Brazil: Real Estate Acquisition In Brazil – A Brief Summary

Last Updated: 21 December 2007
Article by Ana Beatriz N. Barbosa Esq

There has been a large amount of real estate investments in Brazil in the last years. Not only large investors have been appreciating the hotel and shopping center areas, small investors have been viewing the Brazilian environment as a great opportunity for retirement plans. Thus, either in large or small proportions, the Brazilian real estate market has been in great development.

Investments can be made by individuals or by foreign or national companies. In Brazil the most common practice is limited liability companies – Limitadas. The acquisition of real estate through Brazilian Companies is very much used for tax and inheritance reasons. Also, direct investment in Brazilian Companies may grant the right to permanent visa requirements (50,000 US dollars for individual investors or 200,000 US dollars for entities)1.

Rules that are usually applicable include the Brazilian Civil Code, Public Register Law (Law 6015/73), Lease Law (Law 8245/91), among others.

The Public Register Law established a system. There are many Real Estate Registrars whose "jurisdiction" is defined according to the location of the real estate property. Such registers have listed a description of the property (all real estate properties have a registration number), all previous and present owners, third party rights (as mortgages, liens, encumbrances or burdens) and other information. Any transfer or burden incurring upon real estate must be recorded at this Registrar. Transfer and other deeds shall always be executed by the parties (or its representatives) before a public notary and then recorded at the Real Estate Registrar.

Thus, to evidence the ownership of the property, a certificate is issued by the Registrar, which includes the owners and transfers during the last 20 years as well as any encumbrances, liens and burdens incurring upon the property. This document is publicly available. As this document is issued by due empowered authority, there is no need for any insurance regarding transfer of real estate. In fact, there is no title insurance product available by Brazilian insurance companies.

However, there is no State guarantee of title. Thus, it is important that a legal counsel analyzes this document to verify if all transfers were duly made (if not all future transfers may be cancelled) in accordance to the law and in their due powers.

Other documents that are necessary for the transfer (and shall be required by the notary when drafting the agreement) are certificates in name of sellers and the property to verify if there are any suits pending against such parties. Non-registered titles, claims, rights or liens are not enforceable against third parties, but can be enforced against those who took part in the transaction.

Real Estate law property in Brazil is extremely simpler that US or UK real estate law. The ownership is absolute for use, fruition and disposal and in perpetuity (there is no rule against perpetuities), solely limited to third party rights and applicable legal restrictions. There is however, need that the property be well used according to neighbor rights and public interest. When of death of owner, the heirs shall have to proceed with probation (at least regarding this property) in Brazil.

Nevertheless, there are other kinds of tenure to real estate, such as: Usufruct (the right to use and enjoy something belonging to another), Fiduciary interest, Property subject to condition, Gratuitous lease (comodato), Security sale agreement (alienação fiduciária), Promise to Purchase and sale commitment, Right to use, Rights upon superficial territory and a different species of Trust (fideicomisso). There are also properties subject to right of seisin (emphyteusis) and subject to a special coastal land system. This is an inheritance of the Monarchy and derives from the need to secure the national territory.

Real estate can be negotiated and marketed by real estate brokerage or general advertisement. A professional assistance is always recommended. Promise to Buy and Sell are commonly used to pre-establish the rights and obligations of the parties. They can be provided through private or public means. Tax, joint property related expenses and Environmental liability shall be passed on to buyer unless specifically established otherwise. Even though, third parties still may sue buyer who may then sue seller.

As previously mentioned, a fast (around 20 days depending where the property is located) due diligence is required to analyze the property title and possibility of transfer. The cost of certificates for due diligence is generally paid by seller, unless otherwise agreed. Close attention must be given to potential liabilities (including environment and regulatory) as they will not be listed necessarily in the documents. As so, having any doubts regarding this matter, please call attention to your counsel.

When of transfer, a tax (owed to the city or state department) is due. Such tax varies according to the location (in Rio de Janeiro it is 2% when of transfer among living parties, or 4% when of inheritance). In the case of a government-owned property or emphyteutics properties, there is also a cost called Laudêmio (varies – usually from 2.5% to 5% of the property value). These taxes are usually paid by buyer, unless otherwise agreed to.

In addition to taxes (see Question 16), there are costs related to the execution of the deed, and registration of the deed with the Real Estate Registrar under its title number. Such costs vary from state to state.

The buyer is responsible for payments related to execution of the deed, except if the parties agree otherwise. The brokerage fee (variable, usually around 5% of the market value) is usually paid by seller, unless otherwise agreed to. Accounting and attorney costs are paid by the hiring party.

As mentioned, once overcome the due diligence, the deed is signed before the notary and recorded at the Real Estate Registrar when it becomes binding to the parties and third parties. The deed is quite a simple document (contrary to large contracts of common law practice) because the law pre-establishes some warranties of seller (others may be included according to negotiation among parties), including: a) Eviction - in case of loss of the real estate property acquired due to any judicial order regarding third parties' rights seller is liable; and b) Debts related to the property until its transfer, except if the parties agree otherwise.

After the property acquisition, there are some maintenance fees and taxes due. Annually a property tax is due (rates vary according to the property location). There is also a small firefighters annual fee and some other minor fees that may incur. When of joint property areas, there is a condominium fee that is due monthly.

The owner can be deprived of real estate property in the event of expropriation, for public (social) need or interest, or if so demanded, in case of imminent danger. The Brazilian Constitution establishes the right to due indemnification.

Footnote

1. There are some other ways to invest as real estate receivables securities (Certificado de Recebíveis Imobiliários and Cédulas de Créditos Imobiliários) or real estate investment funds (Fundo de Investimento Imobiliário - similar to the American REIT).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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