Brazil’s Land Protected From Foreigners

By Michael Royster, Senior Contributing Reporter

RIO DE JANEIRO – On August 23rd the Diário Oficial da União published an order signed by President Lula, approving a formal Opinion (Parecer CGU/AGU No. 01/2008) issued by the government’s lawyers the A.G.U. (Advocacia-Geral da União), reinstating the validity of a law from 1971 which placed limits on the acquisition of rural land by Brazilian companies majority owned by foreigners.

Non-resident foreign individuals and foreign companies not qualified to do business in Brazil cannot acquire rural land, but resident foreign individuals and foreign companies with a branch here can do so, though only under the conditions set out in the new law. These conditions relate to the size, the projected use and the location of said land.

The Law uses the concept of “rural modules”, where one module is the minimum size needed for a family to subsist and progress economically. Modules vary significantly in size between different regions of the country. Law 5709 permits resident foreigners to acquire up to three rural modules without asking permission; no foreigner may acquire more than fifty modules of “undefined usage”; between three and fifty modules, the Ministry of Agricultural Development must approve the purchase, based upon the proposed use.

In addition, no more than 25 percent of the rural areas of any municipality may be owned by foreigners, and no more than ten percent may be owned by foreigners of the same nationality.

Article 1§1 of the Law had imposed the same restrictions upon Brazilian companies majority owned by non-residents. However, in 1994 and again in 1998, the A.G.U. stated that the restriction on Brazilian companies was unconstitutional. Therefore, non-resident foreign individuals and corporations began using controlled Brazilian companies to purchase rural land, often holdings in excess of the fifty rural modules stipulated by the statute.

The boom in Brazilian agribusiness and land sales to foreigners began to worry many in government, who feared that Brazil was losing control over its destiny, not to mention its sovereignty. The A.G.U. was asked to revise its prior Opinions, which it did, coming up with the current one which validates Article 1§1 and is binding on all authorities in this country – including official land registries in rural areas.

The Opinion does not mean foreign-owned local companies cannot own rural land; rather, it means that they must obtain prior approval from a federal government agency unless the rural area is smaller than three modules. Approval can be costly and time consuming, and depend on factors beyond the control of the potential buyer (e.g. whether other foreigners have already bought too much of the land in that municipality).

It is possible that some foreign-owned corporations may challenge the Opinion in court and seek to acquire rural land in excess of fifty modules or without obtaining permission. But lawsuits are also costly and time-consuming and no positive result is guaranteed.