REAL ESTATE EXPANSION SEES AN INCREASE IN LAWSUITS FOR THE REVISION OF RENTAL FEES, by Maria Flávia Seabra Gemperli and Felipe Mendes de Godoy

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.

REAL ESTATE - Maria Flávia Seabra Gemperli and Felipe Mendes de Godoy

REAL ESTATE EXPANSION SEES AN INCREASE IN LAWSUITS FOR THE REVISION OF RENTAL FEES

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forth in the agreement does not reflect the current market conditions, the interested parties, upon verification of the outdated rental fees and thus seeking an adjustment, have filed lawsuits more frequently to revise rental fees, as set forth in Federal Law 8245/1991 (“Urban Real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.

AGREEMENTS - Fernanda Rivé Machado

Objective good faith applicable to agreements

The importance of objective good faith and the related sub principles have increased over the years in Brazilian case law as they refer to an obligation of conduct applicable to the business relationships, which must be supported by confidence and loyalty. In this regard, the non-compliance with the objective good faith implies the abuse of authority and it is considered a violation under the terms of the Civil Code.

In this regard, one of its purposes is the prohibition of the tu quoque, which is a limitation to the conduct according to which the legal rules cannot be applied after non-compliance, therefore, it prohibits the acquisition of rights in bad faith or the violation of the objective good faith. For example, a person below 18 years old that omits such condition and may not refer to such condition to disregard any contractual obligation.

Another type of abuse of authority in the agreements is the venire contra factum proprium, which prohibits the contradictory conduct characterized by the exercise of a specific right, against an expectation created in the sense that such right would not be exercised. According to the case laws, such conduct is characterized when the credit card administrator, which used to accept the payment of overdue amounts, suddenly alleges the contractual termination based on the clause that provided for such termination in the event of late payment. In this case, the second conduct adopted by the administrator must be prohibited to avoid the contractual termination under these terms.

Other important issues of objective good faith, related between each other, are supressio and surrectio. While the first is characterized by the loss of a ri
ght not exercised by the owner over a considerable period of time, the second corresponds to a right resulting from the continuous conduct of an individual, although not in compliance with applicable law or agreement. For example, the exclusive use of the common area in a building for a considerable period of time, which impacts the recovery of the area by the building as a whole.

Such subprinciples are extremely relevant over all contractual stages, because, in the business relationships, the conduct of the parties involved should be aligned with the legal provisions.

CIVIL LITIGATION – Flávia Brum Carlos

The creditor can only be discontented before the case rulings

The Federal Constitution of 88, article 5, LXVII, on an extraordinary basis, provides for two possible alternatives of civil arrestment: unpaid alimony and unlawful depository. In this regard, Magna Carta simply provided for these types of arrestment and transferred to the infra-constitutional rules the creation of the applicable cases and regulation of the matter.

Accordingly, the civil debtor should resolve the issues under civil claims. Notwithstanding, the item LXVII should not be considered separately, but together with paragraphs 1 and 2, whose Constitutional Wording is expressly established and set forth that the rules relating to the rights and essential guarantees should be immediately adopted, inclusive with respect to those set forth in the international human right treats duly approved, without subsequent legislation to implement them.

Accordingly, the international treat denominated Pacto de São José da Costa Rica, also denominated American Human Right Agreement (CADH), was approved in Brazil. Article 7, of CADH, sets forth that, amongst several other guarantees, all individuals are entitled to liberty and personal security and that no individual could be subject to any type of arbitration arrestment; in addition, item 7 provides for that no individual should be arrested by virtue of debts. Therefore, the conflict between the Federal Constitution and CADH, executed and approved in Brazil, is clear. While Carta Magna provides for the civil arrestment of the unlawful depository, it also sets forth that the essential rights established therein should not exclude the other rights established in the international treaties entered into by Brazil, which grants full powers to the CADH.

In order to resolve this conflict, in December 2012, the Federal Supreme Court “innovated” with the creation of a new hierarchy of laws, by classifying the Treaties as Supralegal Laws, not classified as Constitutional Amendments – they are below the Amendments, but above the Ordinary Laws, in an intermediate level that puts them above the Civil Code.

Based on the new hierarchy of laws established by the STF, each depository, legal or not, is no longer exposed to the risk of arrestment or seizure of assets. In this regard, the Legislator should seek for an efficient system to protect the creditor and, at the same time, avoid the non-compliance by the debtor, considering that the Financial Institutions will be very demanding in terms of granting the credit lines to their customers; similarly, the role of the legal counsel is very complex in the sense of protecting the creditor by virtue of the applicable rulings.