What are the implications for investors of the STF’s restrictions on the acquisition of rural land by foreign-controlled companies?

The Brazilian Supreme Court (STF) has reaffirmed the understanding that Brazilian companies directly or indirectly controlled by foreign capital remain subject to the legal restrictions applicable to the acquisition and lease of rural properties in Brazil, in line with the position previously adopted by the Office of the Attorney General (AGU) in Legal Opinion LA-01/2010. The decision may affect not only future transactions, but also deals already executed that still depend on notarial or registration formalities.

In ruling on Original Civil Action No. 2,463, the Court declared Legal Opinion No. 461/2012 issued by the General Judicial Inspectorate of the State of São Paulo null and void and recognized the constitutional validity of Article 1, Paragraph 1, of Law No. 5,709/1971.

Key Impacts and Practical Considerations

The decision has significant implications for multinational groups, Brazilian holding companies under foreign control, investment funds with exposure to agribusiness, private investors, and other owners of rural properties or parties involved in ongoing transactions concerning this type of asset.

From a practical standpoint, the ruling is expected to strengthen oversight by notary offices and real estate registries, resulting in stricter requirements for the execution of public deeds, closer scrutiny of the corporate ownership structure of the parties involved, and more rigorous review of documents submitted for registration.

In certain circumstances, the decision may even hinder or prevent the completion of transactions that have already been agreed upon, particularly where the transfer of ownership still depends on the execution of a public deed or its registration with the relevant real estate registry.

Particular attention should be given to transactions where the public deed has not yet been executed, those where the deed has already been executed but has not yet been registered in the property records, as well as situations in which the property is currently held by a Brazilian company treated as a foreign entity for legal purposes, or where the purchaser depends on a future transfer through a company subject to this legal classification.

In such cases, it may be necessary to reassess the legal feasibility of the transaction, the possibility of regularization before the National Institute for Colonization and Agrarian Reform (INCRA), and the contractual consequences arising from any subsequent impossibility of completing the transaction as originally agreed.

Additional Consideration – Borderland Properties

In addition to the general restrictions established under Brazilian law, special attention should be paid to rural properties located within border areas, as acquisitions by foreign individuals or legally equivalent entities are subject to an even more stringent regulatory framework.

In such cases, Brazilian law provides situations in which the transaction may require prior approval from the National Defense Council and, under certain legally prescribed circumstances, additional authorizations due to the strategic importance of these areas for national sovereignty and security. As a result, transactions involving properties located in border regions require particularly careful analysis from both a registration and a regulatory perspective.

Although the STF has confirmed the validity of the restrictive regime, the possibility of future discussions regarding the modulation of the effects of the decision cannot be ruled out, especially with respect to transactions executed under a different interpretative framework or agreements entered into before the Court’s position became firmly established.

It is also possible that the National Council of Justice (CNJ) may issue supplementary guidance or recommend amendments to the National Rules Code – Extrajudicial Forum in order to standardize the procedures adopted by notaries and registrars when verifying the ownership structure of purchasers and applying the new judicial precedent in practice.

Until any additional administrative standardization occurs, the registration treatment of these matters may continue to vary among different registries, further reinforcing the importance of conducting a thorough review of each transaction in advance.

Conclusion

More than merely settling a longstanding debate involving foreign capital and rural land ownership in Brazil, the STF’s decision highlights the need for an immediate review of ongoing transactions and structures already implemented by both domestic and international investors.

Given the potential impact on transactions that remain pending formalization, a proactive assessment of sensitive situations has become an essential measure to preserve existing rights and ensure the continued security of investments in Brazil’s rural real estate sector.

Our team remains available to assist clients with reviewing corporate structures, evaluating contractual arrangements, analyzing chains of title, and determining the appropriate legal measures in transactions involving rural properties subject to the legal framework governing foreign capital.