Juliano Zorzi Aiming to provide greater security to real estate lessors in lease contracts with no collateral, in case of default of the lessee, Federal Law No. 12,112/2009 included item IX in Article 59 of the Tenancy Act (Federal Law No. 8,245/1991), allowing an injunction for property eviction in 15 days, regardless of lessee’s hearing, if the agreement is not secured by any collateral set forth in the Tenancy Act. Such collateral may include guarantees in the form of security deposit, surety or surety bond, and fiduciary assignment of quotas of investment funds.

Juliano Zorzi

Aiming to provide greater security to real estate lessors in lease contracts with no collateral, in case of default of the lessee, Federal Law No. 12,112/2009 included item IX in Article 59 of the Tenancy Act (Federal Law No. 8,245/1991), allowing an injunction for property eviction in 15 days, regardless of lessee’s hearing, if the agreement is not secured by any collateral set forth in the Tenancy Act. Such collateral may include guarantees in the form of security deposit, surety or surety bond, and fiduciary assignment of quotas of investment funds.

The original goal of this mechanism is to avoid irreversible losses to lessor due to a delay in obtaining relief, should it be impossible to negotiate a guarantee or in case of its later extinguishment, for any reason. Notwithstanding, this mechanism may represent an alternative for lessor for those cases in which a quick repossession of the property is more interesting than the guarantee provided.

Clearly, in case of lack of collateral, it is less likely that lessor will recover the amounts in arrears. However, often times, a lawsuit takes time and lessor does not manage to receive the outstanding amounts from the guarantor, or the surety bond is not viable given its cost, or further, the value provided as guarantee (usually, an amount equal to three rent payments) is insufficient to cover the debt, especially rents to fall due in the course of an eviction action. 

Lessor, therefore, could choose to take out a guarantee and regain possession of the property within 15 days, by obtaining an injunction, thus reducing his exposure to loss (not excluding the possibility of collecting any amounts from lessee). This alternative, however, is not risk free; besides the possible delay until the judge analyzes the case, there is still a risk of the judge not understanding that the elements required for an injunction to be granted exist and, thus, deny it. In this case, lessor would need to appeal and await, for an indefinite time, a decision from a higher court.  If the injunction is denied definitively, lessor’s loss may be irreversible in view of the lack of collateral.

Recent decisions of the São Paulo courts show that requests for injunctions have been granted with grounds on contracts with no collateral, but these are only a few judgments and cannot represent a consolidated understanding. Therefore, it is up to lessor, in the specific situation, to evaluate the benefits of effectively waiving a guarantee when signing a lease and facing the risk of an injunction request for eviction being denied, or demanding a guarantee and handling any lack of payment by enforcing it.