Real Estate 2020

Last Updated April 14, 2020


Law and Practice


Demarest Advogados is one of the most respected law firms in Brazil and is among the largest in Latin America. The firm’s real estate department is active in urban real estate investment transactions, involving leases, built-to-suit agreements for logistics facilities, office buildings and industrial facilities, sale-and-leaseback transactions, property acquisitions for real estate developments and subdivision projects. The practice has particular expertise in rural and urban regularisation and licensing, attainment of entitlements, due diligence, real estate assistance related to plants and other industrial complexes (eg, deactivation, expansion) and the structuring of mixed-use real estate developments. Their multidisciplinary capabilities draw from corporate/M&A, capital markets and tax departments, enabling a broad view of their clients’ needs and expectations. Clients include pre-eminent companies related to the real estate industry, logistics chain and real estate investments, as well as other prominent industries, investors and banks.

The main sources of real estate law in Brazil are the codified statutes that include, predominantly, the Federal Constitution, the Civil Code and the Public Records Law. The most common matters involving real estate law are also primarily governed by the Fiduciary Lien Law, Lease Law and the Farmland Law such as Law 5,709/1971 and Decree No 74,965/1974, Federal Decree No 59,566/1966 (Rural Leases and Partnership Law) and Federal Law No 4,504/1964 (Rural Land Act).

However, other sources must also be taken into consideration. Brazil has in place state regulations on notarial and conveyancing matters, as well as municipal ordinances on land use and occupancy regulations and urban property taxation. The Federative Republic of Brazil comprises the union of the Federal District of Brasília, 26 states and 5,570 municipalities. In practice, this means that Brazilian state regulations on notarial and conveyancing matters alone, together with the municipal ordinances on land use and occupancy and urban property taxation, take into account over 5,597 different enacted provisions in Brazil.

Complex real estate transactions and affordable housing projects have been the main focus over the last months in Brazil and this trend is expected to continue for the foreseeable future.

Brazil has always faced a huge demand (potentially unlimited, considering the next 50 years) for affordable housing, warehouses and logistics facilities, infrastructure and other types of real estate development, including commercial, hospitality and amenities facilities. Towards the end of 2019 and into 2020, with historically low inflation and interest rates, complex real estate transactions combining equity, debt or hybrid instruments through investment funds or corporate structures, with transactional real estate and structuring of real estate developments, have become significantly more apparent.

It is worth noting that this trend does not necessarily mean that such transactions are the only ones involving significant amounts of money. Small real estate developments with complex structures, including in the agribusiness sector, have been concluded as well. 

In 2019, the first real estate transaction carried out entirely via blockchain technology was completed in Brazil. Although this is a landmark achievement, it is important to stress that this new technology was used to carry out the transaction in the way it has always been done. Such technology-driven transactions can be considered an innovative way or, simply, another way of translating the method applied to how real estate transactions are carried out. 

On analysis of the 47-year-old Public Records Law, the idea of a “translation” becomes even more pronounced. In the same way that the history of money has evolved and adapted to the times, it is likely that people are facing another wave in the development of social systems towards trading wealth or rights over real estate indirectly. The concepts of DeFi and proptech might soon be applicable in Brazil, with more significance placed on them, and the use of technology in real estate transactions in Brazil will likely pressure the state to modify real estate law, reducing the costs of the real estate transactions registry, and making the information on transactions even more secure and accessible. This, in turn, would allow transactions to be performed with more speed and efficiency.

With respect to infrastructure, new technologies that are very relevant from an economic and environmental perspective still face some barriers to being implemented due to existing Brazilian law. Some advances have been made in electric power, with the distributed generation rules that allow the implementation of wind or photovoltaic energy in real estate developments, but much more could be done. In fact, the highest number of barriers to be overcome are in the areas of recycling and solid waste collection, for which existing rules are prohibitively limiting in regard to the implementation of new technologies.   

Ultimately, although some advances have been made in the adoption of disruptive technologies in the real estate industry in Brazil, established Brazilian laws still need to catch up to the new technological wave which, over the next 12 months at least, it will be a challenge to realise.   

Several new laws came into force last year, such as new rules on title acquisition by limitation, sale of real properties by the federal government, new rights over real properties, several municipal laws related to obtaining entitlements and building regularisation. 

There is still much to come. Some ongoing reform proposals that will impact the real estate market in Brazil relate to:

  • the use of new technologies on public records;
  • new administrative proceedings aimed at mandatory property title transfer;
  • reverse mortgage as an attempt to create a funding method for the elderly (despite the existence of rules that already allow such transactions); and
  • changes to the rules on farmland acquisition by foreigners.

Specifically, with respect to the acquisition of farmland by foreigners, changes in Brazilian legislation are urgently needed to counter the enormous number of court challenges and questions on the matter, as well as to permit investments in agribusiness by foreign entities or persons to be made with more predictability. 

In Brazil, the types of in rem rights over real estate that can be acquired are: 

  • ownership;
  • surface;
  • use;
  • right of way;
  • enjoyment;
  • habitation;
  • acquisition;
  • pledge; and
  • slab right (or direito de laje, which roughly translates to “the right to the floor slab”, making it possible to obtain a distinct title to construct on top of or under another building despite the fact that it sits on the same land). 

Some rights to guarantee are also in rem rights, such as mortgage, fiduciary lien, antichresis and seizure. 

With respect to rural land, some restrictions are applicable to foreigners (entities, natural persons or entities controlled by foreigners and, therefore, regarded by Brazilian law as foreigners) that can lead to the annulment of the right. 

Such restrictions must also be considered when it comes to collaterals, because in some cases a collateral over a real property can be converted into a creditors’ ownership right, making it subject to the restrictions and, if not in compliance with them, it may be subject to annulment.

All the laws mentioned in 1.1 Main Sources of Law are applicable to transfer of title, along with certain special rules on the activities of the notary officer and the real estate registry officer. 

There are no differences regarding the measures to be taken to transfer title of any type of real property, which includes residential, industrial or any other type of real property. 

Property ownership transfer tax law varies in each Brazilian city, while property ownership transfer by means of a donation or causa mortis varies in each Brazilian state. 

It is important to note that other laws pertaining to restrictions to farmland acquisition by foreigners, to laudemium, to leased properties and to other circumstances related to the property, its entitlements or its owner, might be applicable.

All real estate in rem rights are transferable only upon the execution of a public deed, before a notary public, except in certain specific cases related to affordable housing, when the right is worth less than 30 times the Brazilian minimum wage (approximately USD7,000) and when the transfer is made with a financial institution as an intervening party on property acquisitions within the Brazilian financial housing system. 

A lawful and proper transfer of title only occurs upon registration of the title in the real estate record file before the relevant real estate registry office. Upon registration, the property ownership is transferred, and the collateral is constituted. 

Real estate registry offices are responsible for keeping record of all title transfers and of all liens, encumbrances, physical changes and possession aspects over real estate.

Title Insurance

Title insurance is not common in Brazil. In fact, it is inconsistent with the country’s real property ownership registration system. Considering the role of the real estate registry officer and the notary public, title insurance in Brazil does not have a reason to exist for the same purposes that it is used in common law countries. Notaries public are responsible for drawing up agreements that are required by law to be entered by a public instrument, notarising signatures, attesting to the authenticity of copies of documents, attesting to the capabilities of the parties and their will, among other things.

Real estate due diligence is usually carried out by lawyers who, in some cases, act not only as legal advisers, analysing the legal aspects of due diligence, but also as co-ordinators of a multidisciplinary team which comprises the different expertise needed to cover all the aspects of due diligence.

With respect to the legal aspects, the title and its registration, the former property owner's titles and their corresponding registrations must be analysed. The existence of liens, encumbrances or any lawsuits that might affect the current owner’s ownership or its predecessor’s property ownership must be analysed.

In addition to the legal aspects, depending on the real property and its intended use, there are other aspects involved in due diligence.These include a topographical survey of the property, its entitlements, the specific rules on its use and occupancy, and building construction guidance, or an as-built survey, environmental assessments and its location, from the zoning and environmental perspectives, might be applicable.   

All types of representations and warranties are common in real estate agreements. They commonly cover different aspects such as the property's use, its former use, its possession and boundaries, the use of hazardous products and other information from an environmental perspective, the validity of the property entitlements and compliance with anti-bribery law on all measures related to the property use and to the obtainment of its entitlements. Representations and warranties in Brazil commonly cover the nonexistence of other commitments with third parties related to the transferability of the property and its rights.

Different aspects related to the property conditions are provided under statutes, such as loss of ownership through property eviction or liability for debts over the property. However, these aspects can also be subject to representation and warranties.

Remedies against misrepresentation or failure to comply with a warranty can include specific performance, indemnification or termination of the agreement. In Brazil, the terms “warranties” and “representations” are commonly used with no distinction between their remedies and, therefore, the application of a certain remedy will depend solely on what was established in the agreement and the moment of its application (eg, before or after closing execution of the public deed).

The most important areas of law for an investor to consider when purchasing real estate in Brazil are real estate law, tax and banking. Depending on the property to be acquired, its intended use and the type of transaction, other areas may become relevant as well, such as capital markets, public law, infrastructure, environmental law and corporate law. 

Liability for environmental contamination of a property may be ascribed to both the polluter (individual/entity directly or indirectly liable for the action that caused the environmental degradation) and to the real property’s owner, who is equally responsible for the resolution of the existing environmental liability. The right of recourse against the party liable for the environmental damage is applicable. In addition to civil environmental liability, the law also provides for criminal liability of the legal entity or individual which/who is held liable for the environmental damage.

The buyer must know the municipal land use and occupancy law and the city construction code to ascertain the permitted uses of a real property. All the information on these matters must be established in municipal law.

Unlike other countries or some US states (eg, Illinois and Florida), in Brazil there are no measures such as rezoning or property use changes in accordance with the intended development. In some cities, the use of a property might be changed, or the allowed building area can be enhanced in specific situations with or without the payment of fees to the government agencies. This depends fundamentally on the municipal law.

Specific development agreements with the public authorities are possible, but they are heavily regulated and may be used only in certain particular situations.

The federal, state or municipal government can compulsorily acquire urban or rural properties. However, the purpose of such acquisition must be defined and justified by law and a specific legal procedure must be carried out.

The rightful indemnification must be paid and there are lawsuits available in the event that the owner does not agree with the amount. The government will only be entitled to possession and ownership of the property after payment. In any instance of expropriation, the owner is entitled to the indemnification paid by the public entity and, if the owner does not agree with the sum proposed, the indemnification amount will be disputed in court; until this matter is settled, the other actions related to the expropriation will be suspended, such as the public entity's taking possession of the property.

Municipal Tax

A municipal tax accruing at a variable rate (depending on the municipality) is applicable on all onerous ownership transfers or usufruct of real estate. The real estate transfer tax rate applied will be the higher value between:

  • the actual transaction price; and
  • the value of the real estate as assessed by the municipality. 

This tax does not apply in cases of contribution of a real property to the capital in exchange for underwritten stock of companies that do not receive their main income from real estate activities.

State Tax

A state tax accruing at a variable rate (depending on the state) is applicable on all transfers by donation or inheritance rights and is normally determined based on the higher value between:

  • the transaction price; and
  • the value of the real estate as assessed by the municipality or state.

There is no direct property ownership transfer in a total or partial share transfer in the property-owning company and, therefore, no transfer tax is due. If the ownership transfer is partial, the ownership transfer tax due will be proportional to the transferred part.

Other Fees

Notarial and Registry Office fees will be due, which vary according to the value of the transaction in each state of Brazil, given that they are established annually by state law.

No restrictions are applicable to investors when acquiring urban real estate in Brazil.

However, for rural land there are restrictions.

Rural Land That Is Not on the Border

Authorisation from the National Institute of Colonisation and Agrarian Reform (INCRA) is required for the acquisition of in rem rights or certain possession rights of rural land that is not located in Brazilian border areas.

The foreign investor, foreign individual, foreign legal entity or a Brazilian legal entity controlled by foreigners must file an authorisation request and a Commercialisation Plan (referred to as an "exploitation project"), describing the intended use of such property before INCRA. The issuance of prior authorisation is a legal requirement to proceed with the transaction. This requirement extends to corporate transactions or corporate reorganisations that result in the transfer of shares or quotas of an entity in possession of rural land.

Rural Land That Is on the Border

With respect to rural land located in border areas, authorisation of the National Security Council (CDN) is required. Such request, along with the Commercialisation Plan, must be initially submitted to INCRA and, following INCRA´s approval, to the CDN. Issuance of the CDN’s and INCRA’s prior authorisation is a legal requirement to proceed with such transaction. This requirement also extends to Brazilian entities controlled by foreign individuals or legal entities, as mentioned above.

In the case that rural land was acquired without prior authorisation, the acquisition is considered null and void. The validity of such acquisition depends on the date that the property was acquired, its use, its location, its area and other aspects. Considering that not only the law on rural land acquisition by foreigners, but also the federal constitution and the official understanding of the federal authorities bound to the government agencies have changed numerous times in the past 30 years, such analysis must be made on a case-by-case basis, upon presentation of the proper documentation.

Commercial real estate acquisitions can be financed in different ways, notably with structured finance, equity or debt transactions and investment funds, with or without the participation of commercial financial institutions.   

Real estate itself is commonly used as collateral to secure borrower investments. Mortgages or fiduciary liens are the most common forms, but any of the in rem rights of guarantee, such as mortgage, fiduciary lien, antichresis and seizure, are available.

A mortgage must be granted through the execution of a public deed and, in the case of default, foreclosure must be carried out by way of a lawsuit. A mortgage does not prevent the sale of the property, and the debtor assumes liability for the mortgage.

A fiduciary lien transfers the resolutive ownership to the creditor and can be granted through the execution of a public deed or a private instrument. In the case of default, foreclosure will be carried out via an administrative proceeding and the existence of the fiduciary lien will prevent the property from being sold.

The mortgage and the fiduciary lien must be recorded in the property record files at the relevant real estate registry office.

Other types of fiduciary guarantees are also common, such as pledge or fiduciary lien over quotas or shares in a company, or the fiduciary assignment of receivables from a property, when applicable.

The concepts of the restrictions applicable to rural land (see 2.11 Legal Restrictions on Foreign Investors) can be applicable to guarantees in certain special circumstances, however, a brand-new law that came into force at the beginning of April needs to be considered (in accordance with the text subject to presidential sanction, the current restrictions on granting security over real properties to foreign lenders will no longer be applicable). It is important to note that a guarantee is not a way to acquire property ownership except in certain extraordinary situations. In the fiduciary lien, the creditor will be entitled to property ownership upon granting the guarantee on a fiduciary basis and, upon foreclosure, will be able to auction the property. Finally, a fiduciary lien and a mortgage can lead to the creditor’s ownership over the property for debt liquidation purposes and, in these circumstances, the restrictions may be applied to the detriment of the security granted. Nevertheless, each case must be analysed on its individual merits. 

Notarial and Registry Office fees will be due, which vary according to the value of the security in each state of Brazil as they are established annually by state law. Other fees might be applicable, depending on the security type.

As a rule, property ownership transfer tax is not applicable to securities, however, with respect to fiduciary lien, such tax will be due upon the consolidation of the property on behalf of the creditor at the beginning of the fiduciary lien excussion. There will be discussions about ownership transfer tax in this particular case, but it is important to take such tax costs into account.

The rules and requirements that must be complied with before an entity can give valid security over its real estate asset are quite similar to those related to the ownership transfer of such real estate assets. Certain steps must be followed, such as:

  • revision of the company by-laws to assure that the granting of the security is in compliance with the established rules; and
  • a simplified due diligence must be conducted to confirm the availability of the asset.

Public deed may be required depending on the type of security and the registration of the security on the property record files before the relevant real estate registry office is mandatory for the validity and enforceability of the security.

The procedures to be followed for foreclosure must be established in the guarantee agreement. A cure period must be granted to the defaulting borrower, depending on the nature of the debt and the obligation on default. 

The registration order of the in rem guarantees should be noted as, in a pre-bankruptcy or bankruptcy scenario, in rem guarantees will be subordinated to tax debts and labour-related debts.

A lender will only be liable for any environmental damage if it has somehow contributed to the damage. Any party that has contributed to a harmful event will account for it jointly with the other parties, regardless of its culpability.

However, this is not a definitive interpretation. There have been certain instances in Brazil where lenders who did not contribute to an event have been involved in lawsuits related to environmental damage jointly with parties that did contribute to the harmful event. 

Although this issue is under discussion in several courts, the prevailing understanding is that, in summary, lenders are not responsible when unaware of the possible damage deriving from the activity and when having acted in good faith, relying on the legitimacy of the environmental procedures of the company that caused the environmental damage.

There is the possibility of voiding interests in the case of fraud and in other specific scenarios. 

In instances of insolvency, security interests are binding upon a creditor's demonstration that the debtor was not regarded as insolvent when contracting the debt to protect the security.

In a recovery procedure, certain secure credits can be excluded from the procedure and may be enforced by the creditor without being subject to recovery.

In bankruptcy, all debts are subject to the collective insolvency proceedings, where a priority order that takes into consideration the type of credit and whether it is secured or not will be respected. However, certain transfers and disposals made in a determined period prior to the bankruptcy may be cancelled if it can be demonstrated that they were carried out as fraud against the other creditors. 

LIBOR has emerged over time as an important rate for determining interest payments on almost all adjustable-rate financial products. Its anticipated expiry by the end of 2021 will affect the agreements that have applied LIBOR as a rate.

In Brazil, there are official financial benchmarks and all agreements executed in accordance with Brazilian law will probably not be affected by the changes resulting from the LIBOR expiry. Nevertheless, the effect on international transactions will depend on each agreement, the elected rate index and the provisions with respect to its substitution.

Strategic planning and zoning are typically governed by municipal law, which is guided by constitutional concepts and other federal and state laws. There is also a federal law called the City Statute with guidelines for metropolitan areas, however, municipal laws are rarely aligned to each other to allow for more effective strategic planning. 

It is interesting to note that municipal law on zoning and land use must be periodically reviewed, but a new law will not affect new constructions raised through any future change in the zoning of the area where the property is located.

In some cases, there are also private restrictions on building and the use of some properties, imposed by developers in allotments. 

Construction of new buildings as well as refurbishments in any city are governed by municipal law, environmental law and, in some cases, building by-laws.

The existence of available infrastructure, such as electricity, water and sewerage, and the rules on their improvement, must also be highlighted. Consent from the pollution control board, environmental department, fire department, water supply and sewerage board, and electricity board are also required.

The zoning regulations and special rules from the federal, state and municipal historic and heritage conservation agencies must also be considered. For instance, special rules may be applicable to certain properties or their surroundings.

Private restrictions imposed by developers in allotments might be applicable as well (see 4.1 Legislative and Government Controls Applicable to Strategic Planning and Zoning). There are no rules on design and building appearance, but some environmental rules present the guidelines related to the method of construction. 

Municipalities retain the main responsibility for regulating the development and designated use of individual parcels of real estate. The corresponding activities will be performed by different departments depending on the municipal administrative structure.

Inspection in rural areas is conducted by federal agencies.

Depending on the project size, land size, area location or environmental restrictions that the property might be subject to, different types of approval will be necessary from the municipal, state and federal government.

In some cases, third parties will have the opportunity to participate and object, but as a rule, there is no such right to oppose. However, an objection to the project by means of a lawsuit is always possible.

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

The approval of projects with great impact (eg, from a neighbourhood, environmental or infrastructure perspective) could result in compensations being applied, as defined by the authorities based on parameters set by law.

In the case of denial of a new construction project or refurbishment project, an administrative appeal may be filed, but with restrictions. The court revision of the administrative denial, by way of a lawsuit, is also possible.

Some agreements with local authorities are possible in accordance with the corresponding law. Such agreements are more commonly applied in allotment projects, where the municipal authorities can determine the public use of certain areas in the project.

The relevant authorities promote inspections (spontaneously or upon request by any citizen) and where the work in progress is not in compliance with the approved project, or is being performed without a specific permit, or does not possess all the required entitlements, then fines or other penalties, such as embargo, can be applied, or the work can even be subject to demolition.

If construction is not in compliance with the approved project, the occupancy permit will not be issued by the relevant authorities and, therefore, the issuance of an operating licence will not be possible.

The operating licence must be periodically renewed and, on every renewal, building compliance with the approved project and order rules must be demonstrated.

Almost every type of entity is available to investors to hold real estate assets in Brazil. The choice of entity is dependent on the investor’s needs, on the type of investments to be made and the participation of third parties and their relevance to the business administration.

Two types of corporate entities are most commonly used in business transactions: the limited liability company and the corporation (S/A).

Pros and Cons of the Limited Liability Company and the Corporation

In general terms, the limited liability company offers several practical advantages and is recommended if the partners desire simplicity and flexibility in the corporate structure, including lower maintenance costs and the inapplicability of some legal formalities that are mandatory for corporations. 

A limited liability company is usually fitting for wholly-owned subsidiaries or restricted joint ventures. 

However, in the event that the partners want the company to issue debentures or other securities in the future, to become a publicly-held company, or to admit other groups of investors, then the adoption of a corporate structure is preferable. A corporation is also preferable for ventures having a larger number or different groups of shareholders.

All foreigners who hold equity in Brazilian companies must be registered with the National Register of Legal Entities to obtain a corporate taxpayer identification number (CNPJ) if they are a legal entity, or an individual taxpayer identification number (CPF) if they are an individual. 

Real estate investment funds, consortiums and other types of vehicles are available to investors for the acquisition and operation of real estate.

There are two categories of public registries of legal entities in Brazil: civil registries of legal entities and boards of commerce. Both have state jurisdiction. A business entity, such as the limited liability company and the corporation, must be registered at the board of commerce of the state where the company's head office is located, as well as at the board of commerce of any other state in which the company opens a branch. Simple partnerships, associations, and foundations are registered at civil registries of legal entities. Corporate documents, such as amendments to the articles of association or by-laws, as applicable, as well as certain minutes of partners' meetings, must be filed with the respective registry of the company.

As a rule, no minimum capital is required (there are exceptions in the case of obtaining certain licences and for certain activities). Nevertheless, the capital stock should be consistent with the company’s initial operational needs. Partners may increase the company's capital stock at any time, provided that the existing capital stock has been already paid in, by amending the articles of association.

The partners may pay in the capital stock with cash, credits or assets, and there is no legal timeframe set forth by the law for payment. Services may not be rendered in lieu of paying in capital stock. Capital increases will only be allowed after full payment of the previously subscribed amount.

The standard governance requirements are those established by law and they are related to the minimum administration requisites to be determined by the entity by-laws or regulations. 

Each entity will determine, on a case-by-case basis, the level of governance it intends to implement, following best guidelines and legal standards provided by the legislation. In this regard, it is recommended that companies implement mechanisms and internal control proceedings against irregularities on the application of their conduct and ethics statutes. Such mechanisms, referred to as an "integrity programme", must be suitable and updated according to the activities and requirements of the undertaking. The existence of a well-structured integrity programme helps to diminish penalties in the event of an infraction of the compliance or anti-corruption obligations set out by law.

The annual maintenance and compliance costs vary according to the type of entity, the city or state where it is located, its income, the taxation that the entity is subject to and other aspects. 

In Brazil the available types of arrangements for urban properties are lease, sublease, free lease, usufruct and surface right. Rural lease or rural partnership are typical agreements related to farmland use. There are also different types of agreements where public authorities are involved.

Only two laws regulate the different types of urban property leases — the Lease Law and the Civil Code — and such types of leases vary according to the use of the property (eg, retail, storage, offices, etc).

All specificities with respect to the use of the property must be established in the lease agreement.

Rents, additional expenses and lease terms are freely negotiable. The law only limits the liability of building maintenance, if otherwise not agreed in the lease. 

With respect to lease term, there are no limitations except certain particularities such as the need for spousal authorisation to execute the lease, should the landlord be a natural person and married, for a lease term of 10 or more years. However, the law provides different rights for different lease terms. 

For instance, in a commercial lease agreement with a lease term under five years, the tenant does not have the right to renew the lease. However, a residential lease with a lease term of less than 30 months will automatically be renewed for an undetermined period, limiting the lease termination possibilities by the landlord.

In commercial leases it is common to have a five-year term, with the possibility of right of renewal upon the fulfilment of certain other requirements.

Rules on premises maintenance and repair can be freely negotiated. Where the landlord and tenant remain silent on the topic, Brazilian lease law establishes that the necessary/essential improvements introduced by the tenant, even if not authorised by the landlord, as well as useful improvements authorised by the landlord, will be indemnified or reimbursed and might be retained by the tenant. Extraordinary/voluptuary improvements will not be indemnified and may be withdrawn by the tenant if their removal does not affect the structure and substance of the premises.

The frequency of rent payments is monthly, and the law limits its readjustment to an annual basis. Such readjustment is made by any official rate established by the parties.

In commercial leases the rent will be adjusted annually and is subject to a court revision every three years. Such a lease revision lawsuit can be filed either by the tenant or landlord and is subject to the fulfilment of certain requirements.

The parties can renegotiate the rent whenever they agree to do so. This consensual rent revision marks the initial term to the three-year period, after which the rent is subject to court revision. 

If the rent is to be changed or increased, the new rent will be determined by the parties or by the court, upon execution of a lease revision lawsuit – in this case, based on an official evaluation made by an expert selected by the court. 

VAT or equivalent tax is not due on the lease. Other federal income taxes will be applicable, and they will vary in accordance with the taxation the landlord is subject to.

No specific payment is due unless agreed by the parties, such as refurbishing costs or other costs related to adjustments to the premises. 

Payment by the tenant of "key money" for a commercial site is common and legal.

Unless otherwise expressly stated, the property maintenance costs are the tenant's responsibility throughout the lease term. It is highly recommended that the lease agreement clearly specifies such responsibility and precisely defines the area and what else is included in such responsibility.

Special rules are applicable on leased premises located in condominiums, in accordance with the condominium by-laws.

Utilities and telecommunications expenses are commonly paid directly by the tenant to the service providers. However, in the case of a common supply (such as the water supply in a condominium), the payment can be made as a condominium expense.

Property insurance is mandatory in commercial leases and it must be contracted by the tenant. Special attention is recommended in premises located in a condominium considering that there is also mandatory property insurance for condominiums, for which insurance coverage overlap must be avoided.

Restrictions on the use of the premises can be imposed by the landlord, as long as the imposed restrictions do not conflict with the applicable laws or make the use of the premises impracticable.

Any changes or improvements to the leased premises must comply with the applicable laws and with the private restrictions over the property, if any (such as those mentioned in 6.12 Restrictions on Use of Real Estate and related to allotments and condominium by-laws). The landlord's consent might also be necessary, considering the effect of implementing any improvements without the landlord's consent. 

The standard conditions and effects are those regulated by the Lease Law, unless the parties have agreed differently. 

Leases of urban real estate are regulated by the Lease Law. Specific regulations and/or laws apply not to the lease itself, but to the use of premises in particular categories of real estate, such as residential, industrial, office, retail or hotels. Also, specific lease provisions might be different for the different uses.

If agreed in the lease, the tenant’s insolvency can lead to termination of the lease. Some breaches allow a penalty to be imposed regardless of the time for curing the arrears, such as a penalty and interest for late payment of rent. Others will only be imposed if the breach was not cured after the cure period.

General leases may be secured by pledge, surety bond or insurance. Only one is authorised, however, in certain special leases, although other collaterals might be considered lawful. 

Tenants have the right to continue to occupy the leased premises after the expiry or termination of a commercial lease in the case that all the renewal right requirements have been fulfilled upon a court ruling or if the landlord has remained silent on terminating the lease. In the latter case, the lease will automatically be renewed for an undetermined period and, if so, it will be subject to termination upon a 30-day prior notice period.

A tenant's right to assign or sublet the premises, as a whole or partially, is subject to the landlord’s consent in accordance with Brazilian lease law. Nevertheless, the landlord and tenant may agree that no consent is needed, or that in a certain specific scenario, consent will not be required.

If the contract is effective for a determinate term, the landlord is not entitled to an early termination except if:

  • by mutual agreement with the tenant;
  • there is failure to comply with any legal or contractual obligation;
  • there is a need for urgent works determined by a public authority, which cannot be done unless the premises are vacant; and
  • in case of premises expropriation by government authorities.

The tenant can terminate the lease but will be held responsible for the payment of a fine, calculated proportionally to the lease period complied with. In some cases, such as built-to-suit agreements, the early termination penalty will be a full fine or other penalty.

Lease registration or annotation are not required for leases, unless for a validity clause and right of first refusal opposability against third parties’ purposes. This means that if a lease is not annotated or registered, the landlord’s failure to comply with the validity clause of a tenant's right of first refusal will only entitle the tenant to indemnification and will not assure the maintenance of the lease or the right to acquire the premises.

No taxes are applied to lease registration or annotation, only real estate registry office fees that vary according to the total rent amount and the state where the premises are located.

The competent proceeding to remove a tenant is an eviction lawsuit. Depending on the reasons for termination and the existence of security to the lease, the court will grant (against a three months' rent bond deposit by the lessor) a 15-day time period for the tenant to settle the arrears under pain of an injunctive eviction.

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

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

Once the time for the voluntary property vacancy has ended, eviction may be carried out using force, including a break-in.

The average time for a court ruling in an eviction proceeding in the state of São Paulo is 12 months.

In the case that during the lease it becomes necessary to perform emergency work as ordered by the public authorities, or if the property is expropriated, the lease may be terminated early. The corresponding authority will be responsible for the payment of the corresponding indemnification to the landlord and tenant, as applicable and in accordance with the lease agreement terms on payable compensation and in the event that it will be due.

A turnkey contract and management construction contract with a maximum guaranteed price are the most common structures used to price construction projects.

In Brazil, there is a technical responsibility for the project and a technical responsibility for the work (eg, foundations, plumbing, energy).

The assignment of responsibility requires the proper registration update before the relevant authorities and will lead to a discussion on responsibility, unless such matter is contractually agreed.

Several preliminary measures are available to reduce and/or manage construction risks. Studies of soil, declivity, contracting of professionals to make the calculations and decide on the constructive methods to be used, and the breakdown of the projects for preparing the budget are examples of such measures.

There is also insurance available for such purposes, such as construction civil liability insurance, performance insurance, engineering risk insurance and third-party risk insurance.

Preliminary surveys on the property and qualified professionals hired for the work are strongly advisable to allow an accurate schedule to be drawn up for all the measures related to the project. Schedule-related risks must be managed in accordance with the proper agreement and it is advisable to have not only collaterals with respect to the obligations under the construction agreement, but also insurance to cover all the different aspects of the project.

Such forms of security (ie, letters of credit, parent guarantees, performance bonds, escrow accounts, third-party sureties) are common, but must be established in a well-drafted agreement, mostly because they need to be linked with the corresponding obligation duly converted into a payable amount in most cases.

Contractor or designers are not allowed to lien or encumber the property in the event of non-payment, except by a court ruling for those purposes issued on a foreclosure in the case of non-payment.

A building may only be occupied after the occupancy permit is issued by the municipal authority. For the issuance of the occupancy permit, a visit from the authorities might be performed to verify compliance with the approved project, as well as other occupancy aspects of the building (safety, utilities etc).

Currently, there is no value added tax payable on the sale or purchase of corporate real estate. However, the Brazilian congress is analysing proposals for a tax reform to simplify the country’s tax system that may include the creation of VAT on the sale or purchase of real estate. Capital gains tax may be due by the seller on the sale of a real property.

On the other hand, there are specific taxes that are due on the transfer of real estate:

  • if the transfer is made for free, ITCMD is levied at a rate that varies from state to state up to a maximum rate of 8% (usually the rate is 4%); or
  • if the transfer is not free, ITBI is levied at a rate that varies from city to city (usually from 2% to 4%).

The payer of these taxes (ITBI and ITCMD) may also vary according to the applicable municipal or state legislation. 

There are tax exemptions that may consider the value of the real estate, and the use of the real estate by the acquirer, among others (it is not possible to list all exemptions because they are defined by several existing municipal and state legislations).

It is common for individuals, families and companies that have several different real estate properties to concentrate the ownership of such properties into one or more legal entities (real estate holdings). In such a case, where some real estate is disposed of, instead of selling the real estate itself, quotas of the real estate holding are sold, avoiding the levy of ITBI.

Complex real estate finance structures might be applied for such purposes, considering, for example, some tax benefits that real estate investments funds are able to use.

There is no municipal tax triggered by the occupation of business premises. However, there is a municipal tax called Urban Real Estate Property Ownership Tax (IPTU) that is calculated annually on the ownership of urban real estate and assessed using the value attributed to such real estate by the municipal tax authorities (usually close to its market value). The rates vary according to the municipality in which the real estate is located. The IPTU payment responsibility will be transferred from the landlord to the tenant on a lease agreement.

All urban real estate property in Brazil owned by individuals or legal entities, is subject to IPTU on 1 January each year, payable to the municipality in which the property is located. Municipal legislation may exempt certain real estate from IPTU according to certain criteria (location, use of the real estate for social purposes etc).

Depending on the nature of the remittance of funds abroad, withholding income tax may be triggered. Regarding rental income from real estate paid by a Brazilian source, it will be subject to withholding income tax at a 15% rate, which must be withheld and paid by the Brazilian source (the rate is increased to 25% if the beneficiary is located in a tax haven).

In accordance with Brazilian tax laws, capital gains originating from the sale of assets located in Brazil by a non-resident are taxable in Brazil, even if both seller and acquirer are non-residents. In this last situation, the tax is due on the date of the sale and/or payment of the purchase price, and the acquirer (or its attorney-in-fact in Brazil when the acquirer is non-resident) is the party responsible for withholding the applicable capital gains tax. The withholding income tax on capital gains is levied at progressive rates that vary from 15% to 22.5%.

The Brazilian tax law may provide for exemptions regarding ITBI, ITCMD and/or IPTU, but considering that such taxes are municipal/state taxes, it is necessary to check the applicable legislation, on a case-by-case basis, in order to define if a tax benefit will apply to an intended transaction. In addition, depending on the tax regime adopted by the taxpayer for the payment of corporate taxes (IRPJ or CSLL) and taxes levied on gross revenues (PIS and COFINS contributions), the depreciation expenses of certain real estate may be tax deductible (for IRPJ and CSLL purposes) or it may generate tax credits (for PIS and COFINS purposes).

Demarest Advogados

Av. Pedroso de Morais
1201 - Pinheiros
São Paulo
SP, 05419-001

+55 11 3356 1581
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Trends and Developments


Campos Mello Advogados was founded more than 38 years ago and today, the firm advises Brazilian and global companies in Brazil, Latin America, Asia, the USA, Europe and Oceania. CMA offers expertise, a global presence and full-service structure, as well as professional management capable of identifying new opportunities for its clients and satisfying their demands. Since March 2010, CMA has been working in co-operation with DLA Piper LLP, one of the largest law firms in the world, located in more than 40 countries in all continents. This strategic relationship is a crucial component of the firm’s business, as it enables the lawyers to serve clients and address their strategic business needs whether they do business in Brazil or abroad. As a leading firm in the real estate arena in Brazil for several years, CMA covers a range of needs, including structuring and development of real projects, shopping malls and hotel complexes, drafting of agreements and general consultancy.

Since 2019, the Brazilian real estate market has improved significantly, overcoming the previous slow-down in business, and also becoming a factor of improvement in the Brazilian economy and economic production.

Through the situation of the real estate market in São Paulo and other regions in central-west Brazil, where Brazilian agribusiness has its origins, it is possible to see that real estate regrowth has also reached other regions of the country, leading to a novel cycle of new projects and expansion in the real estate market, which is expected to endure and match the economic development of other areas of the country.

Brazil’s economic recovery follows structural reforms by the federal government and the national congress considered by economists to be essential for unlocking economic production in the country. Very important economic and social reforms have recently been approved, namely, the reform of labour laws and the reform of the social security system, which enhanced financial contributions made by citizens to control deficit.

Also as part of the strategy to promote business, the national congress has approved the Economic Freedom Bill. This was originally proposed by the federal government to promote, improve and develop the private business environment in the country, encompassing several legal modifications concerning companies, enterprises and the de-bureaucratisation and simplification of entrepreneurial activity, fostering entrepreneurial spirit.

Additional reforms are still being structured by the executive and legislative powers, namely, reforms of the public administration and Brazilian tax system, seeking better productivity, reduction of unnecessary costs, greater rationality and the organisation of taxes collected by the public authorities.

Besides these aspects, which have resulted in the reform and organisation of public administration, other factors have also contributed to the economic and real estate market upswing, including:

  • the recent and very drastic reduction of the Basic Interest Rate (SELIC), benefiting especially investment in real estate and stimulating the directing of resources to real estate investment funds, which also attract investors due to the existing tax benefits; 
  • the Brazilian Central Bank has had great success in the strict control of inflation, which has continuously been even lower than the annual target set by economic policy; 
  • real estate credit is once again becoming more attractive as banks are offering lower annual interest rates, promoting the financing and acquisition of real estate at a lower cost; to this factor is also added the historically repressed demand for new real estate, both residential and commercial, plus the fact that the demographic in Brazil is still quite young and there is a lack of houses throughout the country; and
  • assets and especially real estate assets are still undervalued, especially in terms of the exchange rate of the Brazilian currency when compared to other currencies, leading to additional appeal in cases where the purchaser has a foreign currency such as dollars or euros.

In view of this scenario, it is also possible to distinguish some trends in investment and legislative changes in Brazil, including the issue of investment in rural properties and the project for the regulation of foreign investment; multi-ownership; and real estate ventures in co-working, co-living, and studios. We will discuss these trends further here.

Acquisition of Rural Properties in Brazil by Foreign Capital

A very important and prominent issue that is being discussed and debated is whether the acquisition and lease of rural properties and farms through foreign capital should be allowed again, notably by Brazilian companies controlled by foreign shareholders (individuals or legal entities), which were incorporated in Brazil under Brazilian law. In 2010, the then-government restricted this and created difficulties that have prevented this type of investment ever since.

Given the new political scenario and greater clarification on the subject, the national congress initiated Process of Bill No 2963/19, already at an advanced stage in the federal senate, which proposes, in short, the removal of restrictions and impediments for Brazilian companies controlled by foreign capital to make investments in farmlands through acquisition or lease, except for in the Legal Amazon, coastal and border areas, thus also respecting national security. The Bill would still maintain the restrictions on all foreign individuals or legal entities, and also restrictions in the case of acquisition or lease by certain entities such as non-government organisations (NGOs), foundations, sovereign funds, entities and companies controlled at any level by states, which will need to request prior authorisation from the National Security Council.

This will be an important change which, if carried out, will certainly contribute to the desired rise in investment in the Brazilian economy and agribusiness.

In addition, this Bill would bring two other important changes that would also contribute to unlocking important investments. The first is the expected regulation of the possible occupation and use of rural areas by foreign investors in the energy and energy distribution sectors, since the current scenario prevents such companies from acquiring real rights and possession for permission, concession and authorisation to support the generation, transmission and distribution of electrical power.

The second amendment also seeks to clarify once and for all the possibility of such rural properties being offered as guarantee (eg, in obtaining financing and loans) to financial institutions and banks controlled by foreign capital, which would wrap up the awkward situation created in 2010 when the use of rural properties for this purpose was prevented, for no apparent rational reason.

The proposals contained in the Bill have certainly encouraged Brazilian society to debate how new investments could be made to the benefit of society as a whole, generating wealth, economic development and new workplaces and jobs, as the Bill would also enable such investments in a more rational and organised manner in farms and rural areas.

New Property Ownership Structure – Multi-ownership

Another new legislative factor that is increasing the possibility of acquiring real estate in Brazil, notably in the field of leisure and hospitality/holidays, is the legal concept of multi-ownership.

This new form of condominium was created by Federal Law No 13777, also known as the multi-ownership condominium, which allows several owners to own the same real estate in such a way that the ownership of each of them is associated with a certain period of time, during which that owner can exclusively enjoy the property. Each period is a minimum of seven days a year and the duration can be modified from one year to the next, as long as previously agreed by the owners.

This new mechanism seeks to implement the traditional "time-sharing" system in Brazil that exists worldwide, fragmenting the domain of the owner in time periods.

It is already possible to verify an increase in investment in the hospitality market, with families who previously had no means or economic possibility of acquiring their own holiday property, now able acquire a share of it. Also, in traditional residential real estate developments, this legal concept is being used especially in large urban centres.

Hot Spots in the Real Estate Development Industry

After a long period of economic stagnation, Brazil is beginning to show signs of recovery and one of the main sectors that is enjoying growth is civil construction and the real estate development market, which figure as protagonists of the new economic expansion, and which are also expected to contribute to the growth of gross domestic product.

This recovery, together with the fact that there is still a large housing deficit in the country of around seven million homes, underlines the huge potential of the Brazilian real estate market and the opportunities it holds for investors.

The resurgence of the real estate market also enables real estate developers to create and develop new products aimed at meeting the new ways of living and residing in modern cities, namely:


Studios with a small private area but with several possibilities of shared use in common areas, such as laundries, cafes, rooftops, home theatres and meeting rooms, among others, make up a large part of new developments in big urban centres, especially in São Paulo. This city also has the advantage of a local zoning plan for large skyscrapers, which allows for more effective use of build footage. 

In this sense, there has already been extensive growth in the order of 20% in the medium and high-standard residential segments of São Paulo, and it is expected that this growth will spread to other regions of the country. As an example, in the year 2019, there was a growth of approximately 50% compared to the previous year in the development of new projects solely in São Paulo. Sales have also increased, reaching the highest numbers since 2004.

Co-living and co-working projects

Co-living and co-working projects also focused on sharing spaces and experiences proliferate, counting on the individual use of bedrooms and living rooms, but with services for the benefit of all.

Renovating, refitting and restyling projects

A new modality of business is also beginning to consolidate in the market, and this is the acquisition of used high-profile residential real properties by companies specialised in renovating, refitting and restyling them, to later put them on sale in the market, all through internet platforms and mobile applications. This new sector has also led to the creation of a Brazilian unicorn, with a real estate start-up being valued at USD1 billion, further promoting the real estate industry. This activity has already spread into the country and seems set to spread abroad.

Also, other sectors and segments of the local real estate market have performed remarkably well:

  • the corporate building market has increased occupation in Rio de Janeiro and São Paulo, offering signs of recovery in this sector, with vacancy rates falling to below 20% in São Paulo. These rates have also declined in Rio de Janeiro, especially in the central region and across Porto Maravilha, a recovered and reurbanised region overlooking Guanabara Bay;
  • the development of logistics centres has also grown, due to the increase in online purchases by consumers;
  • given the drastic reduction in interest rates paid by the federal government, there has been a sharp rise in demand for investment in real estate investment funds, leading to growth in the number of investors holding shares in the over 390 currently existing funds, which rose from 200,000 to over one million in 2019; and
  • it is also important to note that the federal government has started a process of selling several properties under its ownership, which may also foster new business and revenues.

Further to the positive fundamentals of the Brazilian economy and real estate sector mentioned here, it will be important to observe the development of the global COVID-19 crisis, considering that in Brazil, early preventative sanitary measures were taken by government authorities, including municipal, estate and federal bodies, which could therefore restrict its impact in the country.


Given all the evidence, the search for new business in the sector has intensified, with good opportunities for local and foreign investors, due to the fact that the local currency has depreciated in comparison to other strong currencies, making foreign investment even more attractive. 

The structural reforms which have been undertaken and the new laws which have been passed, in association with low inflation and a greater supply of credit under lower interest rates, have led to positive expectations regarding the Brazilian real estate market.

Campos Mello Advogados

Av. Pres. Juscelino Kubitschek
360 - Vila Nova Conceição
São Paulo - SP, 04543-000

+55 21 2335 4541
Author Business Card

Law and Practice


Demarest Advogados is one of the most respected law firms in Brazil and is among the largest in Latin America. The firm’s real estate department is active in urban real estate investment transactions, involving leases, built-to-suit agreements for logistics facilities, office buildings and industrial facilities, sale-and-leaseback transactions, property acquisitions for real estate developments and subdivision projects. The practice has particular expertise in rural and urban regularisation and licensing, attainment of entitlements, due diligence, real estate assistance related to plants and other industrial complexes (eg, deactivation, expansion) and the structuring of mixed-use real estate developments. Their multidisciplinary capabilities draw from corporate/M&A, capital markets and tax departments, enabling a broad view of their clients’ needs and expectations. Clients include pre-eminent companies related to the real estate industry, logistics chain and real estate investments, as well as other prominent industries, investors and banks.

Trends and Development


Campos Mello Advogados was founded more than 38 years ago and today, the firm advises Brazilian and global companies in Brazil, Latin America, Asia, the USA, Europe and Oceania. CMA offers expertise, a global presence and full-service structure, as well as professional management capable of identifying new opportunities for its clients and satisfying their demands. Since March 2010, CMA has been working in co-operation with DLA Piper LLP, one of the largest law firms in the world, located in more than 40 countries in all continents. This strategic relationship is a crucial component of the firm’s business, as it enables the lawyers to serve clients and address their strategic business needs whether they do business in Brazil or abroad. As a leading firm in the real estate arena in Brazil for several years, CMA covers a range of needs, including structuring and development of real projects, shopping malls and hotel complexes, drafting of agreements and general consultancy.

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