Brazil: Real Estate (2nd edition)

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This country-specific Q&A provides an overview to real estate laws and regulations that may occur in Brazil.

It will cover the most pertinent issues including ownership structures, restrictions, transfers, taxes and environmental contamination.

This Q&A is part of the global guide to Real Estate. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/real-estate

  1. Overview

    From 2010 to 2012 Brazil faced one of its most preeminent moments with an established economy, high employment rate and low default rate. However, from 2013 onwards the worldwide crisis and national particularities led to unemployment, credit shortage, interest rate escalation and, inexorably, demand reduction.

    After a challenging recession period, a combination of structural factors has contributed to the country’s economy gradual return to an upbeat trend. Political scenario alterations, significant macroeconomic adjustments and a profound change of paradigm towards anti-corruption joined forces with the labour reform, resulting in a GDP growth and the reduction of interest and inflation rates.

    The federal government recent acts – even if not very popular – as the reduction of public costs, capping the primary federal expenses, renegotiation of debts, proposal of social security reforms, privatizations among others, steered indicators of economic recovery and empowered an increase in the financed real estate sales.

    Complementing the enhanced economic scenario, certain changes in the law and legal trends also envision a market regulation and improvement. Midst several initiatives, two statutory changes that introduced new concepts to real estate transactions in the last years - and are still under development – are worth noticing.

    The recent Federal Law # 13.786/2018 should likely balance the commercial and residential real estate development market establishing a fixed penalty in case of no fault termination of purchase agreements by unit buyers. There is an extremely high rate of at will contract cancellations by buyers (achieving 30% in 2018 as per a São Paulo University – USP - and Real Estate Brazilian Developers Association – ABRAINC research ) that excessively burden the entrepreneurial activity, as the majority of judicial decisions convicted developers to return to buyer up to 90% of the price paid. There is no doubt that the law in force will discourage early terminations in benefit of the effective completion construction projects and delivery of the units to the buyers.

    Another project bill expect to have optimistic reflections to the Brazilian real estate market, granting in rem rights to the time-share owners, which would authorize the enforcement of certain rights and obligations towards third parties and add value to such enterprises.

    In addition, the Brazilian Central Bank regulated the issuance of a new covered bonds based credit instrument (Letra Imobiliária Garantida - LIG), which ensures priority payment to investors backed up by real estate portfolio segregated from the other financing agents’ assets that should assist the market’s capitalization.

    Another novelty in the real estate market is that the Brazilian Securities and Exchange Commission (CVM) had a change of heart with regards to condo-hotel public offerings. A 2018 rule considerably expedited condo-hotel investment contract registration procedures and now prioritizes a more equitable regulatory regime, in which the non-offering hotel operators no longer are deemed jointly liable with the developer for attributions naturally held by those who public offer securities.

    Thus, in view of the economic recovery - with less inflation and more credit - and constructive legal improvements, the Brazilian real estate market is optimistic towards 2019, with the aggregated advantage that international investments are benefitted with quite an encouraging exchange rate.

  2. How is ownership of real estate proved?

    According to Brazilian law, a person is only deemed to be owner of a property when of actual registration of the acquisition instrument within the competent real estate registry office (Article 1.245 of the Civil Code). Therefore, ownership of real estate title is evidenced by certificate issued by the relevant registry office.

  3. Are there any restrictions on who can own real estate?

    There are certain restrictions to acquisition of properties located in coastal, boarder or rural areas by foreigners or Brazilian companies controlled by foreigners, due to national security issues.

    The transfer of title of real estate located in border areas and certain in rem rights by foreigners or Brazilian companies controlled by foreigners require approval by the CSN (national defense counsel), following specific law requirements.

    The transfer and lease of rural areas of a certain size (varies on a local/municipal basis) by foreigners or Brazilian companies controlled by foreigners may depend on prior authorization by applicable governing authorities varying from Instituto Nacional de Colonização e Reforma Agrária (INCRA) – national colonization and land reform institute responsible for land reform and property distribution agricultural land, CSN or even the Federal Congress. The authorization request is presented at INCRA and the approval (by the competent body) shall analyze the activity to be developed, if other rural properties are owned by the same foreigner, as well as if in the municipality where the property is located other foreigners of the same nationality also own rural real estate.

  4. What types of proprietary interests in real estate can be created?

    The standard type of real estate ownership in Brazilian Law is full title, also known as fee simple in other countries. In general, such interest grants the owner the complete and exclusive right to possess, enjoy, reclaim and dispose of the property, notwithstanding other burdens or third party rights (as easements) that may eventually exist upon the property.

    A second type of property (emphytheusis) grants the holder domain similar to full title or, in some cases, occupation rights, but the Federal government or private parties own an interest upon the real estate which leads to additional annual property tax (fôro) and transfer tax being due (laudêmio).

  5. Is ownership of real estate and the buildings on it separate?

    As a rule, real estate includes both the land as well as all that becomes unites to it, either naturally or artificially (right of accession). Exceptions to the accession rule may apply, such as surface rights and slab rights (“direito de laje”).

    Surface rights creates a temporary separate ownership of the land surface. Pursuant to it, grantee shall have the right for a limited period of time to build, plant and maintain such building/plantation over a third parties’ property as if a proprietor of the surface of that land, being grantee allowed to use, enjoy, dispose, protect and reclaim the surface for as long as his right lasts, save for any exceptions set forth in the respective deed.

    After the surface right’s term, the improvements on the property are consolidated into the original land owner’s name, regardless of any compensation, unless stipulated otherwise by the parties.

    Slab right, in its turn, is an autonomous in rem right to the lower or upper surface of a base construction in order that grantee maintains a separate unit than the originally constructed upon the land, encompassing the air space or subsoil for construction or use with separate record at the relevant real estate registry office and, as so, transferable to third parties.

    The grantee of the slab right may possess, enjoy, reclaim and dispose of the property use, shall respond for the taxes and charges deriving from its units and may assign its unit surface for a new surface right, as long as duly authorized by original construction owner and in observance of the zoning applicable rules.

  6. What are common ownership structures for ownership of commercial real estate?

    Commercial real estate is commonly owned by individuals and legal entities (direct ownership) or by means of indirect interest through equity/securities of legal entities or investment funds.

  7. What is the usual legal due diligence process that is undertaken when acquiring commercial real estate?

    A legal due diligence is common implemented in order to assess if (i) owner holds full title and possession of the property; (ii) the real estate is free and clear of liens, burdens and encumbrances; (iii) there are any restrictions with regards to the use and occupancy (including but not limited to easements, third parties’ rights, etc.) of the property; (iv) there are any disputes over ownership or rights to real estate or access rights; and (v) if there are any pending tax, environmental, zoning and licensing matters that should be considered for the deal.

  8. What legal issues (if any) cannot be covered by usual legal due diligence?

    Usually legal due diligences do not encompass technical aspects, such as the physical state or condition of any asset, or the valuation, state, condition, boundaries and/or measurements of the real estate properties, analysis of plans and other technical documents from an extra-legal point of view, etc.

  9. What is the usual process for transfer of commercial real estate?

    The transfer of commercial real estate requires the transfer instrument duly recorded at the relevant competent real estate registry office. Taxes may apply.

    In case of the acquisition of rural properties (farming, livestock, extractive, agricultural, agri-industrial or forest) and emphyteutic properties (estate that grants the holder of the property domain similar to full title or, in some cases, occupation rights, but the public government or private parties own an interest upon the real estate which leads to additional annual property tax – fôro - and transfer tax - laudêmio), the transfer shall also be recorded at other public agencies, namely Instituto Nacional de Colonização e Reforma Agrária (INCRA) and Secretaria de Patrimônio da União (SPU), respectively.

    Most real estate transactions involving properties worth thirty times the minimum wage or more must be drawn by public deed. Commitments to purchase and sale, execution of fiduciary sales and other specific agreements may be executed by private contracts.

    A due diligence on the real estate, sellers and prior owners is recommended prior to the acquisition of property.

  10. Is it common for commercial real estate transfers to be effected by way of share transfer as well as asset transfer?

    Yes. Real estate transfers are commonly effected by both corporate and asset transfers. In said cases, the target companies shall also be subject to the legal due diligence.

  11. On the sale of interests in land does the benefit of any occupational leases and income automatically transfer?

    Unless otherwise agreed under the transfer instrument, the new owner of the property shall be entitled to any incomes or rents related to the properties from the transfer date on. For said purpose, the relevant debtors must be notified of the change of ownership and informed of the new payment instructions.

    Please refer to Section 15 with regards to lessor’s right of first refusal and to maintaining the lease in force further to the sale of freehold interests.

  12. What common rights, interests and burdens can be created or attach over real estate and how are these protected?

    The most common in rem rights and burdens that can be created or attached over real estate properties, further to the rights indicated in answer to question #4, are the following:

    • Mortgages, a security interest by which debtor shall remain in direct possession of the real estate. There are two types of in rem guarantees in Brazil that are comparable to US mortgages, namely (i) the regular real estate mortgage (“hipoteca” under Brazilian law), which is a civil nature in rem guaranty incurring upon the debtor’s or third party’s real estate; and (ii) the in rem “chattel mortgage” (“alienação fiduciária” under Brazilian law), which is the legal transaction in which the debtor, intending to guaranty a debt, transfers to creditor the reversible title subject to conditions subsequent (which is the payment of the debt).
    • Usufruct, consisting of a right to use, enjoy and profit from a third parties’ property during the term established by the parties to the easement deed (up to thirty years), lifetime of the benefitted party or subject to condition subsequent. It must be constituted by means of a public deed and recorded at the relevant real estate registry office so it is valid before third parties and enforceable even in case of transfer of the real estate by owner. A transfer tax shall be due. For such purposes, the maintenance of the property, except wear and tear, payment of related taxes and charges and protection of the real estate against adverse possession shall be a responsibility of the benefitted party.
    • Surface rights, as better detailed in question #5.
    • Slab rights, as better detailed in question #5.
    • Easements, which are encumbrances imposed by one property, called dominant, upon another property, named servient, offering an economical benefit or utility to the dominant property, such as right of way, passage, view, right to sunlight, right to collect water, etc. The easement is attached to the real estate, meaning that it is automatically transferred to new owners of the involved properties and remains valid during the term established by the parties in the easement deed or an indefinite period of time, when the cancellation may occur in the specific hypothesis permitted by law (including the lack of use).

    In any case, registration within the competent real estate registry office is required for the purpose of validity against third parties.

    In addition to the above, the property owner or possessor may assign the right to use the property by other means. The most common are leases and free leases (“comodato” under Brazilian law), by which the lessor or grantee shall be entitled to use a third party’s property, upon consideration (in case of lease agreements) or not (in case of free leases). Although not mandatory, registration of the lease agreements is required for enforceability of certain rights against third parties, as better detailed in question #15 below.

  13. Are split legal and beneficial ownership of real estate (i.e. trust structures) recognised

    There are certain rights that may cause split of legal and beneficial ownership, as:

    • Surface rights, mentioned in question #5 above, splits ownership of the land and the surface for a determined period (i.e., throughout the respective effective term).
    • The in rem “chattel mortgage” (“alienação fiduciária” under Brazilian law), mentioned in questions #12 and #19 hereof, causes the creditor to hold ownership of a property while debtor enjoys beneficial ownership of the property until all debtor’s obligations under the relevant agreement are fulfilled.
    • Usufruct, mentioned in question #12 above, allows grantee to use, enjoy and profit from a third parties’ property during a term.

    Note that there are no trusts under Brazilian law. Please refer to question #21.

  14. What are the main taxes associated with commercial real estate ownership and transfer of commercial real estate?

      Real Estate Transfer Tax (ITBI):

    ITBI is a municipal tax levied on the transfer of real estate for consideration or related rights (except guarantee) at a rate that varies in accordance to the municipality where the real estate is located (usually 2% or 3%). The tax shall be calculated on the real estate market value, which shall be the higher between (i) the transaction declared value or (ii) the value of the property defined by the municipality.

    The Federal Tax Code and Federal Constitution establish that ITBI is not levied on the transfer of real estate or related rights (i) to pay up capital; or (ii) as a result of a merger, spin-off or termination of a company, except if one of the main activities of the buyer/new company is the acquisition and sale and/or lease of real estate.

    The tax must be paid by the acquirer of the property before the execution of the purchase and sale deed. In case of assignment of rights, the assignor is liable for the payment.

      Inheritance and Donation Tax (ITD)

    ITD is a state tax applicable to the transfer of properties by inheritance or donation, whether urban or rural, which rate shall vary in accordance to the state where the real estate is located (usually between 4% and 8%). The tax shall be calculated on the real estate market value, which may be revised by the state tax authority, and paid before the execution of the transfer deed.

      Urban (IPTU) and Rural (ITR) Property Taxes

    IPTU and ITR are, respectively, local and federal taxes levied annually on urban and rural properties.
    The basis for IPTU is the real estate market value and the rate at which the tax is collected depends on the municipality. A tax payment slip with the amount due is annually issued by the Municipality.
    The basis for the ITR is the value of the rural land at rates that vary from 0.03% to 20% depending on the number of hectares and the level of use of the area. ITR requires the filing of an annual ITR tax return to the Brazilian Tax Authority in order to establish the amount due.

    Articles 130 and 131 I of the Brazilian National Tax Code, the purchaser is liable for past IPTU and ITR charges regarding the period of ownership of previous owners. It is, therefore, crucial to ascertain whether all previous charges of those taxes have been duly paid by the previous owners.

    Similarly to IPTU and ITR, other charges such as utilities and fire brigade tax are also frequently charged from the current owner, regardless if related to a period prior to the real estate acquisition.

      Taxation of gains on Real Estate

    Brazilian individuals and non-residents (including foreign legal entities) are taxed by the capital gain tax (rates between 15% and 22.5%, based on the gain, with 25% for parties located in tax havens), which is due when a good or right is transferred with profit, that is, when the sale price exceeds the price of the acquisition. There are some tax incentives for individuals who are tax residents in Brazil.

    For acquisitions since 1997, the tax base of capital gains of rural properties is subject to a different regime based on the market value indicated in the annual ITR tax return, which may be revised by the Brazilian Tax Authority.

    From a Brazilian legal entity perspective, the taxation is based on its tax regime (actual or deemed profit regime) and if the acquisition and sale of real estate transactions is part of its business purpose (taxed as ordinary income instead of capital gains). Corporate Income Taxes (IRPJ/CSLL) up to 34% and taxes on gross revenues (Pis/Cofins) up to 9.25% may apply, although the deemed profit method and tax planning are also available to reduce such tax impact.

      IOF-exchange (transactions with foreign parties)

    Due to state monopoly regarding foreign currencies sale and acquisition, where an exchange agreement closed by a financial institution is mandatory, IOF-Exchange (the taxable event is the exchange of currencies) is a stamp alike tax used by Brazilian Government for non-tax purposes, i.e. to try to regulate the inflow and outflow of financial resources in Brazil. The Executive Power may change its tax rates by Decree (without Congress approval) with immediate effect after publishing it.

    Current standard tax rate is of 0.38%, except a zero tax rate or tax exemption is applicable.

  15. What are common terms of commercial leases and are there regulatory controls on the terms of leases?

    As a rule, the terms and conditions of the leases shall be those agreed between the parties, except for certain requirements or rights established by law.

    For commercial urban leases, ruled by Federal Law # 8.245/1991 (the Lease Act), the following are usual terms:

    • Activities: The lease agreement usually establishes the activity that will be developed in the premises and Lessee’s obligation to obey local zoning rulings as well as any applicable building or condominium bylaws. Lessee must obtain all the licenses and permits to perform its business activities in the leased property (commonly issued by the municipality). Lessee is also frequently required to contract insurance for any business activities to be developed in the premises.
    • Term: There is no minimum or maximum length imposed by law. Parties are free to agree, accordingly. Market practice is of five years for commercial leases. However, built to suit agreements usually have longer terms. The Lease Act also establishes that in case lessor is a married individual and the lease is for ten years or more, the spouse must jointly execute the contract. In case Lessor does not oppose to lessee remaining in the property after expiration of the lease term, the agreement will be considered automatically monthly renewed for an undetermined period and both parties may terminate the lease upon thirty days prior notice.
    • Guarantees: The guarantees permitted by Article 37 of Lease Act are: (i) bank guarantee; (ii) guarantee by a creditworthy individual or a legal entity; (iii) chattel mortgage of investment fund quotas; or (iv) bank account deposit. Double guarantees are prohibited. Guarantees must be in force during the entire term of the agreement, until the property is returned to Lessor, under penalty of termination.
    • Maintenance and Improvements: Lessee must maintain the property and its equipment as received, except for wear and tear. Unless otherwise established in the lease agreement, improvements made by Lessee that intend to maintain or avoid deterioration of the property - even if without Lessor's approval - and those authorized improvements that increase or facilitate the use of the asset should be indemnified and entail Lessee’s right to retain the possession of the leased property until the payment of the indemnification due. Authorized optional improvements – that are made for mere pleasure, but do not increase the regular use of the property, even if they are agreeable or expensive - are not reimbursable, but Lessee may remove them if this does not damage the property. Moreover, the lease agreements commonly restrict lessee’s right to modify or improve the premises without lessor’s consent. Interior improvements are usually permitted to adequate the premises do lessee’s activities, but lessor may require that the premises be restored to their original condition, upon lease termination.
    • Transfer and Subleases: As per the Lease Act, subleases require written consent of the lessor and its rent cannot exceed the rent paid under the original lease agreement. Sublease rights may be prohibited or restricted by the lease agreement. In case of assignment/transfers, the lease guarantee must remain in force or be replaced by a new guarantee.
    • Rent: Market practice is that the fixed rent is monetarily readjusted once a year in accordance to a certain index established by the parties in the lease agreement. It is also common to set a variable rent according to the turnover of the lessee’s business – in specific cases as shopping centers and hotels. After three years of lease, lessee or lessor may judicially require a rent revision in order to update the rent to market practice.
    • Charges and Taxes: Lessee is customarily liable for all the expenses related to the property, such as condominium charges, water, sewage, gas and electricity bills, etc. The Real Estate Property Tax (IPTU) and others taxes and fees related to the property may be charged from the lessee if expressly provided in the lease agreement. Utilities are frequently hired individually by each lessee. In case the utilities are hired by the condominium in which the leased property is located or the contract encompasses more than one property, it is habitual that the related costs are shared either in accordance to the proportion of the occupied area or consumption of the related utilities. Lessor is primarily responsible for the real estate insurance, but this obligation can be contractually transferred to the lessee. Lessor is liable for the payment of the income tax on the rent value.
    • Early Termination: The Lease Act grants lessee the right to terminate the lease anytime without cause, as long as the relevant penalty is paid. The penalty is proportionally reduced according to the time the lease remained in force (not applicable to built to suit or sale with leaseback agreements). The lease agreement may be terminated by mutual agreement of the parties, or: (i) in case of contractual or legal breaches (including the non-payment of rent and related charges); (ii) by Lessor, in case of lack of guarantee to Lessee’s obligations; (iii) by Lessor, in case the government determines the urgent need for works, which cannot be completed with the Lessee occupying the premises or in case the Lessee refuses to authorize the mentioned works; (iv) by the buyer of the property in the ninety days that follow the sale of the property if there is no “cláusula de vigência” (please see hereunder – “). Note that in the event of a contractual breach or if an eviction lawsuit is filed by lessor based on outstanding rent amounts, lessee will be granted the right to remedy the default, including by depositing values in court. In case lessee uses the property as a religious space or develops school, health, hospital or elderly home care activities, duly authorized by the government, in the real estate, there shall be certain restrictions for lessor to terminate the lease.
    • Turnover of the Property further to Termination: Lessee must return the property at the end of the lease term as received, except for wear and tear.
    • Renewal Rights: Lessee has right to renew commercial leases as long as (i) the agreement has been executed in writing with a fixed term; (ii) the lease has been in force for at least five years (pursuant to one or more agreements); (iii) the property has been used for the same activity during the three years prior to the renewal; and (iv) lessee files a lawsuit in the period between one year and six months prior to the lease contractual term. Lessor shall not be obliged to renew the lease in case: (i) the government requires the property for demolition or works that will enhance the value of the property; or (ii) lessor recovers the property for its personal use, or the use of companies in which lessor or a close family member is a controller (except in shopping centers as mentioned hereunder).
    • Registration and Execution Formalities: The contract shall be executed by the lessee and lessor in the presence of two Brazilian resident witnesses, who shall sign the instrument as so. In case of guarantees rendered by a legal entity or individual, it is common that guarantor intervenes in the agreement. It is strongly advisable that the lessee registers the lease agreement at the relevant Real Estate Registry so to assure enforceability of: (i) the right of first refusal before third parties; and (ii) the contract in case of sale to third parties ("cláusula de vigência", please see hereunder). If the agreement is to be registered, fees will apply.
    • Lessee Protection – Right of First Refusal and “Cláusula de Vigência”: In case of intended property sale or assignment, lessor shall notify lessee granting lessee the right to acquire the property in the same conditions as a third party offeror within thirty days from notice. This right does not apply in cases of loss of property, judicial sale, exchange, donation, pay in of capital stock, split off, mergers and spin in operations, secured fiduciary sales or guarantee executions. The registration of the contract with right of first refusal clause also grants lessee the possibility of, in case the right is not granted, opting between claiming damages or cancelling the transaction depositing the purchase price in court for its acquisition. If the lease agreement is not registered at the competent real estate registry office and the right of first refusal is not granted, lessee may only claim damages against the lessor, but may not request cancellation of the transaction with the third party buyer. In addition, lessor and lessee may agree to maintain the lease in force in case of a transfer of the property to a third party. Such clause (“cláusula de vigência”) must be express in the agreement and shall be registered at the real estate registry office so to be enforceable in case of title transfer.
    • Shopping Center Agreements: The Lease Act establishes that shopping centers leases have certain contractual flexibility to establish clauses that commonly would be considered null and void for regular leases. In this sense: (i) key money may be charged; (ii) Lessee's right to renewal may be waived; (iii) Lessor cannot claim the use of the property for itself, family nor companies in which it is a controller further to one year of the lease term. In addition, lessor may not charge lessee for: (i) works and/or change of equipment that affect the common areas or require a new occupancy certificate for the building; (ii) expenses not included in the shopping budget, if not urgent or due to force majeure; nor (iii) utilities, employee related expenses or equipment maintenance of the condominium.
    • Built to Suit: The Lease Act also grants some flexibility to built to suit agreements. It (i) authorizes the waiver to rent review rights; and (ii) establishes that the penalty for early no-fault termination by Lessee may be of up to a value equivalent to the entire rent that should be paid if the lease remained in force.

      Parking spaces, publicity spaces and billboards, condo/apart-hotels, properties of the Governments, rural leases,“ground-lease” (a typical arrangement for occupation, development and use of the real property) and free lease (“comodato”) are expressly excluded from the scope of the Lease Act.

  16. How are use, planning and zoning restrictions on real estate regulated?

    Each Municipality has its own Master Plan and each building project, demolition or construction must be approved by the City Hall.

    The zoning and planning regulations are issued at the municipal level. Some permits are issued at state or federal level.

  17. Who can be liable for environmental contamination on real estate?

    Brazilian environmental legislation established the propter rem nature of environmental liability in the civil sphere, meaning that whoever buys property with contamination or degradation, visible or not, takes the entire responsibility for the recovery of its environmental liabilities, jointly with the previous owner, the polluter.

    Additionally, it is worth highlighting that although the Brazilian Constitution determined environmental liability in three spheres - civil, administrative and criminal - the buyer may not be held liable in both administrative and criminal spheres for facts that were previous than his/hers property or tenure rights over the real state. Punitive measures can only be imposed to whom did the activities which ended up provoking the environmental degradation. However, when it comes to the environmental liability in the civil sphere the rule is different: at the moment of the violation the nature of the responsibility is objective, which means that the legal obligation of repairing the environmental damage is not linked with guilt, and this feature remains the same for the new owner of the property, regardless of good faith.

  18. Is expropriation of real estate possible?

    Yes. The public government may expropriate real estate due to public necessity, public utility or social interest, by means of an administrative and/or judicial procedure (initially declaratory and then execution) a with prior compensation or, in certain cases, with public debt bonds, payable in annual and successive installments.

  19. Is it possible to create mortgages over real estate and how are these protected and enforced?

    As abovementioned, there are two types of mortgage in Brazil.

    The “hipoteca”, as better detailed in question #12, is to be constituted by deed and recorded at the relevant real estate registry office. The enforcement, however, requests a judicial procedure and the real estate should be sold through a judicial auction.

    In case of the “alienação fiduciária”, as better detailed in question #12, it may be constituted by private or public deed and recorded at the relevant real estate registry office.

    If debt is promptly paid, creditor shall grant debtor a term of acquittal and such document shall be recorded at relevant real estate registry office, case in which the property shall return to debtor’s full title.

    If the debt becomes due and is not paid, the enforcement of such guaranty is made through a more expedite administrative procedure.

    Debtor shall be granted the right to cure the debt or the title shall be consolidated in creditor’s name.

    The real estate shall also go to a public auction for sale, when debtor may have a second opportunity to reacquire the property.

  20. Are there material costs associated with the creation of mortgages over real estate?

    There are notary costs for the mortgage institution and for the registration at the relevant Real Estate Registry Office, which vary in accordance to the transaction values. As mentioned above, registration is mandatory for the purposes of enforceability against third parties.

  21. Is it possible to create a trust structure for mortgage security over real estate?

    There are no trusts under Brazilian law. However, similar structures could be created through the issuance of securities or titles backed by real estate credits secured by mortgage, which could be acquired by specific investments funds managed by an independent fund manager (trustee), such as Real Estate Investment Funds (Fundo de Investimento Imobiliário) or Receivables Investment Funds (Fundo de Investimento em Direitos Creditórios).

  22. What is the main legislation relating to commercial real estate ownership?

    Brazilian Civil Code Brazil (Federal Law # 10.406/2002) is the main law ruling commercial real estate and related right, under the Constitutional Principles, including the forms of acquisition of means (adverse possession, accession, succession rights), and related rights (easements, surface and slab rights, usufruct).

    Lease Act (Federal law # 8.245/1991), as above mentioned

    Public Registry Law (Federal Law # 6.015/1973) provides that each property must be recorded at the relevant Real Estate Registry Office, which is a public record with jurisdiction established by State Law.

    The Real Estate Development Law (Federal Law # 4.591/1964) and the Brazilian Civil Code rules the development of real estate enterprises encompassed by autonomous units and common areas of a building.

    The Land Statute (Federal Law # 4.504/1964) regulates the use, occupation, and rural land relationships intending to protect those who live on rural activities.

    Each Municipality has its own regulations and specifications with regards to zoning law, usually based on the Master Plan of the Municipality where the property is located, establishing the rules for implementation of urban development policies.

    Parceling of Real Estate Property Law (Federal Law # 6.766/1979 concerns the division and or unification of parcels and plots intended for implementing urbanist functions.

    Environmental Law is encompassed by Federal, State and Local rulings.