Discussions on the issue of regulating the process of acquisition of rural real estate by foreigners should gain momentum following the presentation to the Federal Senate of Bill No. 2,963/19, dating from the end of May of this year. The text of the bill addresses various problems that the market faces with current laws and regulations, which depends on an extremely bureaucratic, uneven procedure and no operational resources for its implementation. All of this makes the acquisition process time consuming and affects the legal security of investment projects.

Until recently, the subject was being addressed under Bill No. 2,289/07, which, with its five other related bills, has been awaiting review by the Chamber of Deputies since September of 2015. Although discussions must now start at square one, a more up-to-date text may facilitate the approval process in the houses of the Legislature.

The main amendment proposed by Bill 2,963/19 is the treatment given to Brazilian companies controlled by foreigners. Currently, Brazilian companies directly or indirectly controlled by foreign individuals or legal entities are subject to the authorization procedure for acquisition of rural land provided for by law, as they are equated, for this purpose, to foreign companies.

According to the proposed text, Brazilian companies incorporated under Brazilian law will no longer be subject to any restrictions, except in certain specific and pointed cases. In other words, the proposed rule is of a general permission with exceptions instead of the current rule of general restrictions with specific authorizations.

Situations that will remain subject to restrictions, including those requiring approval by the National Defense Committee and regardless of whether the company is Brazilian, include the following: companies owned and controlled by sovereign wealth funds; foreign controlled companies when the property is located in the Amazon Biome and is subject to a legal reserve of 80% or more; and non-governmental organizations and private foundations funded by the same foreign person.

With the probable intent of addressing difficulties faced in the provision of public services, the bill proposes that such restrictions should not apply in the case of acquisition or possession intended for the execution or operation of a public service concession, permission, or authorization. The text expressly mentions the activities of generation, transmission, and distribution of electric energy as examples.

Another issue addressed by the text of the law is the problem faced by foreign creditors in foreclosing on fiduciary sales over rural property, when, in the second auction, the property is not sold and automatically remains under the creditor’s ownership. The law’s solution is to provide that, in such cases, ownership of the property must remain within the conditioned ownership of the creditor for two years, renewable for another two. During this period, the creditor will be required to dispose of the property to third parties, under penalty of returning the property to the original owner (that is, the guarantor).

The bill also stipulates that failure to comply with the restrictions, when applicable, will render the act annullable and not automatically null and void, as the laws and regulations currently provide. Although it seems like a mere legal technicality, this change means that irregular acts may be validated if they are later brought into good standing, in line with the understanding already handed down by the Superior Court of Appeals (STJ) on the subject.

Bill 2,963/19 also provides that all acquisitions and leases of rural real estate by foreigners made in disagreement with current laws and regulations will be validated, which would bring into good standing situations considered void under the current rules.

Other general rules were maintained in the text, such as the maximum municipal occupancy limit, kept at one quarter of the area of the municipality, with the occupancy restriction limited to 40% of said limit by nationality (that is, 10% of the municipal area).

This is still a bill, and will require the proper legal approval procedure, including a review by appropriate subject-matter committees of each legislative house. Its conversion into law, if confirmed, will have a significant impact on the acquisition of rural properties in Brazil, especially due to clarification of the complex situations faced daily in projects involving these acquisitions.