Built-to-suit: new law improves judicial securityLeitura de 6min
The new legislation will also facilitate their understanding by international companies, which develop some project in these bases or acquire some property with the transaction structured in this modality – complete Márcia.
Law No. 12,744, signed December of 2012 by President Dilma Rousseff, provides a new basis for leasing built-to-suit properties. Frequently seen as a format for structuring deals between large companies, the built-to-suit option has grown in recent years in Brazil, to the point where it has come to the attention of the government.
Built-to-suit implies constructing to meet the needs of the client. In this case, the lessor acquires an area of land and then designs and constructs the building according to the wishes and requirements of the future lessee, who in turn agrees to a long-term rental contract. Although this format has existed for some years now in Brazil, we can still see it as an atypical rental practice, given its complexity,” said Márcia Castro, director of Sales and Investment at JLL.
Castro said that the changes in the law serve to fill some gaps that existed in the earlier legislation. Most important is the addition of Article 54-A to the Rental Law (Lei de Locações), specifically providing a legal framework for this type of transaction by determining that such contracts shall be governed by the terms that have been freely negotiated between the parties. “Amongst other things, the new legislation will be easier for international companies to understand, when they develop a project along these lines or acquire a property with the deal structured in this way,” Castro said.
Even though built-to-suit operations are legally recognized, they are also the consequence of a relationship of trust between lessor and lessee. While one party commits to delivering a space that fully meets the company’s requirements, the other must occupy this space for a minimum of 10 years, which is normally enough time to justify the investment and provide the rates of return demanded by the lessor.
One of the main attractions for the lessee is that he does not have to invest in land and internal installations, and this creates a certain comfort level,” Castro said.
Monica Lee, director of Tenant Representation at JLL, said that the changes in the law will reinforce the terms of the written contract and give better treatment to any possible early rescission. “The law is also beneficial for the JLL business model, which can help both lessor and lessee right from the choice of the land through to the project design, as well as meeting all the requirements during the life of the contract,” she said.
Aline Ribeiro, director of the Legal and Compliance department at JLL, pointed to various interesting points in the law. One is that the lessor enjoys a guarantee that the lessee will comply fully with the fine specified in the contract, should he decide to rescind the rental agreement before the end of the specified period. Another is the possibility for the parties to mutually agree that no adjustment can be made to the rental value, even if market conditions should change.
This means that the lessor can have greater confidence about the return on his investment, and as a result this kind of transaction gains greater credibility in the eyes of the market. Before this, there was a certain lack of judicial security with this type of contract, because the parties didn’t know which law would be applicable in the case of a legal dispute. Today it’s clear that the Rental Law will be applied to built-to-suit contracts, but respecting the specific characteristics of this type of transaction. We need to wait some months to see the market reaction to this new legal reality, and also to see how this change is reflected in judicial decisions,” Ribeiro said.