CVM Resolution No. 734/2015, published on March 19, has put an end to the discussion of whether or not a public offer of independent units, property fractions or quotas of special partnerships of hotel enterprises, linked to the receipt of consideration based on the successful management of the enterprise, would be a security. The discussions that started in late 2013, when the Brazilian Securities Commission – CVM warned the marked about the existence of irregular offers to the public without the prior registration of the issuer and the offer, have been terminated. CVM has classified condo-hotels as collective investment contracts, a type of security, which are subject, therefore, to CVM's regulations and monitoring, whenever they are offered publicly.

As the discussion about the recognition of this business model as a collective investment contract has been overcome, the concern of real estate entrepreneurs now surrounds the possible consequences to the developments that have been launched and marketed (in whole or in part) without CVM's registration. This is because collective investment contracts were already considered securities since October 2001, with the amendment to Law No. 6,385/1976. The obligation of prior registration of the offer existed way before the publication of the new Resolution. However, the real estate market did not recognize condo-hotels as securities and since 2011, as the sector started to pick up, it had been structuring and marketing hotel enterprises without observing the need for prior registration of the issuer and the offer with CVM.

Public offers carried out without the due registration may lead to consequences in the administrative, civil and criminal spheres. CVM's new Resolution considers the issuer not only the real estate entrepreneur, but also the hotel operator, since the hotel brand linked to the product offered is relevant for a decision on the investment to be made. Hence, both the entrepreneur and the hotel operator may be held liable.

Even prior to the publication of the Resolution, in analyzing the requests for waiver of registration as regards some condo-hotels offers, CVM had already informed that the entrepreneur should provide purchasers of independent units or fractions of the enterprise already marketed with the same information that should be made available to new purchasers as from the waiver of registration of the offer. However, as the New Resolution has not covered this issue, new questions are now being raised by entrepreneurs, such as, for example, how the entrepreneur should act, in practice, before these former purchasers and whether there will be a possibility of terminating or repurchasing the property units or fractions marketed before the formal waiver of registration is granted and before the information required for the purchaser to make a conscious decision on the investment is provided.

Moreover, as the new Resolution requires investors to confirm their assets in order participate in the offer: (i) in the case of commercialization of independent units, investors must have assets amounting to at least R$ 1 million or invest at least R$300 thousand in the offer; and (ii) in the case of commercialization of notional fractions of condominiums in general, qualified investors must have assets amounting to at least R$ 1,5 million or invest at least R$ 1 million in the offer; we now have a practical problem: what should be done if the purchasers of units or fractions marketed prior to the waiver do not fall under the limits imposed? The expectation is that CVM will act with common sense and flexibility to try and resolve past problems, but without imposing obligations or penalties that could affect the development of the enterprise and/or the return on investment.

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