measures against the developer or the municipality that has permitted the project without observing legal restrictions.  

There are several types of entities through which investors can hold real estate assets. Traditional real estate investment vehicles include corporate entities, among which the most common are limited liability companies (LLCs) and corporations.  

Real Estate Funds (FIIs) are popular due to their investor-friendly features, including limited liability rules, ring-fencing, governance, tax benefits and regulatory framework.  

Real Estate Agricultural Funds (FIAGRO) are now an emerging structure for investment in rural land.  

Foreign investors often invest in Private Equity Funds (FIPs) that invest in shares or debentures (among other securities) of corporations that hold real estate. 

Foreign investments made in any type of vehicle must be registered with the Brazilian Central Bank for exchange control purposes. 

LLCs and corporations are subject to corporate taxation, and are incorporated through the execution of their constating documents, which are filed with the Commercial Registry of the State in which the head office of the company is to be located. 

LLCs and corporations have similar maintenance and accounting costs, but for companies with an annual revenue lower than BRL300 million the LLC is a preferred choice from a cost perspective since this kind of entity is not obligated to audit and publish its financial documents. 

Also, in an LLC the share capital may be paid in full through the incorporation of shareholders’ assets, with the respective value set and agreed upon by the shareholders, while in a corporation the law requires such assets to be evaluated by a specialised valuation firm. 

Furthermore, in a corporation when the share capital is fully paid in cash the law requires at least 10% of the share capital to be paid on the date of the incorporation, while with the LLC the entirety of the share capital payment may be postponed or paid in instalments. 

Although some costs may differ from case to case, the choice of the corporate entity for investment is much more related to the client’s desirable governance and liability management than to the maintenance costs itself.            

FIIs and FIAGRO are closed-end funds for investment, respectively, in real estate and rural land. Investment funds do not have corporate personality and their assets consist of the assets and rights acquired, in a fiduciary capacity, by a fund manager authorised by the Brazilian Securities Commission. 

Such funds shall bear management fees as well as other recurring expenses of the fund, such as fees paid to accounting and valuation firms, regulatory fees and expenses related to the underlying real estate assets. Such organisational and operating costs may impose a threshold on the formation of FIIs depending on the size and volume of the envisaged transactions, which shall be assessed on a case-by-case basis. 

Such funds are designed to provide investors with a recurrent flow of proceeds. As such, the laws mandate FIIs and FIAGRO to distribute at least 95% of net profits (cash basis) based on biannual balance sheets. On the other hand, the law provides individuals with a 0% tax rate over such recurring distributions if certain requirements are met. International investors may also benefit from exemption over the capital gains arising from the sale of such funds interest on the Brazilian stock exchange.  

There is no real estate investment trust (REIT) available. FIIs and FIAGRO are similar to REIT. Please refer to 5.2 Main Features and Tax Implications of the Constitution of Each Type of Entity.  

Although their fundraising can take both private and public forms, they must fulfil statutory rules and are subject to regulation by the Brazilian Securities Commission.  

If certain legal requirements are fulfilled, the income and capital gains earned by FIIs and FIAGRO may be exempted from income tax, which is owed at the investor level.  

Foreign investors may invest in such funds. 

A minimum capital requirement is not required by law. Please refer to 5.2 Main Features and Tax Implications of the Constitution of Each Type of Entity for further information on costs. 

Corporations  

The management of a corporation is carried out by a board of officers, and a board of directors, or solely by a board of officers. The board of directors is optional, except for listed companies or privately held companies with authorised capital.  

LLCs 

The management of an LLC is carried out by one or more individuals, appointed as managers in the company’s articles of association or in a separate document. Managers may or may not be partners of the company.    

If an LLC elects to be supplementarily ruled by Federal Law No 6,404/1976, then it may also elect to have a board of directors.  

In both cases, mechanisms such as the creation of committees, internal audit and independent audit are commonly used to monitor and control the company’s activities.  

FIIs and FIAGRO

Their management is carried out by a fiduciary agent, authorised by the Brazilian Securities Commission, who serves as the fiduciary owner of the real estate assets and rights of the funds. Additionally, other authorised third-party financial services providers are allowed, such as investment advisers, asset managers (to oversee portfolio asset management) and consultants. 

Annual entity maintenance and accounting compliance costs are determined on a case-by-case basis. Please refer to 5.2 Main Features and Tax Implications of the Constitution of Each Type of Entity for further information on costs. 

A person or entity may occupy and use a property for a limited period – without buying it outright ‒ pursuant to the following arrangements:  

• leases; 
• free leases; 
• rural partnership (only for rural land); 
• surface rights;  
• easements; 
• usufruct; and 
• assignment of use. 

Commercial/non-residential leases may be classified as follows. 

• Typical urban lease agreement for property located in the urban areas (except for public properties, hotels, parking lots, and areas intended for advertisement), which is regulated by the Urban Lease Law. 
• Typical lease agreement for urban properties not included in the Urban Lease Agreement (except for hotels and public properties), which is regulated by the Civil Code. 
• Atypical urban lease agreements: the following qualify as atypical urban lease agreements, as per the Urban Lease Law: (i) build-to-suit (BTS) agreements; and (ii) leases of stores located in shopping centres. Atypical Urban Lease Agreements allow the parties to waive certain rights that would otherwise have the nature of public policy.  

The Urban Lease Law contemplates general rules for the landlord and tenant relationship during the term of the lease. Most of its provisions have the nature of public policy, and therefore even if those provisions are not expressly included in the lease agreement, they must be observed by the parties. Any matter that is not covered by the Urban Lease Law may be lawfully negotiated. 

The parties may freely establish the monthly rent amount, which must be in Reais.   

There is no material ongoing regulation of rents or lease terms that resulted from the COVID-19 pandemic. 

Typical Urban Lease Agreements  

• Length of lease term: there are no statutory restrictions concerning the length of lease agreements in Brazil. A non-residential lease agreement that has a minimum five-year term may be renewed for five years at the discretion of the tenant. If the landlord refuses to renew the lease, the tenant may initiate legal proceedings (renewal action) within one year, but no less than six months, of the expiration of the lease to request the court to grant the renewal. 
• Maintenance and repair of the leased real estate: the tenant is responsible for maintaining the premises on good repair, order and the other conditions present at the start of the lease, except for regular wear and tear. The landlord is responsible for repairs or construction works related to the building structure of the leased premises.  
• Frequency of rent payments: there are no statutory restrictions concerning the frequency of rent payments in Brazil. It is common practice to establish monthly payments. However, monthly rent cannot be paid in advance, except if the tenant does not provide any security for the payment of rent under the lease agreement. 
• COVID-19 pandemic issues: parties are now providing better definitions of force majeure in lease agreements and, in some cases, specific penalties in the case of early termination of the lease due to situations such as pandemics. 

Every 12 months, rent may be adjusted by a legally accepted inflation index provided in the lease agreement. 

For typical urban lease agreements, rent can be reviewed every 36 months to be adjusted to market rates.  

If the rent is to be changed or increased, the new rent will be determined by mutual agreement, by hiring an appraiser or judicially. 

Value-added tax on sales of goods and services (ICMS) is a state tax levied, among other events, on the sale and on the import of goods. However, it is not applicable to real estate rent. 

In general, rent revenue stream recognised by Brazilian companies is subject to monthly taxation: Social Integration Program (PIS) and Social Security Funding Contribution (COFINS), except for companies subject to the cumulative regime whose purpose is not to lease real estate.  

The Brazilian Consumption Tax Reform enacted on 20 December 2023, introduced a new taxation framework, replacing several taxes (including ISS, ICMS, PIS and COFINS) with three new ones (IBS, CBS and IS), set to transition from 2026 to 2033. Specifically, PIS and COFINS will be replaced with CBS (Contribution on Goods and Services). 

In typical urban lease agreements, the landlord is not authorised to charge any amounts other than rent at the start of a lease.   

Under the Real Estate Development Law areas that are not for private use are registered as common use areas.   

If the leased real estate is part of a condominium, as per the Real Estate Development Law, the tenant will pay the common charges (ie, ordinary expenses of the common use areas). 

The landlord is responsible for the extraordinary property maintenance expenses in relation to the common areas, which are those that do not refer to routine building maintenance expenses. 

Lease agreements typically regulate how utilities and telecommunications are to be paid. Some lease agreements include utilities and telecommunication services as part of the overall rent. In this case, the landlord covers these costs directly. Alternatively, tenants may be responsible for arranging and paying their utilities and telecommunication services directly to the respective service providers. Each tenant has individual accounts (and meters) and is billed separately for their consumption. 

When landlords are responsible for obtaining insurance coverage for the property, the cost of insurance is often included in the operating expenses of the property, which are passed on to tenants through common area maintenance charges or similar mechanisms.  

Alternatively, the lease agreement may require tenants to obtain their own insurance coverage for their leased space. This can include renter’s insurance or business insurance to protect against liability and property damage. 

The events causing damage that are usually covered by the insurance policy typically depend on the specific terms of each insurance policy. Common events covered by property insurance include fire, theft, vandalism, natural disasters and water damage. 

In relation to tenants who file legal actions to discuss matters related to lease agreements, the firm was able to verify the filing of actions aimed at:

• reducing the rental value, in which the judiciary has decided to reduce the monthly rent by up to 50%;
• replacement for a less onerous guarantee for the lessee; and even
• the suspension of the term of the lease while the COVID-19 pandemic was taking place. 

Restrictions on the use of real estate can be imposed by the landlord on the tenant, or by the Condominium By-laws. These restrictions are typically specified in the lease agreement or in the Condominium By-laws. 

There are also restrictions imposed by law, such as zoning, non-disturbance, environmental, health and safety laws, which the tenant must obey.  

Changes to be made by tenant in the leased property require landlord’s written consent, except if there is a provision in the lease agreement waiving this requirement. 

It is common practice for landlords to require the inclusion of a provision assuring that necessary and useful improvements are incorporated to the property, and if not indemnified by the landlord, they can be removed, provided that such removal does not cause damage to the property.  

Typical urban lease agreements are regulated by the Urban Lease Law, which applies to real estate located in urban areas, except for public properties, hotels, car parks, and areas intended for advertisement, which are governed by the Civil Code.  

Leases can be classified as residential, non-residential and seasonal (temporary living period not exceeding 90 days), all of them with specific provisions in the Urban Lease Law. 

There are also specific provisions in the Urban Lease Law for schools and hospitals, which make those properties less attractive to landlords.  

In relation to rural land, the Rural Land Statute, which regulates the rural lease agreements, also imposes on the tenant and landlord certain provisions of public policy. Additionally, some restrictions apply to foreign companies and individuals in relation to lease of rural properties in Brazil; please refer to 2.11 Legal Restrictions on Foreign Investors. 

Under the Urban Lease Law, the insolvency of either party does not authorise the counterparty to terminate the typical urban lease agreement.  

Therefore, only if the tenant is in default the landlord may terminate the lease. In such case, the landlord may proceed in due course with the collection of any outstanding balances owed by the tenant and seek other remedies guaranteed by law, such as eviction.

The Urban Lease Law contemplates four forms of security that may be provided by a tenant. The types of security are:

• security deposit in cash or pledge of movable or real properties – if offered as cash, it must not exceed the amount of three monthly rents;
• guarantee: the landlord may require a new guarantor or a change in the type of security in case of death or insolvency of guarantor;
• rent insurance: must cover all of tenant’s obligations; and
• shares in investment funds.

The landlord may require a new guarantor or substitution of the type of security in case of liquidation or winding-up of the investment fund. Under penalty of criminal or civil law, it is forbidden to require more than one type of security for the same lease term. 

According to the Urban Lease Law, if the term of the lease is not extended by an amendment, and the tenant continues to occupy the leased property and this remains unchallenged by the landlord, the lease agreement will be considered renewed for an indefinite term. In such case, any of the parties may terminate the agreement at any time upon a 30-day prior written notice, without paying any penalty, except in case of leases protected by the especial regime provided by the Urban Lease Law.  

To ensure that a tenant leaves on the date originally agreed it is recommendable for the landlord to send a written notice to the tenant of its intention to recover the property, scheduling the inspection of the property at least 30 days before the intended date of the expiry of the lease, if not provided otherwise in the lease agreement.  

According to the Urban Lease Law, the tenant is not entitled to sublease, assign, free lease or lend the property subject to the lease agreement without the landlord’s prior written consent, which can be authorised in advance in the lease agreement. 

It is common practice for the landlord to grant prior authorisation in the lease agreement for the assignment/sublease of the leased property to companies of tenant’s economic group.  

Pursuant to the Urban Lease Law, the tenant may terminate the typical lease agreement at any time during the lease term, provided that it pays the penalty in which a defaulting party incurs in the case of any breach of the agreement (usually equal to three monthly rents), reduced proportionally to the period of the lease already elapsed. The tenant has the right to terminate the lease agreement early, without a penalty, if the property needs repairs that would take more than 30 days to complete. 

If the tenant is in compliance with its obligations pursuant to the agreement, the landlord cannot reclaim the leased property during the term of the lease. However, the landlord has the right to terminate the lease agreement to make emergency repairs determined by the Public Authorities, which cannot normally be carried out while the tenant remains in the property and provided that they take more than 30 days to complete. 

The lease may also be terminated by the landlord as a result of a legal or contractual infraction by tenant, especially failure to pay rent and other charges. 

Lastly, if the lease agreement is not registered and the leased property is sold to a third party during the lease term, provided that tenant’s right of first refusal was duly observed, the new owner will be entitled to terminate the lease upon a 90-day prior written notice to the tenant. 

Registration of leases is not required by law. However, if the lease agreement is registered in the leased property’s real estate record file with the Real Estate Registration Office, which gives publicity to the lease, the tenant will have the right to claim the real property in case the landlord does not observe its right of first refusal. If the lease agreement is not registered in the real estate record file, the tenant will only be entitled to pursue indemnification for losses and damages against the landlord/seller, as the right of first refusal is a provision of public policy.  

Additionally, the registration of the lease agreement containing (i) a validity clause and (ii) a definite lease term with the competent Real Estate Registration Office allows the tenant to maintain all terms and conditions of such lease agreement in full force and effect in the event of the sale of the leased premises during its term.  

Once registered, the registration fees will be applicable, and the tenant is the one the usually pays them; please refer to 2.10 Taxes Applicable to a Transaction. 

The tenant may be evicted in the event of a legal or contractual breach, especially failure to pay rent and other charges. In these cases, to recover its property, the remedy of the landlord is to commence judicial eviction proceedings, aiming to have the real property vacated. According to the National Council of Justice, the estimated average period is two years and one month until the first court decision, and ten months in the case of appeal. Considering that 97.2% of new procedures were filed in electronic format in 2021, it is estimated that this period will become increasingly shorter. 

The real property must be vacated within 30 days of the eviction order issued by the judge, except if (i) the interval between the service of process and the judgment is longer than four months; or (ii) the eviction arises from failure to comply with the lease agreement, lack of payment or other circumstances set out in the Urban Lease Law and provided that a deposit is provided in the amount equivalent to three months’ rent, in which case the injunction will be granted by the judge to vacate of the property within 15 days. 

During the COVID-19 pandemic, a law was enacted to suspend eviction proceedings, which is no longer in force. 

A lease may be terminated by public authorities in the following events:

• expropriation, which may be due to public need or utility, or social interest, through fair and prior compensation in cash;
• imminent public danger; or
• to carry out urgent repairs that cannot be carried out while the tenant remains in the real property (or if the tenant refuses to agree with the repairs).  

The period of the judicial procedure may vary but is usually a timing consuming process.  

The public authorities must pay the compensation to the property owner. If the real property is leased, the tenant may also claim compensation in separate proceedings. 

In a typical lease agreement, the penalty in which the tenant incurs in the case of a breach of the agreement is usually equal to three monthly rents, reduced proportionally to the period of the lease already elapsed. In atypical leases it is legally possible charging the remaining rent. 

Additionally, if the landlord identifies damage to the property, it is possible to claim indemnification/losses and damages and to enforce the security provided by the tenant, if applicable. For a discussion on the forms of security, please refer to 6.16 Forms of Security to Protect Against a Failure of the Tenant to Meet Its Obligations. 

In Brazil, the pricing structures for construction projects typically fall into one of the following categories. 

• Lump-sum: this structure stipulates a fixed price for the entire scope of work in the construction project.  
• Cost-plus: under this arrangement, the project owner bears all construction costs, which are then reimbursed to the construction company. In addition to these costs, the construction company receives a profit margin, which may be a fixed fee or a percentage of the construction costs. 
• Capped cost-plus (PMG): this is a variation of the cost-plus model where a maximum limit is set on the costs that the project owner will reimburse. This model is increasingly popular in Brazil as it incentivises the construction company to manage costs efficiently. 

The division of responsibilities for design and construction is influenced by the project owner’s familiarity with the construction industry and the complexity of the project.

For less complex projects or for owners with limited industry knowledge, it is typical for the construction company to assume responsibility for both the design verification and the construction. In contrast, for more intricate projects or for owners with extensive construction experience, the design responsibilities, including the selection of certain materials or equipment, are often retained by the project owner. The construction company’s role is then focused on executing the project according to the owner’s specifications.

To manage construction risks, the following contractual mechanisms are commonly employed.

• Contractual allocation of responsibilities: this involves determining the roles and obligations of each party under the contract. 
• Indemnification rights and warranties: these provisions allow for compensation for losses or damages incurred due to the actions of the other party and respective warranties and security. 
• Limitations and waivers: the parties may agree to limit liability or waive certain types of damages, such as indirect losses or loss of profits. 

While parties have significant freedom in allocating responsibilities, certain mandatory legal provisions must be observed. For instance, Brazilian law mandates that construction companies are liable for the structural integrity and safety of a building for five years following the completion of construction.

Construction projects are legally required to contain a completion date. While construction companies are permitted to extend the completion date by up to 180 days without penalties, interim project milestones are frequently established to work as incentives, particularly for financing purposes. These milestones may be tied to the release of financing instalments upon achievement. 

Additionally, Brazilian law permits the inclusion of monetary penalties in contracts for failure to meet established milestones.

In Brazil, it is common for project owners to require additional security to guarantee contractor performance, given the legal framework that supports such practices. These include:

• performance bonds, which guarantee project completion in accordance with contractual terms;
• letters of credit and escrow accounts, regulated by banking laws, which offer financial assurances by holding funds until contract conditions are satisfied;
• parent guarantees, where a parent company backs the contractor’s obligations, which are supported by corporate law provisions; and
• third-party sureties, similar to performance bonds, which provide a guarantee from insurance companies based on insurance laws and regulations.

These mechanisms are aligned with Brazil’s emphasis on protecting project investments and ensuring contractual compliance. 

Owners usually resort to a “right of retention” in the case of non-performance of professionals such as builders, contractors and designers. This right allows them to retain the payment until the work is completed. The opposite is not usual in Brazil. However, in the case of non-payment, contractors and/or designers are permitted to file a lawsuit against the defaulting owner to ensure the right to payment.  

In Brazil, for a building to be lawfully occupied, it is necessary to first obtain an occupancy permit (habite-se) certifying the construction’s compliance with municipal regulations. Only with the occupancy permit and the fire brigade’s inspection certificate (AVCB), among other documents, will the company obtain the operating licence which is required to develop any non-residential activity in the real property and to obtain insurance or loans. 

The following taxes are directly levied on the transfer of real properties:

• in the event the transfer occurs against consideration, ITBI is charged by the municipality; and
• if the transfer is carried out as a donation or arises from inheritance the Tax on Donation (ITCMD) is charged by the relevant state.

The rates of such taxes may vary from one municipality or state to another.  

Additionally, in the event of transfer of the useful domain of a specific public property to private party, the transfer of said rights is subject to the payment of a specific charge called laudêmio. 

According to Brazilian laws, the buyer (new owner) of real estate is responsible for property in rem taxes. Therefore, it is always recommended to the buyer to perform due diligence that will review the municipal tax and liabilities clearance certificate. Although the mitigation of tax liability on real estate transactions must be evaluated on a case-by-case basis, hold backs and escrow accounts as collateral for any tax liability are the most usual methods. 

There is not a specific tax paid on the occupation of business premises. However, there are municipal taxes relating to the property that are usually transferred to its user, such as Urban Property Tax (IPTU) and waste collection tax. The rate of IPTU may vary from one municipality to another. In general, the assessment of IPTU is based on the value of the property’s built and land area enrolled with the municipality.  

Exemptions from the payment of IPTU may be granted due to (i) characteristics of the taxpayer (eg, retirees, pensioners); or (ii) characteristics of the property. 

Usually, foreign investors prefer to invest in real estate through Brazilian vehicles.   

Notwithstanding, as a rule, income and gains earned by foreign investors in relation to direct investments in real estate located in Brazil are subject to Withholding Income Tax (WHT) in Brazil.  

Rental income from real estate located in Brazil earned by foreign investors is subject to WHT at a 15% rate. The respective WHT levy on the net value of the rent, that is, after deducting the expenses related to taxes and fees levied on the relevant real estate, the expenses paid for collection or receipt of the rent, and common charges, among others. 

WHT must be withheld and collected on the date of the taxable event by the foreign investor’s attorney-in-fact in Brazil. 

On the other hand, capital gains realised by foreign investors from the sale of real property located in Brazil are subject to progressive rates ranging from 15% to 22.5%. Capital gain is the positive difference between (i) the price received from the disposal of the asset and (ii) the corresponding acquisition cost for the seller. 

If the country of residence of the foreign investor has entered into a treaty to avoid double taxation with Brazil, the WHT levied on rental income and/or capital gain from the disposal of real estate may be subject to different tax rates than the ones mentioned above. 

Brazilian companies subject to corporate income taxes under the taxable income method may deduct from the calculation basis the expenses of depreciation, maintenance, repair, conservation, taxes, fees, insurance, and any other expenses with real estate, provided that such real estate is intrinsically related to the production or sale of goods and services of the respective companies. 

Conversely, Brazilian individuals, foreign investors and Brazilian companies subject to corporate income taxes under other methods (eg, estimated profit method) are not entitled to deduct the expenses of depreciation, repair and conservation of the real estate from their corporate income tax calculation basis.