The Corporate Real Estate Market

This article was originally published in the PLC Cross-border

Corporate Real Estate Handbook 2008/09

1. What have been the main trends in the real estate

   market in your jurisdiction over the last 12 months? What have been

   the most significant deals?

   Brazil has seen growing trends in the real estate market in the

   past year. The government's offer to provide financing for

   investment projects in the country has led to rapid development in

   the real estate sector.

   The demand for low and medium cost housing has increased

   strongly throughout Brazil and has encouraged many companies to

   focus their interests and efforts on this sector.

   The world demand for food and energy commodities has affected

   Brazilian real estate markets, raising the prices of property in

   rural areas.

   Brazil is undergoing a consolidation process in the property

   market, through mergers and acquisitions of small and medium-sized

   real estate developers, real estate brokers and construction

   companies with more capitalised companies.

   REAL ESTATE INVESTMENT

2. Please briefly outline the opportunities for

   investing in real estate in your jurisdiction. In particular,

   consider:

   The structures commonly used (for example, property

   companies and partnerships).

   Are real estate investment trusts (REITs) available? If

   so, are they commonly used?

   The role of institutional investors.

   The role of private investors.

   Structures commonly used

   There are various structures commonly used for property

   investment, including property companies, partnerships, funding

   mechanisms and security structures.

   REITS

   The Brazilian real estate investment fund (Fundo de

   Investimento Imobiliário) is similar to the US REIT,

   and is commonly used for each kind of real estate investment.

   Role of institutional investors

   Institutional investors play a significant role in the market,

   investing in major sectors including retail and commercial

   property. They are also beginning to invest in low and medium cost

   housing sectors.

   Role of private investors

   Private investors are usually the developers of new areas and

   sectors, and invest in all sectors of the real estate market.

   REAL ESTATE LEGISLATION

3. Please briefly set out the main real estate legislation that

   applies in your jurisdiction.

   The main legislation regulating real estate transactions

   includes the:

   Brazilian Civil Code (Federal Law 10.406/2002), which contains

   provisions on the ownership and transfer of real estate, and rights

   and security interests in real estate.

   Public Registers Law (Federal Law 6.015/1973).

   Lease Law (Federal Law 8.245/991).

   TITLE

4. Please briefly state what constitutes real estate in your

   jurisdiction. Is land and any buildings on it (owned by the same

   entity) registered together in the same title, or do they have

   separate titles set out in different registers?

   In Brazil, land and everything that is incorporated into land

   (whether naturally or artificially) is classed as real estate. Land

   and any buildings on it owned by the same entity are registered

   together in the same title.

5. How is title to real estate evidenced, for example by

   registration in a public register of title? Which authorities

   manage the public title register?

   Title to real estate is evidenced by registration in the

   appropriate real estate register. Good title to real estate can be

   proved by a recent certificate of title, issued by the real estate

   registrar. A certificate of title details all registered

   transactions relating to the property over the last 20 years, and

   usually provides evidence of ownership and indicates any lien

   against the property.

   With non-registered land, claims, rights or liens are only

   enforceable between the parties to the transaction. Therefore,

   although property rights are derived from a deed, the buyer's

   ownership of property only becomes valid against third parties once

   the deed is registered in the real estate register under the title

   number for the property.

6. Please briefly set out the information and documents

   registered in the public register of title, for example a

   description of the real estate, the owner, matters affecting the

   title and any relevant documents.

   Since the Public Registers Law (Law 6015/73) came into force,

   Brazil has operated a public registration system for real estate,

   based on a system of registers. The first transaction involving a

   property that occurs after 1973 triggers registration in the

   appropriate real estate register and the property is given a title

   number (matrícula). Under this title number, the real estate

   registrar records:

   Details of the owner.

   A description of the property.

   The existence of any buildings.

   All third party rights and interests in the property that are

   subject to registration. Registrable third party rights and

   interests include mortgages (hipoteca), legal charges such as

   attachments, and any other real right or interest in the

   property.

7. Can confidential information or documents be protected from

   disclosure in the public register of title?

   In Brazil, once documents are registered in the real estate

   register they become public. Anyone can apply for and obtain

   certificates of title and copies of titles.

8. Is there a state guarantee of title? Is title insurance

   available? If so, is it commonly used?

   In Brazil, there is no state guarantee of title. Title insurance

   is not available in Brazil, although some foreign insurance

   companies insure title to Brazilian properties.

9. How can real estate be held (that is, what types of tenure

   exist)?

   Ownership is absolute and perpetual until disposal of the

   property by the owner, who is free to enjoy it and dispose of it,

   subject only to third party rights and applicable legal

   restrictions. On the owner's death, ownership transfers to the

   owner's heirs.

   Among others, the following types of tenure exist:

   Usufruct, that is, full right of use and enjoyment, including

   the right to any income or produce generated by the property.

   Fiduciary ownership.

   Conditional or defeasible ownership.

   Fiduciary alienation, which is a type of security.

   The rights of the buyer under a promise to sell and

   purchase.

   Real right of use, which is a type of limited usufruct, giving

   the right to use property for a specific purpose.

   Right to build or to cultivate (superficie), which is a

   specific right to build or to cultivate that can be granted by the

   owner of the land in favour of a third party

   Fideicommissary substitution, in which ownership of property

   passes to one heir or beneficiary, who holds it in trust until his

   death, when the property passes to the second heir or

   beneficiary.

   Emphyteusis, which is the right to possess, use and enjoy the

   property in perpertuity. Emphyteusis was abolished when the Civil

   Code of 2002 came into force, although existing emphyteutic liens

   were not affected.

   Properties subject to a special coastal land system.

   SALE AND PURCHASE OF REAL ESTATE

10. What are the main stages and documents in the sale and

    purchase of real estate? In particular:

    How is real estate marketed, when does commercial negotiation

    occur and what pre-contractual arrangements are used?

    When is the sale contract negotiated and executed?

    When are the parties legally bound?

    When is the change of title registered?

    When does title transfer and what are the formal legal

    requirements to transfer real estate (for example, in writing and

    signed by the parties)? Is notarisation required?

    Marketing

    Properties are usually marketed through newspaper adverts,

    internet databases and real estate brokers.

    Commercial negotiation

    Early negotiations are commonly conducted by the buyer or real

    estate brokers. In complex cases, legal counsel is usually involved

    in negotiations, particularly if parties enter into binding

    obligations. Legal counsel can also be involved depending on:

    Whether title to the property needs to be investigated and

    cleared.

    The activities that will be carried out at the property by the

    new owner.

    The complexity of the due diligence.

    Pre-contractual arrangements

    Pre-contractual arrangements, such as offers made by potential

    buyers, do not bind the parties. Most case law holds that the

    parties should act in good faith, even before an agreement is

    reached. However a binding agreement only usually exists once the

    seller accepts the buyer's offer.

    Sale contract

    A buyer begins by making an offer. If the seller accepts the

    offer, there is an agreement. Both parties are then obliged to

    comply with the terms of the agreement.

    After investigation of title and providing there are no

    obstacles to the sale, the parties enter into a public deed of sale

    and purchase or public deed of promise to sell and purchase...