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Acquisition of a real property

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07/01/2015 22:00 Demarest News

 

 

​Acquisition of a Real Property
 
​The acquisition of rural land by foreigners was primarily ruled by Federal Law no. 5709/71, and was regulated by Decree no. 74965/74. Such rules imposed limitations to those willing to buy properties in Brazil, which main ones were: (i) residence or authorization to operate in Brazil (individuals or legal entities); (ii) effective exploitation of the land; (iii) limited area; and (iv) authorization granted by the National Institute of Colonization and Agrarian Reform (INCRA).
 
Apart from that, the Decree No. 74,965/74, which regulates the Federal Law No. 5,709/71, establishes that the restrictions and limitations imposed by the law also apply to the transfer of properties in case of merger of companies, of amendment in the equity control of the company, or of transformation of the national legal entity into a foreign one. According to the terms set forth in said Decree, the Real Estate Registry officer will only proceed with the transcription of documents relating to the mentioned businesses upon the submission of the necessary authorizations for the transfer of the ownership of the respective rural properties.
 
In 1995, the enactment of Constitutional Amendment no. 6 revoked article 171 of the Constitution and, as a result, made Brazilian companies with foreign capital equivalent to Brazilian companies with Brazilian capital. It also gave rise to an understanding of the doctrine, almost widely accepted, that stated that the restrictions imposed by Federal Law no. 5709/71 were no longer applicable to Brazilian companies of foreign capital (since they were considered to be Brazilian companies) and therefore should be disregarded by such companies.
 

 

The Federal Attorney General's Office (AGU), corroborating this understanding of the doctrine, issued Opinion AGU/LA – 01/97, published in the Federal Official Gazette on January 22, 1999, stating that such legal provision was revoked.

 

 
On the face of that Constitutional Amendment, the alternative for foreign investors to acquire lands in Brazil was incorporating a Brazilian company, which is undoubtedly a much less bureaucratic and faster means to meet the requirements set out by Federal Law no. 5709/71.
 
However, foreign investors' increasing interest in acquiring properties in the Brazilian rural areas and the world shortage of natural resources made the government to bring the issue of acquisition of rural properties by foreigners into discussion again.
 
On August 19th, 2010 the AGU issued a new opinion (Opinion AGU/LA - 01/2010), contrary to the Opinion AGU/LA – 01/97 (that has been observed during the latest 15 years) in the context of several articles published in the Brazilian media whereby the Brazilian Government has indicated the need of having more control over the acquisition of rural land in Brazil by foreigners.
 
The new AGU's Opinion established that the limitations and restrictions imposed by the Federal Law No. 5,709/71 were once again applicable to Brazilian legal entities that are on any account composed by foreign persons, natural or legal ones, who hold the majority of its capital stock. Therefore, any Brazilian legal entity that stakes the participation of corporate or foreign individual needs prior authorization by INCRA to acquire a rural property and/or execute rural lease agreements.
 
Joint Normative Instruction no. 1 issued by the Ministry of Agrarian Development on 9/27/12 and published in the Official Gazette of the Federal Executive (DOU) on 9/28/12 ("Instruction") establishes the steps of the administrative procedure ("Administrative Procedure") for foreign persons, individuals or legal entities, or equivalent persons under Law no. 5709/71 ("Foreigners"), to obtain the necessary authorization to acquire or lease rural real properties in Brazil. Said Instruction reaffirms, at some points, and specifies, at others, the documents necessary for, and the stages applicable to, the respective Administrative Procedure for Foreigners to acquire or lease rural real properties in Brazil.
 
From a practical standpoint, this Instruction rendered the Administrative Procedure more bureaucratic and slow on account of the exploitation-project documents required under Article 3  thereof and the lack of a term for completion of each related stage and, as a consequence, for INCRA's decision on the request for authorization.
 
Following the guidance drawn up on the Opinion LA-01, issued by AGU, the National Council of Justice ("CNJ") recommended, through the Opinion No. 250/10-E, that the local or Judicial Internal Affairs Offices, linked to their respective Courts of Justice, determine to the Real Estate Registry Offices and Notary Offices to strictly follow the provisions of Law No. 5.709/71, with respect to the drawing up of acts aiming the acquisition and/or lease of rural properties by Brazilian companies which majority of the capital stock is owned by foreign individuals or legal entities ("Brazilian Foreign Capital Companies”).
 
Since then, the Real Estate Registry Offices and the Notary Offices have been refusing to perform acts that aimed the transfer of title and/or the lease of rural properties to Brazilian Foreign Capital Companies without the presentation of a prior approval of INCRA, as requested by Law No. 5,709/71.
 
However, the Magistrate General Justice of the State of São Paulo, has approved the Opinion No. 461/2012, which revised the previously established normative guidance contained in Opinion No. 250/10-E, thus waiving the Notary Offices and the Real Estate Registry Offices of the State of São Paulo of requiring the presentation of the prior authorization issued by INCRA for the performance of transactions involving the acquisition and/or the lease of rural properties to Brazilian Foreign Capital Companies. Please note that this decision may represent a favorable precedent to alter the understanding of other local Judicial Internal Affairs Offices and even the CNJ. However, caution is recommended with regard to the effects and scope of such a decision.
 
Please note that although AGU's opinion is not a final and binding interpretation to the public in general and therefore, its accuracy and legality may be disputed before the Brazilian Courts, it is binding on all bodies of the executive branch of the Federal Government, except on the State of São Paulo.
 
Demarest Advogados
Real Estate area
 
 
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Art. 3 Where required, the project shall contain documentation evidencing the following minimum information elements:

 

I - justification of proportionality between the intended quantity of land and the project size;
II - timetable and financial schedule of the investment and implementation;
III - use of official credit, if applicable, in the partial or total financing of the undertaking;
IV - logistic feasibility of its execution and, in case of industrial project, proof of compatibility between the industrial plant(s) site(s) and the geographic location of the lands;

 

V - proof of compatibility with the criteria for the Brazilian Economic and Ecologic Zoning (Zoneamento Ecológico Econômico - ZEE), concerning the property location, if existing.
 

 


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