In times of political and economic uncertainty, some things seem to take on a different kind of value. Perhaps that is why real estate still holds an almost affectionate place for us Brazilians whenever assets are discussed. Financial investments fluctuate, companies go through crises, currencies rise and fall, governments change and, in the middle of all this, there remains the feeling that buying a flat, an office, a plot of land or a house means putting part of one’s wealth into something concrete, visible and, in some way, safer.
I have seen this quite clearly at the firm over recent months, faced with a significant increase in enquiries about buying and selling property — some involving relatively small amounts, others transactions worth several million reais, but almost all accompanied by the same question, usually asked after the buyer has already visited the property, liked it, negotiated the price and all but made up their mind:
“Ricardo, everything is settled, I just need you to take a look at the contract.”
It is a simple sentence, but one that always leaves me slightly uneasy, because the contract, important as it is, tends to be only the last chapter of a much longer story. Before it there is the property, naturally, but above all there is whoever is selling that property: their financial life, their business activities, their lawsuits, their debts, any tax arrears, the companies they are or once were part of, and an enormous amount of information that will not necessarily appear on the registry record handed over by the estate agent. And that is why a property worth R$ 50,000 deserves, allowing for the difference in scale, the same legal care as one worth R$ 10 million, because in both cases the buyer is converting good, available, unencumbered money into an asset that may be carrying problems that predate the purchase itself.
A recent ruling by the Superior Court of Justice (STJ) illustrates this almost as a teaching case. Special Appeal 2,173,311/PE (REsp 2.173.311/PE), reported by Justice Maria Thereza de Assis Moura, dealt precisely with a buyer who had acquired a property on 12 May 2017, with no attachment recorded on the registry record and, as argued in the proceedings, after having obtained clearance certificates tied to the seller’s CPF (individual taxpayer number). The detail was hidden in another register: the seller carried on business as an individual entrepreneur and had tax debts entered on the register of overdue tax debt under the corresponding CNPJ (corporate taxpayer number), those entries having been made between 14 September and 18 November 2016, that is, months before the property was sold. The buyer argued, in broad terms, that he had acted with care and in good faith, that the debt did not appear under the seller’s CPF and that the tax enforcement proceedings related to the CNPJ of his business activity. The reasoning seems sound to anyone looking at the situation from outside the case; for the STJ, however, it was not enough.
The Court reaffirmed that an individual entrepreneur has no legal personality distinct from the natural person carrying on the activity, so that the CNPJ, in such a case, works essentially as a tax identifier and not as a kind of wall separating “the business” from the person of the entrepreneur. The property belonging to the natural person was therefore not protected by the mere fact that the debt was registered under the CNPJ of the business activity. More than that, the STJ restated the position already settled in Topic 290 (Tema 290), under which, in tax enforcement proceedings, a sale carried out after the tax debt has been entered on the register of overdue tax debt, once Supplementary Law No. 118/2005 was already in force, is presumed fraudulent, regardless of whether an attachment is recorded on the registry record or of any showing of bad faith by the buyer. It is a particularly harsh conclusion for someone buying in good faith, but that is precisely why the precedent deserves attention: sometimes the problem is not the property you are buying; it is a debt of the seller that you did not even imagine you had to look for.
This may look like a tax dispute, far removed from the routine of someone simply trying to buy a flat, but perhaps that is exactly where the most important part of the story lies. Picture the buyer who requests an up-to-date registry record, checks the property tax (IPTU), verifies the service charges, searches the seller’s CPF in the court filing offices and concludes that it is safe to go ahead, without realising that this person also carries on an economic activity through the CNPJ of an individual entrepreneur, of a micro-entrepreneur (MEI) or, before long, through a tax registration relating to the IBS and the CBS, under which a tax debt may already have been entered. In other words, the more the State integrates tax, asset and business information, the harder it becomes to imagine that a safe property purchase can be made with nothing more than half a dozen certificates pulled automatically off the internet.
The curious thing is that, in practice, the order of events is almost always the other way round. First the buyer visits the property, likes the location, pictures the furniture in the living room, discusses with the family who will take which bedroom, negotiates the price, hears from the agent that another interested party is about to make an offer and then, already emotionally committed to that purchase, goes to a lawyer to “look at the contract”. There is nothing wrong with that, because buying a property is, beyond a financial decision, a deeply emotional one, but perhaps that is exactly why it matters so much that someone, at that moment, plays the least romantic part in the deal and goes looking for what nobody would want to find. That is precisely the point of proper real estate due diligence: not to block transactions, but to uncover in advance what could turn them into a problem.
It is worth saying that no legal investigation will be able to eliminate absolutely every risk, not least because absolute certainty is perhaps a promise the law should never make. The work consists of knowing the relevant risks before the money leaves the account, because a problem found early can be negotiated, can lead to an additional guarantee, can justify holding back part of the price, can change the structure of the contract or, as a last resort, can convince the buyer that it is better to look for another property. Once the deed is signed, the price paid and the move completed, however, any surprise takes on a different dimension, especially when it arrives in the form of an attachment or tax enforcement proceedings over a debt that arose long before the buyer had even heard of that address.
Here at Petereit Advogados we have been working with growing frequency on precisely this kind of transaction, guiding clients from the documentary and asset investigation of the property and its sellers through to negotiating and drafting the instruments needed for the purchase.
Ricardo Petereit
