Brazil: Publication Of Law No. 13.786/2018 - Dissolution Of Contracts For Real Estate Acquisition

Last Updated: 22 January 2019
Article by Rodrigo De Castro
Most Read Contributor in Brazil, March 2019

Today, 12.28.2018, Law No. 13.786/2018 was made public, aiming to regulate the termination real estate purchase contracts, changing the Real Estate Development Law and the Parceling of Urban Land Law.

The dissolution of real estate acquisition contracts has been, in recent years, the subject matter of legal disputes between buyers and developers, with judicial rulings uttered on a case-by-case basis, precisely because there are not any parameters regarding the withholding of paid amounts and the application of fines, which creates great legal uncertainty for the real estate market, harming the economy, the developers and non-defaulting buyers. Such disputes led to the issuance of Summary 543 of the Superior Court of Justice (STJ), establishing the full refund of amounts paid in the event the termination is fully the fault of the committed seller, as well as the refund with a right to withhold some of the paid monies by the committed seller in the cases where the fault for the termination lies with the buyer. In practice, the overall jurisprudence established a withholding percentage of between 10% and 30%, which is defined on a case-by-case basis. It so happens that, even with the judicial recognition of the right of the committed seller to withhold some of the money paid, the withholding percentages adopted by the legal precedents proved to be, in many cases, low for sellers and attractive to buyers, which ended up generating an unbridled frenzy of lawsuits demanding the dissolution of these commitments by the committed buyers and the consequent decapitalization of several developers, who relied on the monies to be received from those commitments of purchase and sale for the completion of their real estate developments. It also had a side effect of delaying constructions, which is to the detriment of the non-defaulting buyers.

Another point that generated the need for an adjustment in the situation of the dissolutions consisted in the equal treatment to committed buyers in different situations. Giving up on the contract because the buyer was unable to pay the price and giving up on the contract because of a mere disinterest of the buyer on following through with the purchase because of the crisis in the real estate market (in the latter case, purchases with investment purposes, in their great majority) started being treated equally with the application of Summary 543 of the STJ. Such a situation has certainly stimulated an unchecked pursuit of lawsuits by buyers seeking to terminate the contract, but, mainly, to get as much as possible back of the monies that had already been paid.

Faced with this scenario, Law No. 13.786/2018 had the goal to prevent those distortions and encourage the resumption of the legal and economic confidence in the real estate development sector, defining rules that shall contribute to more predictability in the situations of dissolution of contracts for real estate acquisition, as well as norms intended to provide greater clarity and objectivity regarding the essential information of the contract, making it mandatory, for example, the use of a "summary table". Among the major changes of Law No. 13.786/2018 to the Real Estate Development Law, we highlight the following:

Entitlement to the refund of amounts paid: the buyer who has signed a contract exclusively with the developer shall be entitled to the refund of amounts paid, duly updated, in case of dissolution or termination motivated by the buyer's absolute default.

Amounts deducted from the amount to be refunded: the real estate developer may deduct from the amount to be refunded to the buyer: (i) the brokerage commission; (ii) the conventional penalty of up to 25% of the amount paid by the buyer until then (the penalty may reach as high as 50%, in the case of development with segregate estate); (iii) the taxes levied on the property, condominium fees and associative contributions; (iv) the value corresponding to 0.5% of the updated value of the contract, because of the enjoyment of the property; and (v) other charges levied on the property and expenses provided for in the contract. The buyer is not compelled to pay to the developer values that exceed the amount to be refunded, except in relation to the value due because of the enjoyment of the property.

Form and deadlines for refund: once the values allowed by law have been deducted, the developer shall return, in one single payment, the remaining balance to the purchaser within 30 days after the occupancy permit (or equivalent document) is issued, in the case that this is a development submitted under the segregate estate regime; or within 180 days after the date the contract is undone, if otherwise. In case the unit of the undone contract is resold before such deadlines are through, the refund must be made within 30 days from the resale. If the property is sold at auction motivated by the default of the buyer, the refund shall follow the criteria established in the respective special law or according to the rules applicable to the execution in general.

Cases in which the conventional penalty does not apply: the buyer shall be free of the conventional penalty if it finds an interested party to take over the contract, assigning to the new buyer all rights and obligations originally undertaken. However, such procedure must have the acquiescence of the developer.

Right of retraction: the buyer may exercise its right of retraction within the non-extendable period of 7 days in case the buyer has signed the contract in a sales stand or out of the developer's offices, which entitles the buyer to receive all values that may have been anticipated, including the brokerage commission.

Delay of up to 180 days in the delivery of the property: It must be expressly agreed in the contract, so that it does not justify the termination of the contract by the buyer and does not entail the payment of penalties by the developer. The delay that exceeds this deadline shall allow the buyer to terminate the contract, with the right to be refunded the full amount paid and being compensated with the fine provided by the contract within 60 days of termination. If the buyer does not terminate the contract, it shall be entitled, on the occasion when the unit is delivered, to be compensated in 1% of the amount paid until then, for each month of delay, pro rata die. This compensation may not be combined with the fine set forth in the contract for the developer's default.

The summary table is now mandatory: contracts for the purchase of a real estate unit must start with a summary table, which should contain the information required by law, such as total price, value of each installment, due dates, payment and monetary correction methods, interest rates, brokerage fees, right of retraction, consequences of the undoing of the contract (emphasizing in bold the applicable penalties and deadlines for the refund of monies), number of the incorporation memorial, charges levied on the unit, deadline for obtaining the occupancy permit, among others. The lack of any such information must be remedied in up to 30 days, under penalty of being construed as just cause for the termination of the contract by the buyer.

As regards to the amendments made to the Parceling of Urban Land Law, we highlight the following.

Amounts deducted from the amount to be refunded: these are: (i) brokerage commission; (ii) penalty clause, limited to 10% of the updated value of the contract; (iii) taxes levied on the property, condominium fees and associative contributions, as well as taxes, costs and fees levied on the refund; (iv) the value for the enjoyment of property, limited to 0.75% of the updated value of the contract; and (v) penal charges.

Form and deadlines for refund: the refund shall occur in up to 12 monthly installments, whose payments shall start within 180 days counted from the date that the construction is completed, in case construction is already in progress, and in up to 12 months from the date of termination, in case construction has already been completed.

Resale of units whose contracts have been terminated: the registration of a contract pertaining to a unit whose contract has been terminated can only be done in case the developer proves that it started the refund of the amount paid by the former buyer. Such proof shall be waived if the buyer is not found or if the parties agree differently in the dissolution instrument, in case there has been the payment of over 1/3 of the adjusted price.

Improvements in the unit: if the buyer has made improvements in the unit that are liable for compensation and does not regularize its arrears status within 60 days after being notified for such, the developer is compelled to dispose of the property by means of a judicial or extrajudicial auction, in the terms of Law 9,514/97.

Summary table is now mandatory: contracts for the sale of plots of land shall also have the summary table, whose information, with the necessary adaptations for the case of land subdivisions, is the same information of the summary table for real estate developments.

We stress, lastly, that the law allows the parties, in all agreement, to define conditions that are different from those laid down by the law for the refund of monies paid by the buyer.

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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