06/07/2024 – 9:00
Created in 2018 to define clear rules for the cancellation of real estate purchase and sale contracts, the Termination Law (13,786) has been the subject of disagreement. Lawyers who represent real estate companies claim that the new legislation has not been able to provide the expected security, since court decisions are said to favor real estate buyers. In turn, consumer lawyers counter, stating that the law opens up loopholes for abuse of economic power.
The Law on Cancellations came into force after sales cancellations exploded in 2014, when the Brazilian economy entered a recession. At the time, there were no rules for this type of situation, and court decisions generally required companies to return around 75% of the amount paid by consumers until the property was delivered.
+ Average price per m² of real estate rises more than inflation and exceeds R$9,000 for the first time
This created imbalances, as construction companies were required to complete the work even if they lost revenue from cancelled sales. The math didn’t add up. Many companies went into the red and some even went into receivership, as was the case with PDG Realty, Rossi Residencial, Viver, João Fortes and Urbplan (formerly Scopel).
“With the enactment of Law 13,786, rules were defined to avoid surprises. In the case of the purchase and sale of apartments off-plan, 50% of the amount paid by the consumer is required to be retained until the time of termination (when there is an earmarked asset). In the case of lots purchased off-plan, the retention must be a maximum of 10% of the value of the contract. The law also defined that there will be no refund of the brokerage fee, paid directly to the brokerage, which is usually 4% to 6% of the total value of the property.”
Another important point: companies are authorized to return the money only after the property has been delivered and the Habite-se has been received, in order to avoid running out of money to finish the work, harming other consumers who purchased a property in the same development.
Where is the divergence?
Lawyers for the companies report that many judges are reducing fines to only about 10% of what was paid, in order to alleviate the burden considered excessive for consumers. The topic was discussed during the Urban Subdivision Forum, organized by Estadão. The situation worries companies, who see the risk of encouraging unjustified contract terminations and applying an insufficient amount of fines to cover production costs.
The founding partner of VBD Advogados, Olivar Vitale, mapped more than 100 contract termination decisions and warns that fines have been based on what was paid by consumers during the course of the contract, regardless of the amount. “We do not analyze how much was paid, whether it was 0.5% or 80%,” he explains.
For him, the risk of this flexibility is that the company will go bankrupt and the remaining buyers will not receive the property. “Today we are experiencing great uncertainty. Imagine that a developer sells 300, 400 lots. Then, half of them cancel the purchase. Even so, he has to continue implementing the infrastructure, streets, sanitation, lighting, etc. What does he do?”, he asks. “Much more than protecting an entrepreneur’s cash flow, the importance of the Termination Law is to protect the buyer who expects to receive the property.”
Kelly Durazzo, a partner at Durazzo Medeiros Advogados, notes that fines have often not been enough to cover the costs of companies with stands, brokerage, financing and ongoing construction. “The rule for subdivisions, which is 10% based on the value of the contract, is reduced by the Judiciary, to 10% of the amount paid, which is almost nothing. There are decisions in which the fine is R$200, while others reach R$1,000. Obviously, this does not lead to a positive result.”
In a survey of 40 cases, Kelly says that the Judiciary frequently cites Article 413 of the Civil Code, which provides for the possibility of reducing fines when it is understood that they are considered excessive. “But on what basis is it excessive? Because none of these cases mentioned how much was actually paid,” he ponders.
Lawyer and coordinator of the legal council of the São Paulo Housing Union (Secovi-SP), Marcelo Terra, argues that the law should be clear on this issue. “There should be no room for the Judiciary to have a different interpretation,” he says.
The vice-president of the legal council of the Association of Urban Subdivision Companies (Aelo), Luís Paulo Germanos, says that this environment calls into question the social function of companies. “Companies collect taxes, produce wealth, develop urban areas in an orderly manner and are responsible for an ecologically balanced environment.”
What the consumer advocate says
Consumer advocates argue that the Termination Law should be applied in a more relative manner. “It is not lawful for those engaged in commercial activities to enrich themselves at the expense of vulnerable consumers. It is obvious that economic activity seeks profit and this is not condemned. What is condemnable is abuse and the promotion of imbalance between the parties,” argues Marcelo Tapai, founding partner of the Tapai Advogados law firm.
“A fine of 50% of what was paid to the developer, plus 5% to 6% of the value of the deal as brokerage, which, in some cases, can reach more than 70% of the amounts paid, is unjust enrichment and makes the contract excessively onerous, especially because the company keeps the lot and resells it to third parties”, says Tapai.
“Given this clear imbalance, the legislation itself authorizes the judge to adapt the penalty to balance the contractual relationship.”
Reduction of fines only in ‘exceptional’ situations, says judge
Judge Marcelo Guimarães Rodrigues, president of the 21st Specialized Civil Chamber of the Court of Justice of Minas Gerais (TJ-MG), states that the possibility of reducing the penalty clause should be understood as an exceptional situation. “Therefore, it implies that it must be duly justified in the specific case, given that, as a rule, it is the creditor’s subjective right to demand the penalty as stated in the contract,” he says in an interview.
He explains that the application of the fine may eventually be relaxed based on article 413 of the Civil Code, when “the obligation has been partially fulfilled” and “if the amount of the penalty is manifestly excessive, taking into account the nature and purpose of the business”.
“It is worth noting that this regulation contains the adverb ‘equitably’, alluding to the notion of equity, precisely one of the most open indeterminate legal concepts and, therefore, prone to different interpretations”, states Rodrigues.
There are cases in the courts in which the ‘full’ application of the fine was validated because it was considered to be in accordance with the law, by virtue of the principle of the obligation of the contract. From this perspective, the Termination Law is seen as a protection of the community by guaranteeing compliance with the contract and that the amounts will be used to complete the work and deliver the units to all consumers, he points out.
In other analyses, it is acceptable for the penalty to be reduced ‘proportionally’ by the judge, if the main obligation has been partially fulfilled, explains the judge.
“It may happen, for example, that the debtor has fulfilled the contract to a greater extent, but not in the part that was most in the creditor’s interest. Therefore, it is up to the judge to examine whether the main performance allows for partial fulfillment,” he says. “And if the creditor did not receive any benefit from partial fulfillment, there would, in theory, be no need to consider reducing the penalty clause.”
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