In the Administrative Procedure SEI 19957.005011/2020-67 (RJ2020/04610) initiated by SRE (Superintendância de Registro de Valores Mobiliários) to determine the liability of the company and its officer for realizing a public offer of collective investment agreements (CIC) in the hotel sector without prior registration or waiver before CVM, the company and its officer were sentenced to the penalty of warning by CVM collegiate. Both would have violated art. 19, caput and §5, I, of Law 6,385/76 and the arts. 2nd and 4th of CVM Instruction No. 400.


Collective investment agreements and their use in the hotel sector


Pursuant to art. 19, caput, of Law 6,385/76, public securities issues without prior registration before CVM are prohibited. Without discussing the theoretical difference between public issues (as mentioned by law) and public offerings, CVM should focus on any public offers that appeal to popular savings. In this sense, §5 of art. 19 confers powers to CVM to define other situations that may be considered public issues for registration purposes - in this context, ICVM 400 was edited.

According to art. 2, IX, of Law 6,385/76, as amended by Law 10,303/01, securities are subject to the law regime for publicly offered contracts when "grant the right to participate, partnership or remuneration, including resulting from the provision of services, in cases in which income comes from the effort of the entrepreneur or third parties". After this change in the early 2000s, a list of securities, such as shares, debentures, subscription bonuses and others, was included in the law - in addition to a more generic hypothesis to be applied in cases that do not fit the others.

The concept of collective investment agreements was imported from the well-known U.S. case SEC v. W. J. Howey Company tried in 1946.[1] The case related to the offering of pieces of land for orange cultivation with the optional contracting of cultivation services and management of the property.

Considering the very broad and generic definition, CVM has historically faced contracts of this nature in various sectors, such as ostrich breeding,[2] participation in the rights of football players,[3] cryptocurrencies,[4] condo-hotel enterprises, among others.

In that sense, "the characterization of a given product as a collective investment agreement does not depend on the prior position of CVM, but on its adequacy to the requirements of the so-called Howey Test"[5] which basically consists of verifying the following aspects:

  • Is there an intention to make an investment?
  • Has the investment been formalized by means of a contract?
  • Do the investment agreements have a collective nature (that is, was the agreement carried out by several investors)?
  • Was the investment made with profit expectation?
  • Does the profit arising from the investment result from the efforts of the entrepreneur or third parties (that is, not from the investor itself)?

In case these elements are present, the collective investment agreement is understood as a security.


Regulatory time milestones on condo-hotels


The use of collective investment agreements in hotel developments has been recognized, at least since the 1980s, when there was a significant increase in hotel rooms in the country.[6] By condo-hotels, one should understand the hotel development organized through a building condominium (condomínio edilício).

Provisional Measure 1,637/98 indicated collective investment agreements as a securities species. Despite this, for many years, these contracts were treated exclusively from the perspective of their real estate nature and subject to the specific rules of real estate development and the Brazilian Civil Code. In 2001, as already mentioned, collective investment agreements were included in the securities list, but, given its peculiarities, it was not quickly assimilated by the market as such.

On December 12, 2013, CVM issued a market warning regarding the characterization of condo-hotels as securities. From then on, the position of the commission on the subject became clear and CVM began to supervise the condo-hotels' enterprises in a stronger way. CVM Resolution 734, published on March 17, 2015, regulated the subject and established requirements for the exemption from registration of this modality of agreement.

In general, the collegiate considers that events prior to the market alert shall not be subject to CVM Resolution 734 and its penalties. However, in relation to events between the market alert and the issuance of CVM Resolution 734, there is an uncertainty with relation to their submission to the resolution and its penalties. Therefore, the conduct shall be analyzed in light of the circumstances of the case.

Subsequently, on August 27, 2018, CVM Instruction 602 was issued and revoked CVM Resolution 734 (“ICVM 602”). Currently, ICVM 602 regulates:

  • the requirements of the application for registration of the offer;
  • rules on the content of the offer and the corresponding advertising material;
  • the criteria for exemption from registration of the distribution, among other topics, such as the role of hotel operators.


The role of hotel developers and operators


It is important to highlight the difference between developers and hotel operators in relation to the collective investment agreements offering.[7] In general, developers are identified as responsible for public offerings. On the other hand, the operators, as responsible for the management of the business operation, are relevant to the offer, because the success of the enterprise depends on the management executed by them. However, the operator may not be involved in the offer of the condo-hotel, which is the reason why, in principle, CVM understands that the operator is not an offeror.

CVM's understanding of hotel operators has already been different. Originally, the operator was assigned the role of co-offeror. Since 2017, however, operators have not been included in the stop orders related to irregular offers, and decisions have further explored the difference in roles played by operators in the offers. CVM Instruction 602 defines "offeror" as the developer or any person who performs public distribution acts of the hotel collective investment agreements. The instruction also imposes on the operator the obligations to cooperate in the preparation of the documents of the offer and to report accounts but does not establish obligations relating to the distribution of securities itself.

As described, the collective investment agreements in the hotel industry is quite recurrent in the decisions of the Commission and, therefore, it is important to pay attention to the elements that define such contract, so that legal and regulatory measures are properly observed.


Business models recently analyzed by the collegiate


On October 30, 2018, SRE submitted a formal consult[8] to CVM collegiate in the application for registration of an offer of a hotel collective investment agreement formulated pursuant to ICVM 602. The business model included the purchase and sale commitments for 141 autonomous units that could be disposed entirely or in ideal fractions (up to four per autonomous unit).

The technical area of CVM understood that the offer of collective investment agreements of autonomous units (resulting from the formation of the building condominium) would be covered by ICVM 602. However, the offer of collective investment agreements for the ideal fractions would imply the formation of a voluntary condominium, a regime expressly excluded from the scope of ICVM 602.

In the analysis of the consultation, the collegiate, following the vote of the rapporteur, understood that "the provisions of CVM Instruction 602 apply to the public offering of collective investment agreements under this case [i.e., ideal fractions of autonomous unit], since the hotel development would be structured in the form of an building condominium, in accordance with the terms provided for in Articles 1,331 to 1,358 of the Civil Code, and would comply with the rules established in the Incorporation Law (Law 4,591/64). [...] Article 3 of said instruction should be interpreted to exclude from the legal regime public offerings of collective investment agreements of hotel enterprises not subject to the Incorporation Law or to the discipline of building condominiums".

However, due to the peculiarities and risks involved in the formation of a voluntary condominium resulting from the offer of collective investment agreements on the ideal fractions, it is necessary that the offeror discloses "relevant information on the operation of voluntary condominiums and the specific risks incurred in this type of investment".

Shortly thereafter, on April 22, 2019, SRE formulated a new formal consult[9] to CVM collegiate in the context of a complaint that originated in the sale of fractions of time in condominium under the multi-property regime (time sharing). In this condominium modality, the owner of the multi-property is entitled to a fraction of the time to use and enjoy the property and its facilities, also used by other holders according to the fractions of time allocated to each of them.

The properties on which multi-ownership is established may also "be integral parts of an enterprise in which there is a system of leasing of the fractions of time in which the holders can or are obliged to lease their fractions of time exclusively through a single administration, sharing among themselves the revenues of the leases regardless of the effective occupation of each autonomous unit".[10]

In the assessment of the consult, CVM collegiate, following the rapporteur's vote, established the following criteria to verify whether the disposal of time fractions linked to Pool or not a collective investment agreement subject to the public offering regime:

  • The mere acquisition of a real estate unit, either under the general regime or in the multi-property regime, for the purpose of investment is not sufficient to attract the securities regime. This happens when, among other elements, the profit perspective is associated with the efforts of the entrepreneur or another third party;
  • The mere fact that the investor is required to take certain measures is not necessarily sufficient to drive away the securities regime. The collective investment contract can be characterized even when the efforts of third parties are not exclusive, if they are, in the end, preponderant and decisive for the profit expectation;
  • When the acquisition of the real estate property or the temporal fraction is subject to the execution of a contract by means of which that unit or fraction is placed in a rental mandatory pool, that is understood as a collective investment agreement;
  • When the sale of real estate and the pool are not inseparable – and this inseparability needs to be analyzed not only from the legal but also economic aspect – other elements should be considered to verify whether or not the offer involves a collective investment agreement. In particular, attention should be paid to the motivation of investors in acquiring the properties and the emphasis given by the seller on the promotion of investment; and
  • If real estate property is sold for the primary purpose of personal use, there is no collective investment contract offer.

Given the versatility of the structures that can be explored with condo-hotels and, also, the recent understanding of CVM on the offer of hotel collective investment agreements, prior to the launch of new estate projects, it is necessary to analyze whether the contractual arrangements that formalize the purchase of the property by the interested parties are considered a collective investment agreements. If that is the case, the agreements shall be submitted to the public offering regime, pursuant to ICVM 602 or ICVM 400, depending on the case.


[1] SEC v. W. J. Howey Company, 328 US 293 (1946).

[2] CVM PAS No. 23/04, rel. Dir. Wladimir Castelo Branco Castro, j. September 28, 2006.

[3] CVM PA RJ 2014/11253, j. June 30, 2015.

[4] CVM PAS 19957.003406/2019-91, rel. Dir. Gustavo Gonzalez, j. October 27, 2020.

[5] PAS CVM 19957.006343/2017-63, winning vote dir. Gustavo Gonzalez, j. May 7, 2019 (free translation).

[6] For reference, PAS CVM 19957.004122/2015-99, rel. Dir. Gustavo Borba, j. April 12, 2016 ("Oliva Case") and PAS CVM 19957.008081/2016-91, rel. Dir. Gustavo Borba, j. April 10, 2018 (on historical aspects of CVM's position in the supervision and regulation of collective investment agreements offers of condo-hotel).

[7] For reference, PAS CVM RJ 2017/2255, rel. Dir. Gustavo Gonzalez, j. 08/28/2018, PAS CVM RJ 2018/324, rel. Dir. Gustavo Gonzalez, j. 10/30/2018, PAS CVM 2017/4412, rel. Dir. Pablo Renteria, j. 10/30/2018, PAS CVM RJ 2017/4779, rel. Dir. Marcelo Barbosa, j. 11/12/2018 (on differentiation of responsibility of the operator and developer in the offer of condo-hotels).

[8] For reference, PROC. SEI 19957.009425/2018-41, rel. Pablo Renteria, j. on 30.10.2018.

[9] For reference, PROC. SEI 19957.009524/2017-41, rel. Gustavo Gonzalez, j. on 04.22.2019.

[10] Art. 1.358-R, § single, of the Civil Code.