BRAZIL Law and Practice Contributed by: Mariana Cobra, Janaína Vargas, Mayara Zanini and Marcela Freire, Mattos Filho
7.7 Requirements Before Use or Inhabitation
Additionally, Brazilian law permits the inclusion of monetary penalties in contracts for failure to meet established milestones. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance In Brazil, it is common for project owners to require additional security to guarantee contrac - tor performance, given the legal framework that supports such practices. These include: • performance bonds, which guarantee project completion in accordance with contractual terms; • letters of credit and escrow accounts, regu - lated by banking laws, which offer financial assurances by holding funds until contract conditions are satisfied; • parent guarantees, where a parent company backs the contractor’s obligations, which are supported by corporate law provisions; and • third-party sureties, similar to performance bonds, which provide a guarantee from insur - ance companies based on insurance laws and regulations. These mechanisms are aligned with Brazil’s emphasis on protecting project investments and ensuring contractual compliance. 7.6 Liens or Encumbrances in the Event of Non-payment Owners usually resort to a “right of retention” in the case of non-performance of profession - als such as builders, contractors and designers. This right allows them to retain the payment until the work is completed. The opposite is not usual in Brazil. However, in the case of non-payment, contractors and/or designers are permitted to file a lawsuit against the defaulting owner to ensure the right to payment.
In Brazil, for a building to be lawfully occupied, it is necessary to first obtain an occupancy permit ( habite-se ) certifying the construction’s compli - ance with municipal regulations. Only with the occupancy permit and the fire brigade’s inspec - tion certificate (AVCB), among other documents, will the company obtain the operating licence which is required to develop any non-residential activity in the real property and to obtain insur - ance or loans. 8. Tax 8.1 VAT and Sales Tax The following taxes are directly levied on the transfer of real properties: • in the event the transfer occurs against con - sideration, ITBI is charged by the municipal - ity; and • if the transfer is carried out as a donation or arises from inheritance the Tax on Donation (ITCMD) is charged by the relevant state. The rates of such taxes may vary from one municipality or state to another. Additionally, in the event of transfer of the useful domain of a specific public property to private party, the transfer of said rights is subject to the payment of a specific charge called laudêmio . 8.2 Mitigation of Tax Liability According to Brazilian laws, the buyer (new own - er) of real estate is responsible for property in rem taxes. Therefore, it is always recommended to the buyer to perform due diligence that will review the municipal tax and liabilities clearance certificate. Although the mitigation of tax liability
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