27th of December of 2018

The New Law. Today, president Temer signed into law without amendments (that is, without vetos) Bill No. 1,220/2015, as voted and approved by Congress, which thus became Federal Law No. 13,786, dated December 27, 2018.

Immediate Effect. The new law shall come into force after it is published in the Federal Official Gazette, which will take place on December 28, 2018.

Real Estate Development. Articles 35-A, 43-A and 67-A were added to Federal Law No. 4,591/64 (“Real Estate Development Law”).

Parcelments. Articles 26-A and 32-A were added to Federal Law No. 6,766/79 (“Division of Urban Land Law” or “Parcelment Law”). Moreover, articles 25 and 34 of the same law were amended.

Summary Table (Applicable to both Real Estate Development and Parcelments). All sale contracts regarding autonomous real estate units and parcels, subject to the Real Estate Development Law (4,591/64) or the Parcelment Law (6,766/79) must contain a summary table with information deemed essential.

Grace Period (Real Estate Development). Contracts may establish, in a clear and highlighted manner, a grace period of up to 180 calendar days counted from the contractually agreed upon date for the conclusion of the development. 

Delivery within the Grace Period (Real Estate Development). During the grace period delays shall not be subject to any penalties, nor do they allow termination of contract by purchaser.

Failure to Deliver by the End of Grace Period (Real Estate Development): Option. Purchaser may opt between: (i) terminating the contract to receive a full refund, duly indexed for inflation, within 60 days counted from termination, and additionally claim the fine established in the contract; or (ii) continue to await for the delivery of the unit and thus become entitled to a fine of 1% of the amount actually paid to the developer for each month of delay, pro rata die, duly indexed for inflation, to be paid upon delivery of the unit.

Non-Cumulativity (Real Estate Development). The penalty foreseen in contract for default (total failure by developer to deliver) and the penalty established in law for delay (late delivery fine applicable after the grace period) are not cumulative.

Penalties in Case of Termination Resulting from Purchaser’s Default (Real Estate Development):

Refunds (Real Estate Development). In principle, all amounts paid directly to developer are refundable, duly indexed for inflation.

Brokerage Fees (Real Estate Development). Brokerage fees may be fully withheld if paid directly to developer. Fees paid to brokerage firm and associated broker directly by purchaser are not refundable and, therefore, likewise non-deductible.

Fruition Expenses (Real Estate Development). During the term in which the unit is available to purchaser, same is responsible for real estate taxes regarding the unit, for the applicable condominium quota, for amounts due to resident associations, as well as for fruition, corresponding to 0.5% of the updated amount of the contract, pro rata die.

Without Asset Appropriation (Real Estate Development). The parties may agree upon a penalty of up to 25% of amounts paid to be refunded, after a number of deductions, in one single installment, up until 180 days counted from termination.

With Asset Appropriation (Real Estate Development). The parties may agree upon a penalty of up to 50% of amounts paid to be refunded, after a number of deductions, in one single installment, in up to 30 days of the issuance of the occupation license (“Habite-se”).

Acceleration of Refund (Real Estate Development). In case developer succeeds in reselling the unit (whether subject or not to asset appropriation) developer must refund purchaser, after applicable deductions, in one single installment, within 30 days of resale.

Release from Penalty (Real Estate Development). Purchaser shall not be subject to penalties if he able to transfer his contractual rights and obligations to an suitable third party, provided that the developer agrees and approves the application and financial eligibility of said third party.

Effects of Termination (Real Estate Development). The summary table must indicate (highlighted in bold) the consequences of the end of the contract, be it as a result of bilateral mutually agreed upon termination or as a result of purchaser’s breach. Purchaser must expressly agree to such consequences.

Irrevocable and Irretrievable Nature (Real Estate Development). The new law reinforces the irrevocable and irretrievable nature of the contracts. It allows only for one exception regarding an unmotivated unilateral right to terminate in case contract is entered into at a sales stand or outside the headquarters of the developer or of the business establishment.

Non-Extendable Term (Real Estate Development). In case of the aforementioned unilateral right to terminate, purchaser must necessarily notify its decision within 7 days counted from execution of contract.

Full Refund (Real Estate Development). In such event, purchaser shall be entitled to a full refund, including brokerage fees.

Contractual Freedom (Real Estate Development). In case of bilateral mutually agreed upon termination, developer and purchaser are free to establish penalties that differ from those listed above.

Extrajudicial Auction (Real Estate Development). Refund shall be subject to the rules that apply to extrajudicial auctions regarding constructions at cost price, at pre-established price (fix term and price) and regarding fiduciary liens.

Penalties in Case of Termination Resulting from Purchaser’s Default (Parcelments):

Refunds (Parcelments). In principle, all amounts paid directly to developer are refundable, duly indexed for inflation.

Fruition Expenses (Parcelments). Purchaser is responsible for the fruition of the parcel during the period in which he is in possession of same at the rate of 0.75% of the updated amount of the contract.

Penalty (Parcelments). Developer and purchaser may agree upon the penalty clause and liability for administrative expenses, including down payment, limited, however, to 10% of the updated amount of the contract.

Late Payment Amounts (Parcelments). Late payments amounts (interest and fines) relative to installments paid in arrears are deductible from amounts to be refunded.

Other Debits (Parcelments). Debits regarding the Urban Land and Building Tax (IPTU), condominium quotas, association quotas and others of same nature, as well as for tariffs relative to the parcel and taxes, costs and fees applicable to the refund and/or termination are all deductible.

Brokerage Fees. (Parcelments). Likewise, brokerage fees may be deducted provided they were included in the parcel’s price.  

Effects of Termination. (Parcelments). The summary table must indicate (highlighted in bold) the consequences of the end of the contract, be it as a result of bilateral mutually agreed upon termination or as a result of purchaser’s breach. Purchaser must expressly agree to such consequences.

Refund Term (Parcelments) (Unfinished Parcelments). In up to 12 installments. First installment is due within the maximum term of 180 days, counted from the contractually foreseen date for the conclusion of works.

Refund Term (Concluded Parcelments). In up to 12 installments. First installment is due within the maximum term of 12 months counted from termination of contract.

Registry of New Sale (Parcelments). New sale may only be registered (with relevant Real Estate Registry Office) after the beginning of refund is duly evidenced. Such requirement is waived in case purchaser is not located or remains silent.

Payment of more than 1/3 (Parcelments). If more than 1/3 of the agreed upon sale price has been paid, such fact and amount paid shall be evidenced at the time of the cancelation of the existing registration. In such case, the new registration shall be contingent upon the prior production of the mutually agreed upon bilateral termination agreement, as well as evidence regarding the payment of the single installment or of the first installment of the amount to be refunded to purchaser or, alternatively, deposit in readily available monies at the Real Estate Registry Office, except if the parties expressly agree upon different terms in the bilaterally mutually agreed upon agreement executed by them.

Fiduciary Lien (Parcelments). In case of sale and purchase of parcels subject to fiduciary lien, the procedures foreseen in Federal Law No. 9,514/1997 shall apply.

Useful or Necessary Betterments (Parcelments). The rule established in article 32 of the Parcelment Law remains unchanged. However, developer is henceforth obligated to sell the estate in an extrajudicial or judicial auction within 60 days counted from the date purchaser was notified of the event of default (arrears status) according to the procedures required by Federal Law No. 9,514/97.