9 September 2016
On September 1, 2016 the Brazilian Supreme Court granted an injunction suspending the effects of Report N. 461/12-E from the State of São Paulo Justice Inspector’s Office which released Notary Offices and Real Estate Registry Offices from the State of São Paulo from having to observe restrictions imposed by Federal Law 5,709/71 for the acquisition of rural land by Brazilian companies for which the majority of equity capital is held by foreign individuals or entities that reside or whose headquarters is located outside Brazil.
The aforementioned Report N. 461/12-E resulted from a decision by the Court of Appeals of the State of São Paulo which recognized, in a lawsuit involving the acquisition of rural land by a Brazilian company with the majority of its capital held by a foreign entity, that the First Paragraph of Article 1 of Federal Law 5,709/71 was no longer applicable in view of the Brazilian Federal Constitution, as amended by Constitutional Amendment N. 6 of 1995.
As grounds for its decision to grant the injunction claimed by the Federal Government and the Brazilian Agrarian Settlement Institute (INCRA), Minister Marco Aurélio maintains that while a legal provision is not declared unconstitutional by the Supreme Court, laws regularly approved by the Legislative Power are presumed as constitutional.
From a practical perspective, the Supreme Court decision authorizes Notary Offices and Real Estate Registry Offices from the State of São Paulo to require documents or information that demonstrate the origin of the equity capital of Brazilian companies purchasing rural land within the State of São Paulo, as currently occurs in a large part of the Brazilian territory.
It is important to remark, however, that Minister Marco Aurélio’s decision restricts itself to the exact wording of First Paragraph of Article 1 of Federal Law 5,709/71, which refers exclusively to Brazilian companies with the majority of its equity capital held by foreigners, as opposed to the contents of the General Attorney Opinion CGU/AGU N. 01/2008 that was approved by the Federal Government Attorney General and the President in August 2010, which is based on the concept of “control” of Brazilian companies by foreigners.
Observations in this update about Brazilian law are by Tauil & Chequer Advogados and are not intended to provide legal advice. Any entity considering the possibility of a transaction must seek advice tailored to its particular circumstances.