On May 22, 2019, the Brazilian Superior Court of Justice (STJ) decided in favor of allowing the inversion of the penalty clause in sale and purchase agreements of real estate properties that provides indemnification to sellers (e.g., developers and builders) in cases of termination by default or will of the buyer. With this decision, which followed the judgment of multiple appeals that reached the STJ, the seller may now also face a penalty if there is a delay in the delivery of the real property subject to the agreement.

STJ considered, among other issues, two main topics in the case: (i) whether it is permissible to have an inversion of the moratorium clause that provides indemnification in cases of delay of the payment by the buyer so that the penalty clause also applies in cases of delay of delivery of the of the real property by the seller and (ii) whether this penalty would be in addition to the compensatory penalty, which would oblige the seller to pay two amounts—one referring to delayed delivery (i.e., late payment inversion) and another to loss of profits (what the buyer could have received if the real property was delivered on time).

The decision of the STJ allows (i) but not (ii). Based on the report delivered by the rapporteur, Minister Luis Felipe Salomão, the STJ concluded that the indemnity for a delay in delivery of the construction by the seller would have a value equivalent to a rent, and, therefore, there would be no need to also include a penalty for loss of profits.

This decision will likely prompt extensive further discussion because there remains a divergence of understanding regarding the nature of the referred clause—and a lack of legal certainty—which has resulted in the filing of several proceedings before the STJ with extremely similar demands.1

1 Subject judged in the following appeals: (i) REsp 1498484, (ii) REsp 1635428, (iii) REsp 1614721 and (iv) REsp 1631485.