Typical transaction structures – public companies

What is the typical structure of a business combination involving a publicly traded real estate-owning entity?

Real estate businesses may structure transactions using the following different types of legal arrangements:

  • acquisition (share or quotas, or assets);
  • corporate restructuring (ie, a merger, spin-off, drop-down, consolidation or creation of wholly owned subsidiaries);
  • real estate investment funds (FIIs); or
  • private agreement (ie, a rural partnership agreement, a special partnership agreement or a surface rights deeds).

The choice of the structure depends on:

  • the type of business to be developed;
  • tax issues;
  • control of the business;
  • the characteristics of the buyer and the equity involved (ie, a financial investor or a business-oriented acquirer);
  • the financing of the transaction; and
  • regulatory or third-party approvals.

Recently, there has been an increase in private agreements, especially surface rights deeds and special partnership agreement structures, to develop new business in Brazil’s real estate market. Investment funds (real estate-focused funds and private equity funds) have also been increasing in recent years. The mix of financial instruments (eg, funds) is interesting, as it indicates a change in the mindsets of real estate investors, which are no longer attached to the property title of ‘ownership’.

Typical transaction structures – private companies

Are there any significant differences if the transaction involves a privately held real estate-owning entity?

The main difference in a transaction involving a privately held entity that owns real estate, versus a transaction involving a publicly held company, is that publicly held companies and investment funds are subject to the rules of the Securities and Exchange Commission of Brazil (CVM), and must follow procedures for corporate governance and the disclosure of information for transparency purposes.

Typical transaction process

Describe the process by which public and private real estate business combinations are typically initiated, negotiated and completed.

The process is typically as follows:

  • signing of a non-disclosure agreement or exclusivity agreement;
  • defining the main points of the transaction, including definition of structure, price, payment terms, schedule and guarantees;
  • executing due diligence;
  • signing of binding or non-binding documents, such as:
    • memoranda of understanding (MOUs);
    • corporate changes that (i) determine the main terms and conditions of the business to be carried out, and (ii) regulate the definitive contracts, including:
      • indemnities;
      • tax considerations;
      • transition arrangements;
      • precedent conditions to closing; and
      • termination conditions;
  • notifying the CVM and publication in the press, for publicly held companies;
  • fulfilling precedent conditions;
  • obtaining regulatory and third-party approvals (eg, from the lessee, the Brazilian Antitrust Agency (CADE) or the National Institute of Colonization and Agrarian Reform (INCRA));
  • executing the definitive agreements and corporate documentation (ie, closing); and
  • post-closing procedures (ie, registering acts and documentation before the relevant authorities, such as the Real Estate Registry Offices, INCRA and the Board of Trade).

Law and regulation

Legislative and regulatory framework

What are some of the primary laws and regulations governing or implicated in real estate business combinations? Are there any specific regulations or laws governing transfers of real estate that would be material in a typical transaction?

The main laws that should be observed in business combinations in Brazil are:

  • the Civil Code (Law No. 10,406 of 10 January 2012), which governs the civil and commercial relations, contracts and agreements in general;
  • the Tax Code (Law No. 5,172 of 25 December 1966);
  • the Antitrust Law (Law No. 12,259 of 30 November 2012); and
  • the Corporate Law (Law No. 6,404 of 15 December 1976).

In relation to real estate business combinations, zoning rules and environmental laws must be observed. Also, the following laws must be observed:

  • the Rural Land Law (Law No. 4,504 of 30 November 1964);
  • the Lease Law (Law No. 8,245 of 18 October 1991);
  • Law No. 5.709 of 7 October 1971 (if the real estate is considered a ‘rural property’ and the investor is a foreign person or entity); and
  • Law No. 6,634 of 2 May 1979 (if the real estate asset is located in the border zone - see question 5).

Listed companies on the Brazilian stock market and investment funds must comply with the rules provided by the CVM. Specific accounting and auditing rules may apply depending on the structure chosen for a real estate business combination transaction.

Cross-border combinations and foreign investment

Are there any specific material regulations or structuring considerations relating to cross-border real estate business combinations or foreign investors acquiring an interest in a real estate business entity?

A foreign investor or acquirer must open a local subsidiary company to be entitled to invest in real estate assets directly or indirectly as a cross-border transaction. Typically, limited liability companies and corporations are used as vehicles for acquisition operations in the Brazilian real estate market.

In addition, foreign investors must heed the regulations of the Brazilian Central Bank regarding the entry, registration and exit of foreign capital, and applicable limitations on the participation of foreign investment in specific activities or industries, including those related to real estate.

Moreover, foreigners may acquire urban real estate properties in Brazil under the same conditions that apply to Brazilian citizens (or foreigners with permanent visas) and companies. However, specific conditions may apply when the real estate property to be acquired is located in a rural zone, near to the Brazilian coast or borders, or with respect to specific regions designated as areas of national security, regardless of it being a real estate or a corporate transaction.

In these cases, any business combination is subject to specific regulations issued by competent authorities, such as INCRA, the Ministry of Agriculture or the National Security Council. The necessary approvals will observe specific procedures determined by each of the competent authorities. Owing to this, during the process of structuring the transaction, the structure must be reviewed to ascertain the approvals required and compliance with legal restrictions that may apply.

Choice of law and jurisdiction

What territory’s law typically governs the definitive agreements in the context of real estate business combinations? Which courts typically have subject-matter jurisdiction over a real estate business combination?

Brazilian law governs transactions that take place in Brazil. However, the parties may choose the court or arbitration chamber for dispute resolution. Nevertheless, the courts where the real estate is located have jurisdiction over disputes or matters related to the real estate.

Approval and withdrawal

Public disclosure

What information must be publicly disclosed in a public-company real estate business combination?

Brazilian law determines that all relevant information on business combinations related to public companies should be fully disclosed to the market.

Relevant information comprises all deliberations by general meetings or the management bodies of a publicly held company, or any other act or fact that has occurred in its business that may significantly influence:

  • the quotation of the securities issued by the publicly held company;
  • the decision of the investors negotiating such securities; and
  • the determination of the investors to exercise any rights held by the holder of securities issued by the company.

Whether a public company is involved in the transaction determines the scope of the disclosure and its proceedings, not the structure or size of the transaction, as a listed company is subject to CVM regulation.

Duties towards shareholders

Give an overview of the material duties, if any, of the directors and officers of a public company towards shareholders in connection with a real estate business combination. Do controlling shareholders have any similar duties?

The directors and officers of a company have duties in a business combination (real estate-related or not) and in regular business activities. The managers must provide information and act with loyalty and good faith in the best interests of the company and its stakeholders, performing the obligations that are conferred by law and by-laws regarding diligence, refraining from intervening in situations involving conflicts of interests, and (in the case of public companies) meeting the duty of disclosure of information.

According to the Brazilian Civil Code and Brazilian Corporation Law, the officers of a company should act, according to their corporate by-laws, on behalf of the company and provide compensation with their own assets for damage caused by officers to the company in violation of their fiduciary duty provided for in law or in the company’s by-laws (particularly in the event that the misconduct benefitted officers or third parties (related or not) and was detrimental to the interests of the company).

The Brazilian Civil Code and Brazilian Corporation Law set forth rules regarding conflicts of interest and abuses of control to avoid shareholders acting against the company’s best interest. Therefore, the shareholders and controlling shareholders also have fiduciary duties towards the company. These rules establish that shareholders must never place personal interests above the company’s best interests. If a shareholder’s acts jeopardise the company, the shareholder must compensate the company with his or her personal assets.

In addition, officers and controlling shareholders of a public company must immediately notify the CVM and disclose to the market any deliberation of the general meeting or of the company’s management bodies, or a material fact occurring in its business, that may influence the decision of market investors to sell or to buy securities issued by the company.

Prior to the disclosure of any material information to the market, directors and controlling shareholders must observe the rules of secrecy and non-trading of shares, pursuant to Instruction CVM 358/2002.

Shareholders’ rights

What rights do shareholders have in a public-company real estate business combination? Can parties structure around shareholder dissent or rejection of a real estate business combination, and what structures are available?

Shareholders have approval rights over a business combination. The business combination of a company (whether real estate-related or public) must be approved by the shareholders in a shareholders’ meeting, according to the quorum established in the company’s by-laws and observing the Corporate Law’s provisions.

In addition, the Corporate Law gives minority shareholders with voting rights tag-along rights, also known as the joint right to withdraw, in the sale of control of the publicly held company.

The mechanism that enables the socialisation of the control premium is a public offer. After acquiring the shares of the controlling block, the acquirer must register an offer with the CVM to buy the shares owned by minority shareholders holding shares with voting rights. The minority shareholders have the right to follow the controlling shareholder, receiving a price similar to the one paid by the controlling shareholder for their shares.

The minority shareholders also have a withdrawal right if certain resolutions are approved during a general shareholders’ meeting. The resolutions that enable the withdrawal by a shareholder include, but are not limited to:

  • the creation of preferred shares or increase of a class of existing preferred shares, without maintaining the proportion to the other classes of preferred shares;
  • a change in the preferences, advantages and conditions of redemption or the amortisation of one or more classes of preferred shares;
  • the merger of the company, or its incorporation into another company; and
  • the inclusion of an arbitration clause.

Once a business combination is structured, it must take into consideration the rights of minority shareholders and all necessary approvals and procedures to be followed to complete a transaction.

Finally, shareholders are granted a fair price in a going-private transaction.

Termination fees

Are termination fees typical in a real estate business combination, and what is their typical size?

Termination rights are usually provided for in any transaction and define the circumstances under which the acquirer (and sometimes the seller) might be entitled to terminate the transaction before it is perfected. For example, if:

  • one or more of the closing conditions have not been or cannot be met;
  • the agreement has been breached;
  • the target company has suffered a material adverse change; or
  • an unforeseen event has occurred since the execution of the definitive documentation.

These provisions, if triggered, can also result in the payment of a termination fee or a penalty clause that is intended to compensate the innocent party for the loss and damage suffered, and at the same time discourage non-compliance with the terms of the agreement for the perfection of a deal. According to the Brazilian Civil Code, penalty clauses and termination fees may be freely established between the parties but are limited to the total price of the transaction, as provided for in the contract.

The court may reduce the fine if it is considered excessive, taking into account the particular circumstances of each transaction.

Takeover defences

Are there any methods that targets in a real estate business combination can employ to protect against an unsolicited acquisition? Are there any limitations on these methods?

An unsolicited proposal only takes place in public companies with a high number of liquid shares in the market that allow a third party or a shareholder to acquire control of the company by purchasing the shares of non-controlling shareholders and without consulting its managers.

In Brazil, one of the ways to avoid the hostile offer is the obligation to make a public offering of shares, which applies in specific situations. According to the Corporate Law, any interested third party or shareholder that reaches a certain amount of shares must, within the period stipulated in the company’s by-laws, request the registration of a public offer for acquisition of shares (OPA) held by the other shareholders at a determined price that is higher than the regular market price. This kind of ‘poison pill’ by-law is common in the Brazilian market.

Notifying shareholders

How much advance notice must a public target give its shareholders in connection with approving a real estate business combination, and what factors inform this analysis? How is shareholder approval typically sought in this context?

The approval of a public company is usually obtained in a general shareholders’ meeting, which is held pursuant to the company’s by-laws. In this case, an extraordinary meeting, which can be called 15 days in advance, should provide:

  • financial and technical appraisals;
  • conditions of the deal; and
  • risks and assessments.

The managers and consultants of the company must provide any information that is needed in the meeting.

The shareholders of a publicly held company may request an extension of the term to 30 days from the CVM, prior to the extraordinary meeting.

Taxation and acquisition vehicles

Typical tax issues and structuring

What are some of the typical tax issues involved in real estate business combinations and to what extent do these typically drive structuring considerations? Are there certain considerations that stem from the tax status of a target?

Tax issues are an essential aspect to be considered whenever an operation is being structured. Even when the seller is responsible for the payment of some taxes in a business combination, this amount is always considered in the price definition, so both parties should collaborate in seeking the best possible structure in terms of fiscal planning.

Another point of note for the acquirer will be the existing tax liabilities and foreclosures, as the acquirer is liable for the tax debts related to the assets or to the real estate related to a transaction, if the seller is party to pending tax foreclosures, or if it has not honoured past tax payment and ancillary tax obligations. The situation is even more delicate if, with the closing of the transaction, the selling party ends its business activities.

Some of the typical tax issues to be considered are:

  • federal income tax over capital gains, which is based on the difference between the sale price and the cost of acquisition of the property;
  • tax shields;
  • real estate taxes, such as:
    • a municipal tax payable by the buyer in the acquisition of a real estate property, of which the rate varies from 2 to 4 per cent, depending on the local tax laws; or
    • a tax related to properties held under the emphyteusis system, and payable upon the transfer of the useful domain, the rate of which could be 2.5 or 5 per cent of the current value of the property, as established by the federal authority;
  • financing taxes;
  • goodwill amortisation, use of tax losses, transference of tax credits; and
  • federal income tax regimes applicable to the target company - presumed profit system versus the actual income tax.
Mitigating tax risk

What measures are normally taken to mitigate typical tax risks in a real estate business combination?

Due diligence is essential to evaluate existing tax liabilities (eg, tax foreclosure, administrative tax proceedings and tax contingencies) related to the asset or sellers, and to evaluate the alternatives to mitigate the risks involved (eg, advance payments of debts, escrow accounts and price discounts, among others). Tax foreclosure may prevent the perfection of a real estate transaction, especially if the assets are attached or enrolled before Federal Revenue Services as a guarantee for tax debts of the seller.

In addition to the existing liabilities, it is also important to carry out a tax analysis and review all potential structures in relation to the best tax alternative, considering all applicable taxes related to the operation and their impact on the price. Brazil has a very complex tax system that is a challenge for companies to deal with. However, concerning tax alternatives, the Brazilian tax authorities are especially attentive regarding corporate structures pursuing business combinations with the sole and exclusive purpose of avoiding the payment of taxes. The tax authority will consider the form and the essence of the corporate structure implemented for the business transaction, as the chosen structure must have a justifiable economic substance for the business, regardless of the tax gain arising therefrom.

Types of acquisition vehicle

What form of acquisition vehicle is typically used in connection with a real estate business combination, and does the form vary depending on structuring alternatives or structure of the target company?

The acquisition of a real estate business usually takes the form of an asset deal or a corporate deal. The following should be considered when choosing the acquisition vehicle:

  • tax concerns;
  • personal liability; and
  • management concerns.

The more commonly used acquisition vehicles are:

  • property companies (eg, a corporation, a limited liability company or a special purpose vehicle);
  • partnership agreements; and
  • investment funds.

Depending on the structure, the acquirer may have some tax benefits and legal protections.

Take-private transactions

Board considerations in take-private transactions

What issues typically face boards of real estate public companies considering a take-private transaction? Do these considerations vary according to the structure of the target?

The board of directors is granted, among others, the following powers to:

  • make policy decisions;
  • select and remove officers;
  • inspect corporate books and records;
  • call shareholder meetings;
  • recommend or approve contracts and deals; and
  • authorise the sale or purchase of assets.

The board of directors is a deliberative collegial body and, therefore, the liability is invariably attributable to all members, except if the dissident records his or her disagreement in the minutes.

Based on the above, regardless of the structure of the transaction, boards of real estate-related public companies usually face the following issues:

  • proper valuation of the asset;
  • benefits to the company of the acquisition of the asset;
  • compatibility of the transaction with the company’s purposes;
  • financial matters and risks in the transaction; and
  • regularity of all legal procedures and authorisations required for the transaction.

For safeguarding purposes, real estate public companies usually utilise technical appraisals, financial advice and legal due diligence carried out by independent consultants.

Time frame for take-private transactions

How long do take-private transactions typically take in the context of a public real estate business? What are the major milestones in this process? What factors could expedite or extend the process?

For a company to go private, the company or the controlling shareholder must hold an OPA, through which the minority shareholders’ shares will be purchased, guaranteeing the offeror a greater stake in the company.

Conducting an OPA is a complicated task and takes six months on average. It must fulfil the following steps:

  • disclosing the information via public notice;
  • hiring a bank or stock brokerage firm, which is responsible for conducting the offer;
  • setting the ‘fair price’ through an evaluation of an independent auditor;
  • requesting CVM authorisation to carry out the transaction (the CVM may require some changes in the offer, which can delay the process);
  • publishing a public notice of the OPA calling with the date on which the auction will be held - the established price can be challenged within 15 days of the notice by at least 10 per cent of the minority shareholders who may request an extraordinary shareholders’ meeting to deliberate about a new valuation; and
  • completing the OPA public auction on the Brazilian Stock Exchange.

Each listing segment has its own corporate governance rules and every listed company must comply with the relevant regulations in each case.

The closing of the capital should be expressly accepted or approved by more than at least two-thirds plus one of the shares held by the shareholders who expressly agreed to the cancellation of registration or have been qualified to participate in the tender offer auction. Omitted shareholders do not count for the purpose of a quorum of those quoted.

Once the auction has been carried out and the minimum number of adhesions obtained, within 15 days a deposit must be made equal to the value of those shares sold of shareholders that accepted the offer.


Non-binding agreements

Are non-binding preliminary agreements before the execution of a definitive agreement typical in real estate business combinations, and does this depend on the ownership structure of the target? Can such non-binding agreements be judicially enforced?

In Brazil, it is common to have preliminary agreements in a real estate business combination. This could be an MOU, a letter of intention or a term sheet.

Preliminary agreements are commonly used by the parties to establish purchase and sale conditions. Even though agreements are usually intended to be non-binding, they usually contain binding provisions (eg, confidentiality, exclusivity, responsibility for expenses and dispute resolution). Pursuant to the Brazilian Civil Code provisions, a preliminary agreement is binding on the parties strictly to the limits of its content. Depending on the related parties, the preliminary agreements can trigger the transaction’s filing for the approval of CADE.

Except for binding provisions contained within, non-binding agreements cannot be judicially enforced. Normally, preliminary agreements are not subject to specific performance, as the obligations deriving from a future transaction are not (partially or totally) perfected, and the termination of the preliminary agreements should reinstate parties to the status quo ante. Losses deriving from the breach of a preliminary agreement may be subject to an indemnification lawsuit, as the case may be.

Typical provisions

Describe some of the provisions contained in a purchase agreement that are specific to real estate business combinations. Describe any standard provisions that are contained in such agreements.

Closing provisions and precedent conditions

Based on the findings made during the due diligence and the negotiations of the parties, it is common in a real estate transaction for some procedures related to the regularisation of the property’s title and the fulfilment of environmental aspects to be addressed before closing as a precedent condition.

Transfer of actual possession over the property

The purchase and sale agreement should establish the conditions, procedure and term for the transfer of the possession of the property.

Price or other financial aspects of the transaction

The financial aspects of the purchase and sale agreement must be stated clearly and in detail (eg, price, instalments, price adjustments, applicable interest, escrow account) and linked to the transfer of ownership rights and procedures before the relevant real estate registry office.

Representations and warranties

Representations and warranties (R&Ws) are given by both parties to disclose material information and allocate risk between the parties. In a real estate transaction, R&Ws are usually related to the:

  • property’s chain of domain;
  • owner’s power and authority to sell;
  • solvability of sellers;
  • compliance with applicable law;
  • existence of pending court or out-of-court cases;
  • existence of liabilities that could affect the property;
  • third-party claims;
  • property having a clean title;
  • liens and encumbrances on the property;
  • property’s environmental compliance and lack of environmental liabilities; and
  • possession and eviction liability.
Liabilities and indemnification

In a real estate transaction, liability is commonly related to clean title, liens and encumbrances, insufficiency of assets, environmental liabilities, zoning rules and regulatory approvals.

Termination provisions

Termination provisions establish the situations in which parties may terminate the agreement and, if applicable, the relevant penalties.

Brokerage and taxes

One of the standard provisions establishes the responsibility for brokers’ fees and the payment of taxes levied over related assets, prior to and after closing of the transaction.

Eviction liability

The responsibility of sellers in the event of the real estate being lost to a third party by a judicial decision.


Are there any limitations on a buyer’s ability to gradually acquire an interest in a public company in the context of a real estate business combination? Are these limitations typically built into organisational documents or inherent in applicable state or regulatory related regimes?

As mentioned in question 11, one of the ways to avoid the hostile offer is the obligation to make a public offering of shares.

Also, the shareholders’ agreement may provide for limitations on the acquisition of shares with voting rights, capitalisation of loans and non-compete clauses, among other restrictions.

Certainty of closing

Describe some of the key issues that typically arise between a seller and a buyer when negotiating the purchase agreement for a real estate business combination, with an emphasis on building in certainty of closing. How are these issues typically resolved?

The key issues that usually arise are:

  • price adjustments (ie, based on the due diligence findings - tax issues, environmental and licences matters, etc);
  • escrow or holdback provision (ie, used as indemnification for breaches of the agreement);
  • indemnity issues;
  • environmental liabilities; and
  • termination rights.

These issues are usually solved by covenants, representation and warranties, closing conditions, guarantees, indemnification and penalties that should motivate parties to close the deal, or agreements in which the potential costs of the dead deal will be borne by the party that decided to walk away from the transaction.

Environmental liability

Who typically bears responsibility for environmental remediation following the closing of a real estate business combination? What contractual provisions regarding environmental liability do parties usually agree?

Environmental liability consists of administrative, civil and criminal liability. These are independent and can be applied cumulatively. Environmental civil liability to remediate environmental damages is joint, several and strict. Regardless of the fault, negligence or wilful misconduct of a party, the owners or legal possessor, or by virtue of their activity at a given site, those who facilitate or contribute to the occurrence of damages (ie, contamination), are liable for the recovery of such damages. The seller, buyer or occupants of the real estate are jointly and strictly liable for carrying out the remediation, regardless of who is responsible for the damage.

It is also important to have the seller’s R&Ws state its compliance to environmental laws, so as to assure the right of the buyer to seek recovery from the seller for any environmental liability and costs as the case may be. Under Brazilian law, clean-up obligations (such as remediation) are not subject to a statute of limitations.

With regards to administrative environmental liability, parties are liable for their real estate activities. Environmental authorities may assess and fine current or past owners or possessors for environmental administrative liabilities arising from past or current activities at such property. However, the majority of case law provides for five-year statutes of limitation for the environmental authorities to collect environmental penalties, which should be paid by the actual pollutant (not prevailing on the administrative environmental liability ‘polluter pays’ doctrine).

Criminal liability depends on the causal connection between the criminal conduct and the agent.

Other typical liability issues

What other liability issues are typically major points of negotiation in the context of a real estate business combination?

The major points are:

  • risks of labour and tax succession;
  • sufficiency of assets;
  • possession matters;
  • the safety and soundness of constructions;
  • hidden defects;
  • clean title and good standing of the title holder;
  • seller’s and former owners’ solvability;
  • the right of first refusal or any commercial agreements that limit the ability of seller to perfect the transaction;
  • liens and encumbrances, as well as pledge over the assets and crops;
  • the seizure or annulment of the sale due to past liability of former owners;
  • the attachment and tax enrolment of the property;
  • third-party claims;
  • bankruptcy or judicial reorganisation claims; and
  • lack of licences and permits.
Sellers’ representations regarding leases

In the context of a real estate business combination, what are the typical representations and covenants made by a seller regarding existing and new leases?

The typical representations and covenants are:

  • the transaction does not contravene, conflict with, result in breach or default, or give rise to any right of termination or acceleration case of any obligation related to the lease;
  • the transaction is not and should not have conflicts, nor cause any breach of contract, nor characterise non-compliance, nor result in any violation, now or in the future, regarding the leases, and of any obligation or commitment before third parties in relation to the lease;
  • there are no infringement notices, subpoenas or penalties imposed by authorities relating to the real estate;
  • the lessee has signed any relevant document in relation to the lease or waiver of the right of first refusal;
  • the existing lease is not terminated or amended, directly or indirectly; and
  • no new leases are executed without the buyer’s prior approval.

Due diligence

Legal due diligence

Describe the legal due diligence required in the context of a real estate business combination and any due diligence specific to a real estate business combination. What specialists are typically involved and at what point in the transaction are the various teams typically brought in?

Legal due diligence is required to:

  • appoint contingencies and liabilities associated with the seller and former owner’s solvability that may impact the transaction;
  • establish real estate issues as clean title, zoning rules, licences and approvals;
  • establish environmental issues;
  • establish tax and labour matters;
  • establish any critical and relevant points in the legal structure of the company; and
  • establish legal risks and liabilities arising from the judicial and administrative proceedings.

Complete legal due diligence would usually cover the following areas:

  • corporate;
  • contracts;
  • labour;
  • insurance;
  • regulatory;
  • real estate;
  • environmental; and
  • litigation (eg, tax, labour, social security and civil).

In addition to the legal team, specialists typically involved in the due diligence of a real estate transaction are:

  • real estate consulting firms - to proceed with an appraisal of the area to define its market value and evaluate its technical aspects, such as the status of the construction and required permits (ie, municipal operation permits, zoning and fire department inspections); and
  • environmental consultants - to assess environmental compliance, considering the legislation in force and potential or material liabilities. This appraisal also includes the compliance of social standards and the protection of minorities (eg, quilombolas or indigenous people).

Finally, because of the recent wave of corruption investigations, in some transactions a compliance due diligence is being carried out. Although it is not common and has its limits, this due diligence is a measure to avoid reputational issues.


How are title, lien, bankruptcy, litigation and tax searches typically conducted? On what levels are these searches typically run? What protection from bad title is available to buyers, and does this depend on the nature of the underlying asset?

The searches are typically based on:

  • the analysis of real estate title;
  • real estate chain of domain certificates and related documentation;
  • court certificates (issued by the relevant tax, civil and labour lower courts and court of appeal);
  • protest offices certificates;
  • administrative certificates issued by relevant authorities (ie, Federal Revenue, and state and municipal treasury offices);
  • analysis of the main lawsuits and administrative procedures; and
  • legal reports.

A due diligence procedure should encompass the assets, owners and title holder, legal possessor and former owners.

Currently, there is no real estate title insurance in Brazil. However, it is possible to buy insurance for specific liabilities or in connection with potential third-party claims related to the target asset. Regardless of the target asset, the most common protections from bad title are:

  • legal and title due diligence, as mentioned above;
  • R&Ws; and
  • indemnification provisions.
Representation and warranty insurance

Do sellers of non-public real estate businesses typically purchase representation and warranty insurance to cover post-closing liability?

The purchase of R&W insurance to cover post-closing liabilities is not usually practised by real estate businesses in Brazil, even given the cost of insurance and the uncertainty of the risks’ maturity period. However, it is common to withhold, in full or in part, the price of an escrow account or another similar instrument, the release of which would be subject to the compliance of conditions or the non-existence of contingent liabilities during a period of time. The consideration can be paid in a lump sum or in instalments. Regarding payment in instalments, parties may establish mechanisms that allow offsetting of indemnity claims against future payments.

Review of business contracts

What are some of the primary agreements that the legal teams customarily review in the context of a real estate business combination, and does the scope vary with the structure of the transaction?

Regardless of the transaction’s structure, the primary issues reviewed in real estate agreements are:

  • the right of first refusal;
  • assignment matters;
  • the term;
  • responsibilities and obligations;
  • termination matters;
  • guarantees; and
  • procedures in the event of transfer of control (share transaction) or ownership.

Urban and rural lease arrangements are ruled by specific laws and there are provisions of the law that cannot be waived by the parties. Therefore, in spite of specific written agreements, legal provisions always prevail. Notwithstanding, some lease arrangements are not governed by such laws (ie, built-to-suit, shops and stores), in which case the written agreement prevails.

Breach of contract

Remedies for breach of contract

What are the typical remedies for breach of a contract in the context of a real estate business combination, and do they vary with the ownership of target or the structure of the transaction?

The typical remedies are:

  • termination rights;
  • penalty provisions;
  • indemnification; and
  • specific performance.

Also, the Civil Code provides for loss and damage remedies in any circumstance in which the agreement is silent in connection with consequences of a breach of contract, which depends on full evidence of such losses and damages (material, loss of profit, loss of opportunity and punitive moral damages).


Market overview

How does a buyer typically finance real estate business combinations?

Real estate business combinations are typically financed by:

  • loan and financing agreements with financial institutions or public banks, including the Brazilian Development Bank;
  • private investors looking for alternative fixed income results;
  • investment funds;
  • sale and leaseback agreements; and
  • securities from capital markets, especially the securitisation and public offering of certificate of real estate receivables (CRI).

Different types of instruments can be combined to structure complex financial operations, such as a sale and leaseback agreement with securitisation of the rental credit.

A creditor may also structure a transaction in order to have the payment of the debt resulting from other real estate or financial agreements. Banks are also working in different structures and products to have a mix of credit and asset transactions in deleveraging transactions.

Seller’s obligations

What are the typical obligations of the seller in the financing?

Usually the seller must only cooperate with the buyer to obtain financing in good faith, and to undertake the execution and presentation of documentation of the property and seller (as the case may be).

Repayment guarantees

What repayment guarantees do lenders typically require in the context of a property-level financing of a real estate business combination? For what purposes are reserves usually required in the context of property-level indebtedness?

In the real estate market, the property is usually used as collateral in the financing process. It could affect the ownership of the property or the receivables originated by such real estate in related agreements. The following are the most common guarantees.

Fiduciary transfer of ownership

The owner or borrower transfers the ownership of a real estate property to the lender to guarantee the payment of the debt, and the borrower remains in direct possession of the property. In practice, the borrower continues to use the property that no longer belongs to him or her. Once the debt is repaid, the debtor automatically becomes the owner of the property. In the event of default, the lender can sell the property by means of the extra-judicial foreclosure procedure.


In case of default, the lender must foreclose the guarantee through a judicial procedure.

Fiduciary pledge

The pledge of receivables, such as rentals, sales revenues and agricultural production, among others.


Commodities or agricultural products related to the target asset.

Insurance policies

In addition, there are some insurance policies that may be used for the repayment of specific obligations.

Usually, reserves are required for taxes, notarisation and registration fees and insurance, or for compliance with payment obligations related to the asset undertaken prior to the closing date (ie, a tax debt refinancing programme).

Borrower covenants

What covenants do lenders usually insist on in the context of a property-level financing of a real estate business combination?

Typical covenants include:

  • acceleration clauses - in the event of a default of any obligation, all future instalments are deemed to be due and payable immediately;
  • fulfilment of post-closing obligations (ie, registering the guarantees before the relevant boards, precedent approvals and obtaining of licences);
  • insurance;
  • evidence of compliance with labour, environmental and tax obligations on a regular basis;
  • collateral appraisals;
  • non-assignment provisions;
  • the prevention of the borrower from selling or granting the asset as collateral; and
  • interest cover and debt service cover covenants that can be stipulated on either an actual (look-back) or a projected (look-forward) basis.
Typical equity financing provisions

What equity financing provisions are common in a transaction involving a real estate business that is being taken private? Does it depend on the structure of the buyer?

In a going-private transaction, some provisions may include:

  • allocation of the risk of financing failure to the buyer;
  • precedent conditions to be fulfilled prior to the financing;
  • the buyer’s obligation to close the deal;
  • a covenant of the seller to cooperate with the buyer in obtaining financing;
  • milestones to release the financial instalments;
  • collaterals and guarantees; and
  • proof of buyer’s technical and economic-financial capacity to carry out the project.

These provisions are not related to the structure of the buyer, but to the transaction and the legal requirements to be achieved, especially in a state-owned company. It is also common for the newly acquired company’s cash flow to be compromised to pay off the debt.

Collective investment schemes


Are real estate investment trusts (REITs) that have tax-saving advantages available? Are there particular legal considerations that shape the formation and activities of REITs?

REITs do not exist in Brazil. The Brazilian FII has similarities to the US REIT and its purpose is exclusively for real estate projects.

FIIs are groups of investors, managed by financial institutions and audited by the CVM. Funds raised from the sale of quotas may be used for the acquisition of rural or urban real estate (constructed or under construction) for commercial or residential purposes, and for the acquisition of securities linked to the real estate business, such as real estate letters of credit or a CRI, shares of real estate companies and quotas of others investment funds.

Every FII has a regulation that, among other provisions, determines the fund’s investment policy, which may be specific and establish, for example, that FII only invests in commercial rental properties, or it may be generic and allow the fund to invest in different real estate sectors. With the acquisition of real estate, the fund will obtain income from its lease or sale. If it applies to securities, the income will originate from the income distributed by these assets or the capital gain. The equity of the FII is divided into quotas that can be traded on regulated securities markets, observing the CVM’s rules.

Private equity funds

Are there particular legal considerations that shape the formation and activities of real estate-focused private equity funds? Does this vary depending on the target assets or investors?

There are two types of investment funds commonly used in Brazil to invest in the real estate market: FIIs (see question 35) and private equity funds (FIPs).

An FIP is a pool of resources intended for investment in publicly held companies, closed companies or limited liability companies, that is managed by financial institutions and audited by the CVM. Although an FIP cannot directly hold real estate assets, it may invest in real estate companies.

Update and trends

Key developments of the past year

Are there any other current developments or emerging trends that should be noted?

Key developments of the past year37 Are there any other current developments or emerging trends that should be noted?

Federal Law No. 13,786 of 27 December 2018 (the Termination Law) has changed the real estate market. According to the Termination Law, in real estate property, developed under the terms and conditions set forth in Law No. 4,591 of 16 December 1964, the acquirer is entitled to terminate a purchase and sale commitment agreement of a future unit. The acquirer can then apply for the restitution of the paid amounts and the seller may charge a penalty, which can vary from 30 to 50 per cent.

This Law could end a recurring dispute taking place in Brazilian courts regarding the percentage of transacted amounts that can be retained by the developers. Further, this Law may give a more predictable and legal certainty for these transactions.

The restrictions in force for the acquisition and lease of rural lands by foreigners, which include Brazilian companies held directly or indirectly by foreign shareholders, are subject to discussion over Federal Bill No. 2,963/2019 from the initiative of the Brazilian Senate. The different interpretations of Law No. 5,709 of 7 October 1997 have driven away relevant investments in the agribusiness industry because of legal uncertainty.

The Bill intends to restrict the acquisition of rural land by specific entities, including:

  • non-governmental organisations;
  • foundations held or controlled by foreigners;
  • sovereign states;
  • sovereign funds; and
  • entities controlled, direct or indirectly, by foreign shareholders when acquiring lands in the Amazon biome.

The exploitation of public service concessions (such as energy projects or other infrastructure concessions) is not subject to any restriction for the purpose of development of its project. The approval of the Bill would cause significant change in the Brazilian investment market and economy.

Finally, Federal Law No. 13,777 of 26 December 2018 regulated time-sharing real estate projects. Under this Law, time-sharing in Brazil has legal grounds to guide the Real Estate Registry Offices in granting property rights and legal certainty to investors. The acquirer of a property is allowed to use it for a pre-determined period of time (not less than seven days in a year) as its single owner.