Decisions in the states of São Paulo and Santa Catarina regarding the collection of IPTU: handing of keys subject to condominium establishment definition of built area and issuance of “Habite-se

Throughout the past few years, Brazilian Courts of Justice have consolidated the opinion that the collection of the Urban Real Estate Tax (“IPTU”) is no longer applicable prior to the issuance of the “Habite-se”, the document that must be issued by the Municipal Government to certify the completion and regularity of a construction work.

Such decisions reinforce the understanding that the collection of IPTU is not only subject to ownership of the property or the existence of built area, but also to the full exercise of property ownership rights. In other words, the incidence of the IPTU is only triggered when the property is deemed usable, that is, when the urban real estate can be used and inhabited – which is only possible after the issuance of the “Habite-se” certification.

Two important precedents have been set against the collection of the IPTU before the issuance of the “Habite-se”. Such decisions were issued by the Courts of Justice of Santa Catarina (“TJSC”) and of the Federal District (“TJDFT”):

i. In Santa Catarina, the 5th Chamber of Public Law of the TJSC analyzed the appeal lodged by the city of Blumenau against a decision involving a taxpayer in the proceedings of Case No. 0300016-47.2019.8.24.0008.
In the decision, the rapporteur, justice Denise de Souza Luiz Francoski, argued that, in that case, the denial to issue the “Habite-se” had been justified due to numerous irregularities that prevented the property from being used or inhabited, such as issues in the fire protection system. Considering the sole paragraph of article 238 of Supplementary Law No. 632/07, which provides that only constructions that are fit for use, housing or recreation can be deemed as a built area, the city of Blumenau was not allowed to collect the IPTU on the property. Justice Francoski also cited another recent decision of the 2nd Chamber of Public Law of the TJSC in the same regard, which had been issued in August 2021.

ii. In the Federal District, the 2nd Panel of the TJDFT unanimously dismissed the appeal of the company Jasmim Empreendimentos Imobiliários S.A. and upheld the trial court decision to deny the reduction of the IPTU tax rate on a built property.
The judge who rendered the decision argued that the Federal District used the appropriate rate for calculation of the IPTU (3%, referring to unbuilt properties, instead of the 0.3% rate referring to built properties), given that the law requires the issuance of the “Habite-te” to deem the property as built. What is more, the judge brought up Supplementary Law 54/1997, which amended the wording of paragraph 1 of art. 19 of Decree-Law No. 82, of 1966, to expressly establish that properties must have been granted the “Habite-se” certificate issued by a competent authority in order to be deemed built. Therefore, merely requesting the issuance of the “Habite-se” certificate or informing the municipality that a construction has allegedly been completed is not sufficient to deem the property as built.
As such, the rapporteur argued that since the “Habite-se” ceritification had not been issued, the property was not deemed as built, dismissing the company’s claim that the application for the “Habite-se” was sufficient in that regard. Additionally, the justice denied the company’s argument that the exclusion of the “Habite-se” provision from art.19 of Decree-Law No. 82/1996 (due to the legislative amendment introduced in Decree No. 28,445/2007), excluded the requirement of the certification to deem the property as built.

In São Paulo, taxpayers did obtain a favorable decision. However, such decision was later reformed by the Court of Justice of São Paulo (“TJSP”) within the context of Case No. 1060658-18.2017.8.26.0053. According to the reformed decision, the IPTU levies on usable property and right to use, and the Tax Statement of Construction Completion (“DTCO”) does not classify the property as usable. Consequently, the incidence of the IPTU on the construction would only be triggered after the property was deemed usable or there was right to use, which, for the purposes of urban real estate, is only possible after the issuance of the “Habite-se”.

The reformed decision mentioned above, however, also stated that the triggering event of the IPTU incidence is governed by specific criteria that does not relate to the administrative act consolidated in the issuance of the “Habite-se”. What is more, the decision highlighted the existence of several cases involving irregular constructions that were not granted the “Habite-se” and yet are inhabited and taxed by the IPTU.

Currently, the prevailing opinion of the three chambers of the TJSP is that the triggering event of the IPTU incidence is the date of completion of the construction, and not the date of issuance of the “Habite-se” (cases No. 1030350-33.2016.8.26.0053, of the 1st Tax Court; No. 1047406-74.2019.8.26.0053, of the 15th Tax Court and No. 1023281-71.2021.8.26.0053, of the 7th Tax Court, all within the jurisdiction of the Judicial District of São Paulo). However, the taxpayers of São Paulo, for example, can potentially benefit from such divergence of precedents in order to appeal to the Superior Court of Justice.

Demarest’s Real Estate team is available to provide any further clarifications that may be necessary.