Rio’s Risky Commercial Real Estate

By Bruno De Nicola, Senior Reporter

RIO DE JANEIRO – How do commercial real estate contracts work in Rio? There are more then a few questions that every foreigner who dreams to open a business in Rio de Janeiro may share.

The market seems to be full of surprises and sometimes things don’t work out well, as in Manuel Spruzzi’s case, an Italian expat who continues his struggle to open a ice-cream store here.

Spruzzi has been living in Rio de Janeiro for the past six years and three years ago decided to open his own businesses. It took him a long time to find a good spot, and last year he finally found one, immediately calling the number on the ad that said ‘Passo ponto por R$80,000, Flamengo’.

“It is absolutely mandatory to triple check all sorts of documentation related to the store you’re interested in”, said Spruzzi who after paying a R$20,000 advance on the contract, everything went wrong.

The landlord showed up and explained to Spruzzi that the license owner was in debt and owed him six months of delayed rent. The store license had actually been confiscated and could not be sold. The license owner never appeared again, not even when justice officials convoked him to court.

“Always look for a real estate lawyer’s help”, said Carioca Attorney, Ivanilda Fernandes as she points out that the Brazilian bureaucratic system is very complex and difficult to deal with. Mrs. Fernandes also added that “a good lawyer can help avoid quite a loss of time dealing with lines and incorrect information.”

After selecting the location for a business, most deal with two different people. The owner of the store’s license (ponto) and the proprietor of the realty, the physical location. First one needs to buy the ponto from whoever owns it, and then negotiate a rent or a sale value with the location’s landlord. Normally rental contracts last five years with the option, or right-of-refusal to automatically have it renewed for another five.

Another huge obstacle to be aware of is the Luvas (Glove), which is a common cash under-the-table-fee for access to the ponto. This is technically illegal so you may be asked to not even bring the money into your bank account (as part of your investment visa) so there will be no paper-trail. The other important hurdle is finding a Fiador (Guarantor) to co-sign, which needs to be someone who already owns two pieces of Real Estate in Rio.

An American, Richard Nelson, offered a slightly more optimistic view; “I was here five years ago, and started pursuing a restaurant, but for lack of knowledge, ran into so many brick walls. I did everything the wrong way then, but after learning some lessons the hard way, things are looking good.”

Nelson had been looking on a regular basis for a restaurant location since April in Ipanema and Leblon, and almost paid way too much for a place before deciding to look in other areas. Botafogo was the next option is it is typically one-third the cost and a lot more space. “Anything in Leblon or Ipanema goes really fast if it’s a decent deal or location. The rest is so over-priced that it stays on the market for awhile” noted Nelson.

Then Nelson was literally driving past a place and saw a sign in the window maybe two hours after it was posted, and five hours later the deal was made. He muses; “Right now things are going really well, everyone tells you how careful you have to be, Brazilian or Gringo. If you get involved with good people though, good things can happen.”