The unprecedented expansion of real estate activity in Brazil over the previous years significantly increased the level of real estate business: launches, construction sites, civil construction employment, number of residential and commercial units delivered annually, levels of real estate financing and square meter value in the main urban centers. These factors have been used in the lawsuits for the revision of rental fees.

Several real estate owners, whose rental agreements were entered into before the significant expansion of the real estate market and, therefore, for the most part before the recovery of the districts and the complete change of certain regions, received the rental income that, despite being adjusted for inflation, such income is significantly below the current market rates. On the other hand, in certain locations, the vacancy rate and real estate offers increased, which caused the tenants to request the review of the rentals paid, which became expensive when compared to the new rates on offer in such locations.

Due to situations whereby the parties are not able to reach an agreement to adjust the rental price and because the mere adjustment based on the inflation rate set forth in the agreement does not reflect the current market conditions, the interested parties, upon verification of the outdated rental fees and thus seeking an adjustment, have filed lawsuits more frequently to revise rental fees, as set forth in Federal Law 8245/1991 (“Urban Real Estate Rental Law”).

According to applicable case law, the expansion of the real estate market has been used in this type of lawsuit, and both the lessor and lessee may file for it when elapsed, at least, three years as from the execution of the rental agreement or the last agreement that adjusted the rental fees according to market practices.

In the process of the lawsuit for revision, a temporary rental installment may be defined. With respect to the lawsuits filed by the lessor, the temporary rental installment must not exceed 80% of the amount requested by the plaintiff. In turn, with respect to the lawsuits filed by the lessee, the temporary rental installment must not be lower than 80% of the current rental.

Several factors must be considered (real estate age, location, public utilities in the district, transportation means, pollution level, wealth in the surroundings, urban improvements etc.), including the technical evaluation, in order to determine the current rental value of such real estate. In relation to the urban real estate assessments, the Brazilian Technical Standard, NBR 14653-2, amended periodically, recommends some methods, and the most adopted ones are as follows: (i) income method, which determines directly the interest on the capital invested in the real estate; (ii) comparison method, which defines the proper market value according to the location and characteristics of the real estate, based on the publications of the most recognized newspapers and appraisal reports prepared by first-class companies, among others; and (iii) adjustment method, which indicates an amount considered acceptable by the parties over a specific period of time.

Accordingly, the current real estate expansion, which significantly changed the real estate market in Brazil, has been used constantly in the lawsuits for revision that, in general, no longer provide for specific and isolated issues, but seek for the alignment of the rental installments with the current market practices.