President Michel Temer sanctioned on 27th December 2018, Law No 13,786 that regulates the termination of real estate agreements and stablishes the procedure for the return of property acquired prior to construction. The Law was published on 28th December 2018 in the Official Gazette.

The  Law provides that, in cases of real estate development (that is the legal means of construction permits to the sale of units before construction/completion) which are being constructed legally segregated from the developer’s assets (with its own Corporate Taxpayer’s Registry Number  and separate accounting records records), the developer may apply a penalty fee of up to 50% of the amount paid by the buyer should he/she cancel the purchase, in addition to other discounts provided in the agreement and authorized by Brazilian law. Reimbursement by the developer of the remaining amount paid by the buyer shall be done within 30 days after the issuance of the certificate of occupancy of the property.

In other cases of real estate development, without the segregated estate, the penalty fee may be up to 25% of the amount paid by the buyer, in addition to other discounts, and the reimbursement of the remaining amount must be in a single installment within 180 days of the cancellation of the real estate purchase agreement or within 30 days of resale to a new buyer of the returned unit.

If the buyer wishes to cancel the purchase without having to pay a penalty fee, he/she will have the option to find a new buyer for the returned unit, in which case the penalty fees of 50% or 25% (depending on the segregation of the estate) can be avoided, provided the requirements defined by law are satisfied.

In case of allotments, the penalty fee may be up to 10% of the value of the purchase agreement and the reimbursement of the remaining amount after the discounts by the developer may be done in up to 12 installments.

Furthermore, the Law maintains the 180-day grace period for the developer in case of delay in delivery date pursuant to the date established in the agreement, without causing an obligation to the developer to pay a fine or the possibility of termination of the agreement by the buyer without penalty fees. However, the Law provides that if the developer exceeds this grace period, the buyer may terminate the agreement by receiving all the amounts paid plus the contractual penalty within 60 calendar days of the termination or, if the buyer decides to maintain the agreement/ property even with delay, the buyer will be entitled to indemnification of 1% of the amount effectively paid to the developer for each month of delay, which shall be received by the time of the delivery of the unit.

The Real Estate team at Montgomery & Associates is available for any further information or clarification on the subject.