ACQUISITION OF URBAN REAL ESTATE PROPERTY IN
BRAZIL BY FOREIGNERS: STEPS TO TAKE FIRST
This brief reminder provides a summary on the basic legal aspects of an acquisition of a real estate property in Brazil and the care a prospective foreign buyer should take before closing the deal.
The prospective buyer must firstly be aware that legal issues arising from the negotiations of a real estate property may turn out more complex than anticipated, which is an element that, by itself, should lead the buyer to, prior to advancing in the negotiations, retain the support of a local Law Firm, with experience and tradition in the local market, to secure that the buyer ultimately obtains the ownership title over the property free and clear of any doubts. Moreover, in Brazil there is a great deal of bureaucracy in real estate transactions, which is another element than requires the assistance of a local Law Firm. Regardless of how smooth a transaction may run, prospective buyers should always retain independent counsel to help them bypass the document scanning, property search reports, and advise on the nitty gritty involved in property acquisition.
The acquisition of a real estate property situated in Brazil is primarily governed by the Brazilian Civil Code. Foreign individuals and companies can acquire urban real estate property in Brazil under the same conditions applied to national individuals and companies. However, certain limitations are applicable to acquisition by foreigners of rural, coastal and boundary properties, and as well to certain specific areas designated as being of national security. Specific and more restrictive provisions regulate the acquisition by foreigners of these latter types of properties, which will not be covered in this Memorandum.
As a condition precedent for the acquisition of a real estate property in Brazil, the prospective buyer must apply for its registration with the Brazilian Taxpayers Registry (the so-called CPF for individuals or CNPJ for legal entities). Without this registration the final acquisition agreement cannot be executed. For this registration the foreigner must provide the tax authority with certain personal documents such as, in case of individuals, birth, marriage and divorce certificates, pre-nuptial agreements or, in case of legal entities, certificates of incorporation and good standing in the country of origin and corporate documents making evidence on who represents the legal entity. Additionally, the foreigners must also present a power-of-attorney by which a resident attorney in Brazil is appointed to represent him/her/it before the tax authorities and has been granted powers to receive service of process. The appointed attorney could also be retained to represent the foreign purchaser and to handle the legal aspects of the proposed acquisition.
Brazilian contract law provisions require, as for any other type of contract, that the parties of a sale and purchase agreement be legally authorized to perform such a transaction. In the case of individuals, the parties must have completed the legal age (18 years old) and be mentally healthy; otherwise, the party’s legal representative must act on its behalf in order to make the transaction possible. In case of legal entities, the parties must be duly incorporated and regularly represented pursuant to the dispositions of their respective corporate documents.
The Brazilian practice in this field shows that ordinary transactions begin with the execution of a first private pre-contract, by which the buyer binds itself to purchase the property for certain price and conditions, provided that the seller can make evidence within a period of time, usually 30 days, of its good ownership and absence of hindrances to complete the proposed transaction. A down payment for an amount equivalent to 10-20% of the agreed price is usually required by the seller in order to take the property out of the market. If the seller is unable to provide evidence of his ownership over the property within the time set for the fulfillment of his obligation, he must return the amount of the down payment in addition to the payment of a fine, which is usually provided in the agreement and which amount may be up to the down payment amount.
According to Brazilian law, an ordinary transaction of purchase and sale of a real estate property requires at least two additional steps: (a) the execution before a Notary Public (Tabelião de Notas) of a public deed, which reflects the purchase and sale agreement; and (b) the registration of such public deed with the Real Estate Registry Office with jurisdiction over the property. Only after these two steps have been taken, will the buyer have legally acquired the ownership of the property.
Therefore, in case in a given transaction the parties have signed a pre-contract and the seller has subsequently produced evidence of its good ownership title and its unrestricted freedom to sell the property, the parties sign the public deed of purchase and sale and the buyer simultaneously makes the payment of the balance of the price. Subsequently, the buyer carries out the registration of the acquisition deed before the competent Real Estate Registry Office.
In an ordinary purchase and sale agreement, the seller must present the buyer with the documents attesting his good ownership and absence of hindrances to the proposed transaction, which are listed below:
a) a certified copy of seller’s acquisition title;
b) a certificate issued by the Real Estate Registry Office with jurisdiction over the property, including the history on acquisitions, mortgages and encumbrances over the property in the 20 years period preceding the date of the certificate;
c) a certificate issued by the Municipality, attesting the absence of debts regarding the municipal taxes levied over the property;
d) a certified copy of the booklet of the urban tax (IPTU) over the property which the Municipality usually sends to the seller in the beginning of each fiscal year;
e) copies of the paid vouchers of the last 3 (three) water/sewage, light and gas bills, as well as condominium expenses, whenever applicable;
f) certified copies of seller’s identity card and the tax registration card;
h) certified copies of seller’s Birth Certificate (if the person is single), or Marriage Certificate, including a certified copy of the prenuptial agreement, whenever applicable;
i) recent certificates issued by the Civil, Federal and Labour Courts with jurisdiction over the place where the seller is domiciled and/or the property is located, in the name of the seller, covering a period of the preceding 10 years, in order to ascertain whether the seller is involved in any lawsuits that might prevent him from selling the property;
j) recent certificates issued by the Protest Notaries with jurisdiction over the place where the seller is domiciled and/or the property is located, in the name of the seller, covering a period of the preceding 10 years, in order to ascertain whether the seller has had any promissory notes, bills of trade or cheques protested due to non-payment;
k) a recent certificate issued Federal Taxpayers Registry in the name of the seller, covering a period of the 5 (five) preceding years, in order to ascertain whether the seller owes any federal taxes;
l) a recent certificate issued by the National Institute of Social Security (INSS), in the name of the seller, covering a period of the 5 (five) preceding years, in order to ascertain if the seller owes social security contributions. This certificate will is required if the seller is a legal entity or an individual employer.
m) if the seller is a legal entity, a recent certificate issued in its name by the competent Commercial Registry or Civil Notary, as the legal entity’s original registration may be, providing information on the corporate features such as partners, their respective shareholding in the company’s capital, company’s head offices, term, management clauses, etc;
n) if the seller is a legal entity, certified copies of its Articles of Association and subsequent amendments thereto;
o) if the property was used in trading or industrial activities, an environmental contamination assessment report issued by a qualified and certified company, certifying as to the non existence of any kind of contamination or environmental liability arising from the property to be purchased.
Acquisition of lots, houses and apartments in a new condominium will require the purchaser’s attention as to whether all registrations regarding the formation of the condominium have been properly made by the construction company.
A very important aspect in these transactions is the structuring of wiring of funds into Brazil and repatriation of foreign funds from a future sale. It is important to keep in mind that escrow agreements and accounts are alien institutes in the Brazilian legal system. So, a closing may present more difficulties than those foreseen in the other countries or vis à vis domestic transactions. Furthermore, the prospective foreign buyer may only repatriate the funds from a future sale of the acquired property if such funds have been remitted through Brazilian banks authorized to operate in the exchange market. In some cases, considerations on the formation of a Brazilian company to facilitate these financial aspects of the transaction sometimes may be applicable.
Finally, one should keep in mind that acquisitions of real estate properties in Brazil are never 100% free of legal risks as, even though a due diligence exercise on the sellers’ documents may have been completed to the purchaser’s satisfaction, there is always a chance that an unknown fact, such as a lawsuit against the seller in a place other than that of his domicile or the site of the property, could potentially impact the transaction in the future.
Although every effort has been made to assure the accuracy of the information contained in this summary as of the date of its preparation, nothing herein should be construed as giving legal advice. Obviously, the Law is subject to change, and it changes very often in Brazil. In addition, the application of the Law to specific circumstances can present complex issues that are beyond the scope of this summary, which is intended to provide general information related to the acquisition of urban real estate properties by foreigners in Brazil. We will be pleased to provide more detailed information upon request.
Founding partner of Noronha Advogados, admitted to the Brazilian Bar Association in the State of São Paulo in 1978.