The Brazilian Supreme Court recently suspended the permission granted by Normative Opinion No. 461/12E, issued by the General Internal Affairs of State of São Paulo (Corregedoria-Geral de Justiça de São Paulo) in December 2012, which had recently permitted the acquisition of rural properties in the State of São Paulo by Brazilian companies controlled by foreign entities. This Normative Opinion stated that article 1 §1° of Federal No. 5.709/1971 is contrary to the Constitution. As a result, companies controlled by foreign entities (either an individual or a corporation) should be allowed to purchase rural properties without special restrictions.
The discussion is essentially about the constitutionality of article 1° §1° of Federal Law No. 5.709/1971, which differentiates companies constituted under Brazilian Law with national control from those with foreign control, for the purposes of acquiring rural properties. From the promulgation of the Constitution in 1988 until 2010, two Normative Opinions were issued by the Federal General Attorney (Procuradoria Geral da União) defending the non-applicability of article 1° §1°, understanding that this differentiated regime for the acquisition of rural properties by companies controlled by foreign entities is not compatible with the federal Constitution.
This understanding was in force for more than 20 years until 2010, when the Federal General Attorney issued Normative Opinion AGU/LA nº 1/2010, which stated that article 1° §1° of Federal No. 5.709/1971 was valid and in force, thus restricting the acquisition of rural properties by companies controlled by foreign entities.
Subsequently, as already stated, the General Internal Affairs of State of São Paulo, an internal body of the State Court, issued Normative Opinion No. 461/12E, with normative force, which allowed the draft and registration, by notary offices and real estate registry offices of São Paulo, of purchase and sale deeds of rural properties entered into by companies controlled by foreign entities, hence reflecting the previous understanding that had prevailed for more than two decades.
This last Normative Opinion, 461/12E, was challenged in 2014 before the Supreme Court by INCRA (the National Institute for Colonization and Agrarian Reform), a federal government body of the public administration responsible for the organization and distribution of rural properties, formalized in the process ACO No. 2463. The decision on the claimant’s injunction to immediately suspend the effects of Normative Opinion No. 461/12E from the General Internal Affairs of State of São Paulo was initially postponed by the Supreme Court, then finally granted on September 1, 2016, temporarily suspending permission to companies controlled by foreign entities to acquire rural properties in the State of São Paulo without the restrictions of Federal Law No. 5.709/1971.
The Supreme Court’s decision on the injunction has already been challenged by the General Internal Affairs of State of São Paulo. Unless this decision is overturned, no purchase and sale deeds of rural properties will be drafted and registered without observing the special requirements imposed by Federal Law No. 5.709/1971, until the matter is finally decided on its merits by the Supreme Court.
Meanwhile, any company can still challenge the Normative Opinion AGU/LA nº 1/2010 in order to obtain an inter partes decision allowing the purchase of a rural property by a Brazilian company controlled by foreign entities without observing the above-mentioned article 1° §1° of Federal Law No. 5.709/1971.
*Rafael Bussière is a partner and Cristiano Schiller is an associate in the Real Estate practice of, Campos Mello Advogados, an independent national firm in Brazil with offices in Rio de Janeiro and São Paulo. DLA Piper’s cooperation agreement with Campos Mello Advogados allows us to collaboratively advise international companies doing business in Brazil as well as domestic companies that are expanding or doing business abroad.
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