The Perils of Buying Under-Construction Property in Brazil

    Building under construction

    Building under constructionWith the increasing amount of Brazilian and international property buyers acquiring pre-construction real estate (commonly referred to as ‘na planta’); the numbers of related concerns have also witnessed growth. 

    Difficulties include how rights to the property are protected contractually; structural problems with the building itself; communal area issues and the long periods of time it can take to get matters dealt with by development companies and constructors.

    As a result of the rising complaints that have arrived at IBEDEC – the Brazilian Institute of Consumer Study and Defense (Instituto Brasileiro de Estudo e Defesa das Relações de Consumo) – the organization recently compiled a list of potential issues that have emerged and how they can be subsequently dealt with. 

    It should be noted that the following grounds are to be considered as legal obligations on the part of developers and constructors and, any such breaches would be a contravention of Brazilian law (if not dealt with accordingly, buyers are therefore well within their rights to commence legal action).

    Contractual Agreements

    Undue or ‘Hidden’ Charges During Construction: the law stipulates that whilst a building is being constructed, payment installments can be subject to readjustment but only according to the national construction cost index of inflation (Índice Nacional de Custos da Construção, INCC). 

    Post-completion, an inflationary price correction may also be applicable using a national index measurement such as the INPC (Índice Nacional de Preços ao Consumidor, Index of Consumer Prices).   Investors are therefore well advised to ensure that contractual purchase prices are unequivocally stated and any payment changes are anticipated and accounted for; 

    Capitalized Interest: any form of interest premium should be clearly stated in an entirely transparent manner and is strictly prohibited if the charge exceeds over 20 percent of the completion value of the property;

    ‘Tie-in’ Sales: obliging consumers to purchase fixtures or fittings is illegal (often an agreement that is tied in between the developer and a local supplier for mutual financial benefit);

    Commanded Clauses: to oblige the purchaser to appoint a power of attorney (usually a lawyer) to represent his or her legal interest in the construction process is illegal (developers have been known to have certain ‘relationships’ with lawyers where important issues with regards to the build have been hidden from the buyer in a seemingly legal manner);

    Lack of Full Incorporation: the document that states full details of the completed work must be formally registered prior to the sale of the property.  Developers will be aware that an absence of this document will result in a fine of 50 percent of the value of the unit, so it is rarely something that is omitted;

    Delivery of Building Delays: if any deadline stipulated in a contract is exceeded, the consumer is fully entitled to compensation.  Contractual clauses that state flexibility of completion between 60 and 180 days post completion without any kind of penalty are illegal in the eyes of Brazilian law. 

    Due to regular occurrences of developers and construction companies making false promises of completion dates, the initiation of Law 7059/10 into the Brazilian Constitution will impose fines on projects that are delayed beyond 90 days of what is contractually stated;

    Size Specifications: in the majority of cases where units are sold on a price based on square feet or meter, any deviation should be stated to the purchaser and, if there is less than originally stated, compensatory procedures should be expected;

    Major Issues in Building Structure

    Most developers would adhere to strict and efficient construction standards but there are occasions where poor quality structural workmanship has been undertaken.  Whilst the majority of the following issues can be checked prior to signing any kind of contract, they do not often become apparent until close to the completion point. 

    The high standards place upon the ABNT (Associação Brasileira de Normas Técnicas, the Brazilian Association of Technical Standards) on the construction of buildings will mean that, legally, formal registration will not be permitted if they are not adhered to – which effectively protects the buyers rights. 

    However, should any of the following appear, it is advisable to primarily contact the developer to discuss how the problem will be resolved and, if there is no recourse from this route, seek legal assistance:

    Cracks: cracks in plaster can vary in their seriousness from a simple hairline to something more severe with the fundamental structure of the building (seek assistance from a qualified professional should this latter issue be the case);

    Leaks / Water Infiltration: largely due to poor plastering, dry masonry, flashing, application of water-proofing, drainage, guttering and/or roofing;

    Poor Acoustics: sound traveling very easily largely prompted by thin walls or lack of due care and intention of spatial awareness and internal architectural design;

    Height Issues: your lawyer will insure that minimum limits laid out by the ABNT are adhered to, which will depend on the overall size of the building (this information should be clearly stated on the contract and can also be checked against the ABNT website);

    Adhering to Pre-determined Specifications: the developer will ensure that any stated materials are definitively used throughout the construction process and not their inferior imitations (examples referred to include tiles, sinks, doors, cabinets and wiring);

    Internal Sealing / Waterproofing Issues:  faults in areas with regular contact with water should be well-sealed and protected for the long term to prevent rotting of fixtures, fittings and the overall structure of the unit;

    Leveling of Floor: flooring that is not laid properly can cause a variety of issues including water infiltration and, more seriously, future structural problems for the entire building;

    Inadequate Ventilation: units should be designed and constructed in a manner that allows for air to circulate freely and easily – this would naturally include windows and air vents (of particular importance in Brazil’s generally hotter climates);

    Fully Functional Hydraulic System: a problem that particularly occurs in the larger multi-story buildings and can cause blockages and utility supply issues when not installed and/or scaled in the correct manner.

    Communal Area Issues

    As with any structural issues with the building, similar problems can occur in shared spaces.  IBEDEC has pointed out that in the large majority of cases where building residents have collectively stated their disgruntlement, a problem is usually fixed relatively quickly and easily.

    Elevator Provision: depending on the size of the development, standards in terms of lift capacity will apply particularly at busy times of the day such as mornings and evenings (this would also include provision for those with mobility issues).  Your lawyer will be able to supply a reference to the ABNT standards in this regard;

    Traffic Flow: adequate access must be in place to allow for the ease of car movement, particularly at busy times of the day.  Your lawyer will be able to indicate ABNT standards, depending on the size of the development and the number of other apartments;

    Garage Size: the ABNT also has indicated minimum garage sizes to be met in the construction process, depending on the size of the development;

    Existence of Supplementary Facilities Upon Completion: there have been occasions where facilities promised prior to the sale have not been delivered – examples include swimming pools; children play areas (with swings, slides, seesaws etc); sports courts; fitness centers and shared bathrooms.  Compensatory measures are rightfully to be claimed against the developer should this situation occur;

    Safety of Leisure Equipment / Supplementary Facilities: any installed facilities will compulsorily need to adhere to healthy and safety regulations;

    Appropriate Facilities for Staff: assurance that future employees within the development are catered to in the form of washing / bathing facilities, a dining area, adequate utility access and changing facilities;

    Common Area Materials: any essential materials used in areas shared by residents must meet pre-stated specifications as well as those stipulated by ABNT regulations – examples includes flooring, railings, ramps, public seating and lighting;

    Stormwater Disposal: all structures should have an efficient and well-installed system of plumbing, guttering, pumps and drainage facilities to deal with a range of adverse weather conditions;

    Time Limits for Complaints

    The length of time for an issue to be dealt with depends on the seriousness of the case.  For most instances, the guaranteed stated time for a situation to be dealt with is 90 days. 

    After this period, if a problem is not dealt with under the Code of Consumer Protection (Código de Defesa do Consumidor), the buyer can request a complete termination of the contract (accompanied by a full refund of any monies deposited) or make a legally enforceable claim to receive a discount on the contractual purchase price. 

    Also, under the same code, consumers have a window of five years to be able to request compensation for subsequent material damages which have been caused as a result of poor construction (not by intentional / accidental damage).

    Ruban Selvanayagam is a Brazil Real Estate and Land Specialist. For free e-books, state guides, up-to-date statistics, strategies, interviews, articles, weekly broadcasts and more please head to the Brazil Real Estate and Land Investment Guide via the following link: http://www.brazilinvestmentguide.com/brazil-property-real-estate-land/

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