The heating of the Brazilian real estate market in recent years has occurred as an impulse for the improvement and diversification of real estate contracts since in recent legal relations, there was an increase use of the most common contracts and an emergence of new atypical contracts in order to ensure and consolidate the business conducted.
As a resource for this new scenario that has attracted many foreign investors, the Brazilian market ended up importing a kind of contract which proved to be very much adequate for its needs called “built to suit”. This contract is currently defined in Brazilian law as “non-residential lease of urban property in which the lessee proceeds to a prior acquisition, construction or substantial renovation, by yourself or third parties, of the property specified by the claimant of the lease, so that this is rented for a specified period “(Article 54-A, Federal Law 12.744/12).
Before those rules and considering the relative newness of the institute, such agreement was considered by most part of the doctrine as atypical. Thus, the usual legal practice used to end by adopting the instrumental rules of its closer institute named as “rental”, governed by Federal Law No. 8.245/91, known as the “Law of Tenancy.” However, despite the efforts of interpretation, that was insufficient to ensure the necessary security for the business.
Given the absence of legal support, this Federal Law No.12,744 was promulgated in December 2012, aiming to amend some articles of the Law of Tenancy. From then on, it has been possible for investors to use a model of contract properly regulated by our legal system, in which it is possible to predict not only the delivery of the work and its rental, but also an earlier stage which involves the construction of the property within the parameters set by the lessee.
In the brief lines below it will be possible to understand the most important practical implications of this new law.
Penalty in the event of termination:
The new wording (reference to the article 4, which foresees the exception provided in the new article 54-A, paragraph 2 of the same law) of the Law of Tenancy turns clear that the general rule about penalty in case of termination does not apply to the “built to suit” which allows that, in this case, the lessor also requires the payment of the amounts related to the leases to expire and not only the proportional value of the amounts already expired.
That happens because, far from being a form of unlawful enrichment, the recovery of outstanding amounts is intended to reimburse the investment made in a personalized form and, thus, prevent damages to the lessor, not existing only as form of compensation for the use and enjoyment as occurs in rental agreements.
Accordingly, this new device has come to adequate the penalty to be paid in case of termination to the essence of what we seek in a “built to suit” contract. Therefore, the prevision of payment of the installments to expire in the termination penalty of “built to suit”, turned its nature to be compensatory, drifting away the lessor from any possible damages since there is a compensation for the leases that will not be received.
Waiver of right of review:
The new law also includes the possibility of waiving the right to review the amount of the lease, an unique possibility given to the “built to suit”. The essence of such a legal provision falls, once again, on the need of the lessor to recover the invested amount and the lessee pay the customized work, since the value of the property investment is included in the rent and its adjustment upward or downwards, would bring damages respectively to the lessee or the lessor.
However, the parties only have this option if the contract is for a definite term. That happens because, in the case of an indefinite term, it will be possible to verify that, from a certain moment, the amount invested will have been fully reimbursed to the lessor changing the nature of the income earned, which shall aim profit and allow the lessor its free stipulation and readjustment.
Thus, the “built to suit” arose in order to allow one party (lessee) to hire the construction of a property according to its needs and receive from the other party (lessor) in the exact terms of the order, upon payment of a remuneration.
This possibility of compensation after the end of the construction became quite advantageous to the lessee/ investor, since it avoids not only the immobilization of the capital before the delivery of the property but also allows the payment of the rent to be considered as an expense in the company’s balance sheet by reducing the income tax due.
Therefore, it is clear that the promulgation of the mentioned Federal Law brought expressive and significant practical changes for the parties involved in the contract, which may be translated into greater legal certainty.
It is also important to note that the regulation of this contract by the Brazilian legislation will also bring more confidence, security and accuracy to foreigners who are interested or have already invested their resources in the country.
Ana Lucia Villela was an associate at Pacheco Neto Sanden Teisseire Law Firm.