Law 14,010/2020, published in the Official Gazette on June 12, 2020, establishes the “Emergency and Transitional Legal Arrangement” applicable to private contracts during the Covid-19 pandemic. The law, which originated in Senate Bill 1,179, had part of its text vetoed by the President of Brazil, following a more conservative approach to legal effects of the pandemic in the real estate market.
In terms of the impact of Law 14,010/20 over real estate matters, it is worth mentioning that the vetoes were more relevant than the approved text. Without evaluating the advantages or disadvantages of the new law, it should be taken into account that while the Bill has proposed significant legislative changes to address the effects of the pandemic, some key provisions have been vetoed by Brazil’s president.
- VETO – BLUE PENCILING OF CONTRACTS AND INJUNCTIONS IN LEASE CONTRACTS
In the real estate sphere, provisions relating to the possibility of blue penciling real estate contracts (articles 6 and 7, vetoed) and those that sought to prohibit the granting of certain injunctions provided for in Law 8,245/91 (provided for in article 59, paragraph 1, I, II, V, VII, VIII, and IX), for the eviction from urban real estate leased for commercial or residential purposes in eviction suits filed after March 20, 2020 (Article 9, vetoed), have been vetoed.
The President’s Office has reported that the Brazilian legal system already has appropriate mechanisms for the revision of contractual obligations in exceptional situations. Moreover, it would be contrary to public interest to prevent preliminary injunctions in leases, because this kind of restriction could lead to the suspension of contract enforcement provisions and could be an incentive to default. Therefore, the proposed limitation would be an excessive protection for debtors to the detriment of creditors.
When justifying the afore-mentioned vetoes, the President’s Office laid aside the possibility of setting a direction to discussions regarding flexibilization of lease obligations during the pandemic. This suggests that the President's Office is favorable to the enforceability of such contracts.
- VETO –POWERS OF THE CONDOMINIUM MANAGER
Still within the scope of real estate and related development, the President’s Office has excluded provisions in the bill that intended to increase the condominium manager’s powers and to restrict the condo units occupants rights with regards to the use of common and private areas during the pandemic (the afore-mentioned vetoed provisions even limited meetings within real estate units).
When justifying the vetoes, the President’s Office demonstrated a conservative position in avoiding discussing conflicts among constitutional rights and assigning to the general condominium meetings the responsibility for restricting the use of such condominium areas.
Thus, any decision that intends to change the rules applicable to condominium member relationship should, as before, be submitted to prior approval by the general condominium meeting, to ensure its effectiveness.
- APPROVALS – EXTENSION OF CONDOMINIUM MANAGER’S POWER OF ATTORNEY VALIDITY
With regard to approvals, the President’s Office has approved the text of article 12, which postpones mandatory general meetings, including the ones for the purpose of electing a condominium manager, to the end of October of 2020. The text also establishes the possibility of holding general or special meetings by videoconference or other virtual instruments – tools that have already been routinely adopted by condominiums.
In effect, the validity of powers of attorney issued to condominium managers may now be extended until October 31, 2020, or until the required condominium general meetings are held (these can be held through virtual means during the pandemic).
- EFFECTS FOR THE REAL ESTATE MARKET
Regardless of valuing the excluded rules, the aforementioned vetoes direct the discussions about vetoes matters to Courts, as individual lawsuits, which has already happened. If, on the one hand, this can be positive in order to avoid generalization of solutions for cases that have distinct particularities, on the other hand it gives room for judicial decisions that, dealing with the common topic of the pandemic effects, may result in diverging decisions in different regions of Brazil.
Real estate market players are left to act in accordance with good practice when attempting to resolve disputes and to follow up on decisions regarding these matters during the pandemic, in order to establish standards for decision-making.