Real Estate Newsletter No 1

STF reopens discussions on ITBI taxable event

On August 26, 2022, the Federal Supreme Court (“STF”) reopened discussions on a topic that had been settled in February 2021, and that established as a taxable event for the Real Estate Transfer Tax (“ITBI”) the registration of the acquisition deed in the property title, transferring from notaries to registrars the duty to verify the collection.

In the recent review, STF ministers reestablished the system that had been in force until then, setting the drawing up of public deeds as the taxable event.

Although it is desirable that the STF avoid constant reviews of the same subject, the reformed decision had not entered into force from a notarial and public registration perspective.

Although the record of the transfer as a taxable event had been confirmed, such act had not been enough to reform the law governing the activities of notary public and registry officers, which attributes to the notaries the responsibility of verifying the collection of transfer taxes at the time of the drawing up of public deeds, therefore exposing them to penalties. Additionally, such confirmation had not reached the municipal legislation that governed the levy, the tax rate and the taxable event of the local taxes, such as the ITBI.

As a result, with the exception of a few cases on record, public deeds drawn up from February 2021 to August 2022 had the ITBI collection carried out previously, except for specific legislative exceptions (such as public deeds drawn up in a municipality other than where the property is located). However, further analysis on the repercussions of the STF’s procedures shows that the reformed decision was, in fact, effective in special cases, supported by court orders.

A noteworthy inclusion is that the previous argument was deemed better aligned to civil law regarding the transfer of real estate, which is only actually carried out for the registration of deeds. If such argument had continued to be applied, it would also have offered the benefit of standardizing the period of ITBI collection in regard to all types of deeds of acquisition.

According to current legislation, if the taxable event is triggered by the grant of public deed, the collection of the ITBI on the acquisition of real estate through private deeds (e.g., paying in of capital, consolidation of property in foreclosure of guarantee) is  deferred to the moment of registration.

This lack of standardization not only opens the way for further reviews of the matter, but also exposes a gap that is sometimes present in the dialog between real estate, tax and notarial practice.

Accordingly, the recent review was at the center of a process that discusses another matter involving the ITBI: its levy or not on the assignment of acquisition rights over unregistered purchase and sale commitments.

Although the analysis of this topic by the STF is recent, it is a long-running discussion based on the same taxable event criteria. In this regard, instead of focusing on when the registration occurs, there is a debate on whether the transfer of property is sufficient to constitute the transfer of property ownership.

In fact, the topic is in need of rapid resolution.

Our firm is monitoring the developments of the case.

“Trusts” Bill

Bill No. 4,758/2020, proposed by Representative Enrico Misasi, is in the final procedural stages. The Bill is aimed at introducing into Brazilian law the institute of the so-called trusts, a legal mechanism through which the settlor delivers assets for the trustee to administer on behalf of a third party, named the beneficiary.

Such tripartite system remains in force until a resolutive condition is reached (of maturity or obligations), which authorizes the definitive transfer of the asset to the beneficiary. Widely used internationally, trusts are the same as the Brazilian fidúcia and have numerous applications.

In Brazil, trusts are expected to enter the list of guarantees, expanding the boundaries of the closed list. In this way, they will become very similar to a secured fiduciary transfer.

In this case, the roles of trustee and beneficiary will be concentrated in one individual and the rules on Fiduciary Transfer will apply in a subsidiary manner. However, there can be a fundamental difference: despite the subsidiary nature of the rules, it is not clear whether there is a need for debt collection to be carried out by auction, which paves the way for the creditor to keep the asset as a means of releasing the debt. Nor is it clear how the calculation of values would be carried out for the purpose of settling this debt.

In addition to the real estate, it must be understood that this modality of collateral can also encompass movable and semi-movable assets, without necessarily the same requirements of the pledge, but instead placing the trustee-beneficiary-creditor in charge of carefully managing such assets, so that they do not deteriorate and so that their collateral remains intact.

It is still early to say, but “trusteeship” as a modality of collateral can expand the types of collateral that are employed in financial operations, always maintaining the foreclosure in the extrajudicial (out-of-court) scope, which is essential for its effectiveness.

Equally essential is the separation of the debtor’s assets in order to secure the collateral against situations of severe stress. A potentially relevant application of trusts as collateral is in agribusiness, which employs loan agreements for the acquisition and rental of machines and harvesters, in high quantities and values.

Another application for trusts, already internationally well-known, is succession planning. This instrument can be employed in cases where the ascending line wishes to reserve certain immovable property to the descending line but rendering it accessible to beneficiaries only once the descending line reaches the age of majority or any other specific condition.

The employment of trusts in such cases can prevent unwanted donations to minors, which limits the administration of assets by preventing them from being sold by the ascending line without judicial authorization.

It can also reduce the constitution of inalienability and non-transferability clauses, delaying the transfer to the descending line to the moment when the asset can be fully enjoyed. Moreover, it can be an alternative to the constitution of family holdings, which sometimes bring formalities that, although not complex, still challenge family dynamics. Therefore, trusts can serve as an effective mechanism in succession planning.

Whatever the application of the trust modality, Bill No. 4,758/2020 requires, as is prevalent in international legal systems, that the asset be intended for a specified purpose, with the separation of the rest of the trust assets. As such, the trustee is in charge of the diligent administration of the guarantee but is not allowed to enjoy the fruits that result from it.

Although Bill No. 4,758/2020 did not address the tax aspect, it is potentially similar to that of fiduciary transfer at the time of the constitution of the trust.

Nevertheless, there will be questions as to which tax treatment will be applied at the time of consolidation ownership of the asset in the name of the beneficiary, both for the beneficiary and for the trustee. To resolve existing uncertainty, following-up on the measures is necessary.

Bill No. 4,758/2020 was approved by the House of Representatives and will be forwarded for approval by the Senate. If approved, it will move forward for presidential sanction.

Real Estate Brokers

The short-lived Decree No. 11,165/2022, published on August 09, 2022, created a new regulatory framework for the profession of real estate brokers and generated controversy regarding the waiving of the need to register with the Regional Council of Real Estate Brokers (“CRECI”) for the intermediation of transactions sponsored by legal entities.

However, what drew the most attention was not the legislative change, but the fact that it was repealed hours after its publication due to intense protests from real estate brokers.

Regardless, the case demands that the understanding of professional bodies be reviewed. If, on the one hand, their goal and purpose is to organize the profession, on the other, they aim to inform the general public regarding the necessary qualifications to provide specialized services.

Potentially, changes in real estate marketing strategies, such as the use of websites and the increase in the number of startups entering the sector, have contributed to rendering this profession accessible to a greater number of people.

Read more in the Article published on August 16, 2022 by Marc Stalder in Migalhas.

Event

On August 24, 2022, Demarest’s Real Estate team held the event “Business impacts of the law on electronic registration” [“Os impactos na lei do registro eletrônico nos negócios”], during which Silvio Venosa, Marc Stalder, Flávia Vidigal, Flaviano Galhardo, Fernando Blasco and Robson de Alvarenga gathered to discuss Law No. 14,82/2022.

Watch the full event here.

Change in use of buildings

Published in the Federal Official Gazette of Brazil on July 13, 2022, Law No 14,405/2022 amended Article 1,351 of the Civil Code, reducing the quorum for the approval of changes to the use of vertical buildings, from their entirety to only two-thirds of the unit owners.

As a result, condominiums that are exclusively residential currently can now have part or all of the autonomous units converted for commercial use.

In practice, however, the measure aims to resolve a problem of underused working spaces following the consolidation of hybrid or remote work, by converting such spaces into residential units, consequently granting increased flexibility to the use of the property and optimizing its use.

Although the measure can, in fact, pave the way for new uses of old office spaces, Law No. 14,405/2022 is only a small step forward on the path that presents greater challenges concerning the reurbanization of areas and purposing of urban spaces.

Although capitals such as Belo Horizonte merge several commercial and residential spaces within the same district, Rio de Janeiro has nearly no residential units in the city center. Consequently, it does not have urban facilities and services that can attract people interested in living in the region.

Accordingly, numerous cities have carried out significant efforts to review the city’s management plans. From September to October 2022, Rio de Janeiro will be host to a schedule of intensive discussions on the matter. São Paulo is also about to complete the review process that was put on hold in 2021 due to the COVID-19 pandemic.

These measures, which seem monumental, are absolutely necessary in order to adapt cities to the new landscape, not only in regard to the pandemic’s impact, but also to other factors, namely the introduction of new services within the urban setting, such as changes introduced by “dark kitchens”, or even the use of coworking and co-owned living spaces.

Our firm is monitoring the procedures and will report any relevant developments.

Launch of the “Sniper” system

On August 16, the Brazilian National Council of Justice (“CNJ”) launched the National System of Wealth Investigation and Asset Recovery, named “Sniper”. The program aims to enable the employment of centralized databases to seize assets in credit satisfaction proceedings.

The tool belongs to the CNJ’s “Programa Justiça 4.0” (free translation: Justice 4.0 Program), which favors the use of technology in order to render judgements more effective in such cases.

Less than 30 days following its launch and still in implementation phase, it is difficult to tell exactly what Sniper will achieve, whether it will be restricted to executive procedures or encompass an investigative function to be applied in the discovery phase of the cases.

However, the tool follows from legislative changes that sought to centralize personal information and make transactions more effective, avoiding, in the case of real estate, risks related to demands prior to transactions.