Real Estate is considered an excellent investment vehicle for people of all ranges of wealth. A foreigner can freely buy, sell, rent and use real estate in Brazil. To be considered a valid owner of real estate in Brazil, the property has to be registered in the buyer’s name at the Real Estate Registry, located in the jurisdiction of the property. Due diligence requires an extensive verification of title, including checking for third-party or government debts associated with the property. In Brazil, one must be extremely careful about debts, which are not always predictable and may turn out to be a lien on the property later. This problem can even arise from debts owed by past owners of the property. A property can end up with a lien against it if an employee of the seller obtains a judgment against the seller’s company for unpaid wages, labor benefits and/or social tax contribution and the company has no assets left to pay that debt, either because the company is insolvent or is shut down. However, if the current personal owners’ assets have been exhausted, Brazilian Labor Courts also hold that any officer in charge during the period that the labor was rendered is jointly and severally liable. Hence, purchasing property in Brazil demands careful due diligence that includes checking the probability of future liens on the property. It is of note that individual owners can also be held personally liable in a wide range of areas such as environmental, consumer and antitrust issues, but in this article we are going to concentrate on the labor claims only.
One typical problem that illustrates how a past owner’s labor debts can affect title is a plaintiff-worker struggling unsuccessfully to enforce his judgment for many years. The company he/she used to work for no longer exists. No assets can be found belonging to the people/corporations who logically would be liable. The Labor Court can order the satisfaction of a judgment from the following classes of assets: 1. any private personal assets of any current owners; 2. any private personal assets of owners in charge during the period that worker rendered the service; 3. any private personal assets of any of the owners, it does not matter if the partner had no power of power to bind the company and the ownership was minimal; 4. any assets from companies that are/were subsidiaries of the employer.
The problem is not as acute when purchasing a personal residence as Constitutional Law protects a family residence, so an owner cannot lose the residence where the family lives. Tribunals can protect good faith buyers as long as that asset was not sold during the process of litigation with the purpose of the sale being to prevent the creditor from satisfying his judgment. That course of action would be considered fraudulent. As indicated, when a company has no assets to pay its debts, courts reach the assets of all the owners and even ex-owners to satisfy labor claims. For Brazilian Labor Courts, it is irrelevant if an owner/partner had only minimum participation and/or no power of management. Nor does it matter if it is a Limited Liability Company or a Limited Partnership. All shareholders/partners are jointly and severally liable for judgments of employee wages, benefits and rights. Of course, if one of the owners has to pay more than his fair share of a judgment he can always sue his co-partners/owners for reimbursement in the civil courts. However, in any case the burden of proof is with the property owner.
Article 2. paragraph 2. of the Brazilian Labor's Code (CLT) says that all companies belonging to the same group are liable for labor obligations. The concept here is when two or more companies are under the same control, direction or administration, even though distinct, all will be liable. So, all subsidiaries are jointly and severally liable. Articles 10 and 448 of the CLT reinforces the concept that changes in a corporate structure do not affect labor rights. Also, all contractors and their sub-contractors are jointly and severally liable for the full payment of salaries and other labor rights on any project. As is evident, the CLT is very aggressive when it comes to enforcing labor obligations. As these obligations can be enforced through a lien on a property, one has to be very diligent when purchasing property in Brazil.
Cushman & Wakefield reported that in 2007 Brazil ranked 11th as a destination for foreign investments in real estate with approximately US$ 14 Billion. 143% more than in 2006. Americans, Europeans and Arabs are investing in commercial and residential buildings, low income housing and shopping centers. Many people from European countries like Spain, Portugal, Germany, Great Britain and the Nordic countries buy second homes in Brazil. Henrique Meirelles, the president of the Central Bank said that this year Brazil will receive US$ 45 Billion in direct investment. In 2009, the city of Sao Paulo by itself registered the selling of 35,832 units. Thomas Friedman also said that work and business are done where they can be made in the most efficient manner. Due diligence with legal assistance and insurance are required when buying property in Brazil. If these are done carefully, these investments can bear fruit.
Angelica L. M. Walker is a Brazilian Lawyer and Foreign Law Consultant at Viana Wilkinson Associates in New York.
Bibliography:
Consolidacao das Leis Trabalhistas, CLT
Codigo Civil Brasileiro, CCB
VENOSA, Sílvio de Salvo. Direito Civil: Parte Geral. Vol.I. 2.ed. São Paulo: Atlas, 2002 (September/2003)
Santos, Hermelino de Oliveira. Desconsideração da Personalidade Jurídica. 1.ª Ed. São Paulo. LTr 2003
Dantas, Iuri & Brasileiro, Adriana Brasileiro, Brazil Recovery Boosts Chance of March Rate Increase (Update3) http://www.bloomberg.com/apps/news?pid=20601086&sid=aCsUxymjuvl8
O Estado de Sao Paulo, Economia e Negocios, March 17, 2010
O Estado de Sao Paulo, Setor imobiliário nacional atrai mais investidores estrangeiros, May 05, 2008
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