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December 22, 2017

Acquisitions and leases of rural properties by foreigners

Real Estate

The Brazilian National Institute of Colonization and Agrarian Reform (INCRA) published on December 14, 2017 the Normative Ruling No. 88 (INCRA NR 88/2017), which changes the procedure for INCRA’s review of the acquisition or lease of rural properties by foreigners in Brazil. INCRA NR 88/2017 repealed and replaced INCRA Normative Ruling No. 76, of 2013.

INCRA NR 88/2017 did not change or soften the restrictions for the acquisition or lease of rural properties by foreigners in accordance with the legislation in force, nor did it establish a maximum term for INCRA to conclude the analysis of the authorization requests. The new ruling clarified some aspects regarding the approval process, especially in relation to (i) the conditions, documents and information required for approval; (ii) track by INCRA of transactions involving rural properties carried out by foreigners, and (iii) the regularization procedure for transactions that do not comply with the relevant legislation. The main changes brought by NR 88/2017 are summarized below:

1. Regularization Procedure. INCRA NR 88/2017 established a new regularization procedure for acquisitions or leases concluded in disagreement with the restrictions imposed by Federal Law No. 5.709/71. Such transactions may be now validated after the analysis of the “feasibility and legality of the request” by INCRA. The acquisitions and leases implemented until December 14, 2017 are eligible for regularization. However, INCRA did not establish any term for the regularization request to be presented.

2. Appeal. INCRA NR 88/2017 provides the interested party with the ability to file an administrative appeal in case a request is denied by INCRA. The appeal should be addressed to INCRA’s Regional Superintendence, which may reconsider the decision within five days. If such appeal is denied, the interested party may further appeal to INCRA’s Regional Decision Committee, which will have 30 days to render a decision. In the event of another denial, the interested party may resort to the General Coordination of Rural Land Enrollment, which shall grant a decision within another 30 days.

3. Null and Void Act. The NR confirms as null and void the acquisitions and leases carried out in disagreement with Federal Law No. 5.709/71,1 but it carves out exceptions. Among the exceptions, INCRA establishes that the following cases should not be annulled (i) third party acquisitions carried out in good faith, which conditions for adverse possession claim have been met, (ii) foreign individuals who have later obtained the Brazilian citizenship, and (iii) Portuguese citizens currently in situation of equality with Brazilians. While in the first case INCRA NR 88/2017 refers to the Brazilian Public Registration Law,2 in the other items, it just clarifies that the irregularities will not be filed in the National System of Property Acquisition by Foreigners (SISNATE), which should be provided by a specific Normative Ruling.

4. Incitement of Inspection Procedure. INCRA NR 88/2017 emphasizes that the Internal Affairs Office of the State Courts or the Court with jurisdiction over the rural property have the powers to declare or decree, in judicial or administrative procedure, respectively, the nullity of the registration of an acquisition or lease of rural property in disagreement with the law. INCRA NR 88/2017 clarifies that INCRA will request that the Internal Affairs Office of the State Courts declares the nullity of the registration and the cancellation of the Real Estate Record File, and communicate it to the Public Attorney's Office.Additionally, INCRA NR 88/2017 expressly requires the Real Estate Registry Offices’ officials to expressly indicate INCRA’s authorizations in the performance of registrations related to acquisitions or leases of rural land, subject to both civil and criminal liability.

5. Definition of Control. INCRA NR 88/2017 adopted the notions of majority stake and control from the Brazilian Corporation’s Law (Federal Law No. 6,404/1976), in accordance with the Brazilian General Attorneys' Opinion issued in 2010 (Parecer da AGU/2010). It aims to clarify the concept of Brazilian entity held by foreign capital (which should be treated as a foreign entity) as the entity that has “foreign shareholders holding the majority of the capital stock, or which equity enables such foreign shareholders to prevail in the corporate resolutions, to appoint the majority of the officers, to direct business activities and set business guidelines”. The fact that INCRA NR 88/2017 adopts the concept of control pursuant to Brazilian Corporation’s Law could be challenged considering that this concept is not provided by Law No. 5,709/1971. INCRA NR 88/2017 further establishes that Brazilian entities held by foreign capital are entitled to file or amend the rural property’s enrollment with INCRA, without any penalty, in the event they performed any acquisition or lease from June 7, 1994 to August 22, 2010, which are considered grandfathered according to Interministerial Ordinance No. 4 of the Brazilian General Attorney’s Office and the Ministry of Agriculture.

Considering the text of the new ruling, it is early to understand if INCRA will thoroughly investigate the auxiliary books of the Real Estate Registry Offices or update the national enrollment of rural lands, especially in relation to the acquisition or lease of rural lands by foreigners. In parallel, the new ruling sets up, in theory, an alternative for regularization of acquisitions and leases made in disagreement with the restrictions imposed by Federal Law No. 5,709/1971. Such regularization procedure is, however, of uncertain results, given the lack of clarity on the criteria that will be adopted by INCRA to carry out such analysis. 

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