The practical effects of the application of Management Board Decision No. 38 (DD 38) of Companhia Ambiental do Estado de São Paulo (the Environmental Company of the State of São Paulo, or "Cetesb") are of concern to the real estate market. The new rules approve the procedure for the protection of soil and groundwater quality and establishes guidelines for the management of contaminated areas in the context of environmental licensing.


Published in February, DD 38 regulates, for example, the procedure for building in places where activities have already been conducted that potentially generate contaminated areas. In cases where the site is classified as a Contaminated Area under Investigation (ACI), the developer must submit to Cetesb an Intervention Plan for the Reuse of Contaminated Areas (IP). Only with Cetesb's favorable technical opinion on the IP and after the payment of a price for this opinion will it be possible to proceed with the request for approval by the other agencies involved in order to demolish existing buildings and begin construction on the project.


The real estate market’s attention is also turned to a requirement made by Cetesb of new owners of properties that had received a Statement of Rehabilitation for Declared Use conditioned on the adoption of engineering measures and institutional control for mitigation of existing risk. They must sign letters stating that they are aware of the need to maintain such restraint measures and to accompany and/or monitor them and also confirm who is responsible for their execution.


From the real estate business point of view, these obligations should be clarified and contractually agreed upon in the purchase and sale of future autonomous units. This requires developers to pay special attention to the procedure for establishing the condominium association and delivery of the autonomous units to future purchasers, who will assume these obligations with Cetesb.


DD 38, according to Cetesb itself, is not watertight and will be improved by means of regulatory instructions to be issued in due time to regulate the process of oversight by the environmental agency. One of the points to which Cetesb is expected to respond is the requirement of a bank guarantee or environmental insurance to ensure the implementation of an Intervention Plan in contaminated areas. These products are still incipient in the market and will certainly entail significant costs for the construction industry.


The real estate market expects regulatory instruction to clarify the interpretation and practical answers to doubts already identified in the DD 38 procedure in order to avoid a disproportionate action that could economically compromise the developer’s use and effective rehabilitation of the contaminated areas, which definitely does not appear to be Cetesb’s intention.


In addition to the expectation of a response by Cetesb with respect to the regulations accompanying DD 38, market players are also anxious for a decision on the petition to initiate an Ancillary Proceeding for the Resolution of Repetitive Claims (IRDR) brought before the Court of Appeals of the State of São Paulo (TJ/SP) by the São Paulo Public Attorney's Office (MP/SP), which addresses, among other issues, the treatment of contaminated areas in the state. For that agency, these areas must undergo a complete decontamination process and, in case of non-viability, the environmental repair should be replaced with compensatory measures or payment of indemnification.


Only after the decision of this petition by the TJ/SP will it be possible to understand whether the measures that have been adopted by Cetesb will be exhaustive and sufficient for rehabilitation processes, since there is no consensus today between the MP/SP (which advocates the full recovery of contaminated areas) and the environmental agency (which requires the reestablishment of acceptable risks for the area). If the MP/SP succeeds in its petition, the market will be sensitive to its effects.