Among the many characteristics that make some businesses thrive, the maintenance of a striking and successful place of business is, without a doubt, one of the main ones.

Depending on the type of activity, the establishment is essential to build the clientele and reputation of the company. In most cases, changing the place of business causes major impacts.

For this reason, Brazilian law provides the action for compulsory renewal of the lease, an essential instrument for tenants of commercial properties. It is an institute that guarantees tenants to continue their activities if the parties cannot reached an agreement to renew the lease of the property.

This mechanism protects the tenant and allows them to renew the lease agreement, provided that the following legal requirements are fulfilled:

• the contract to be renewed has been executed in writing and with a fixed term;

• the minimum term of the contract to be renewed or the sum of the uninterrupted terms of written contracts is five years.

• the tenant is exploring his trade, in the same field, for a minimum and uninterrupted period of three years.

If these requirements are met, and the tenant wants to maintain the lease, they may file for compulsory renewal of the lease between 12 and 6 months before the contract expires. Through this action, he will be able to request the renewal of the contract and, in theory, will have the renewal of the lease confirmed.

The Lease Act (Law 8.245/91), however, provides for exceptional situations in which, although the tenant fulfills the aforementioned requirements, the landlord is not obliged to renew the contract.

The exceptions, provided in article 52 of the Lease Act, occur in the following cases:

• carrying out works required by the public authorities that lead to a substantial transformation of the property or modifications that increase the value of the business or property; or
• If the landlord chooses to use the property for his own use or to transfer for an goodwill that has existed for more than one year – in this case, the landlord himself, his spouse, ascendant or descendant, must be the holder of the majority of the capital stock.

Regarding the exceptions mentioned, there is much debate regarding the cases in which works are carried out on the property. To justify the landlord's release from renewing the lease, do these works need to be determined by the government?

The Brazilian Supreme Court (STF) has already analyzed the issue and edited, still in 1964, Binding Precedent 374.^[1] In this precedent, the Court ruled out the obligation for the construction to have been ordered by a public authority. Thus, the landlord interested in expanding the leasable area or even in carrying out a new construction/development in the leased property, in theory, can be released from the obligation to renew the lease agreement.

On the other hand, the simple intention to do construction works on the property is not enough. The landlord must demonstrate concrete plans to modify the property, with the presentation of a detailed schedule of the work and other evidence that proves the allegations to repossess the property. If he does not do so, the court may decide that the contract will be renewed, even if the landlord declares that he intends to repossess the property to carry out work.

In this sense, the STF also issued Binding Precedent 485^[2], which determines the relativity of the presumption of the landlord's statement regarding the execution of construction works. This means that the statement made by the landlord to defend the repossession of the property may be challenged with the presentation of evidence that contradicts it.

Even so, the compulsory renewal actions are the subject of complex disputes. As an example, we mention two analogous cases that had opposite outcomes.

In 2012, a relevant retail company filed a compulsory renewal action of the lease contract against the landlords of two properties in which one of its stores was installed. In the trial court, the renewal was granted in relation to only one of the properties claimed.

In the judgment of the appeal, however, the plaintiff was victorious, proving the technical unfeasibility of the works intended by the landlords and used as justification for the request for repossession. There was even a denial of a request to issue an approval license for a new building. In addition, at no time did the landlords submit the detailed work schedule, a specific legal requirement to evidence the merit regarding repossession of the property.

In a decision, the 33^rd Chamber of Private Law of the Court of Appeals of São Paulo (TJSP) upheld the retail company's appeal and granted the right of renewal. As arguments for the renewal, it was mentioned that it is "indispensable that for the exercise of the repossession, under the terms of article 72, paragraph 3, of Law No. 8,245/1991, the landlords present a detailed schedule of the works [...]" and that "whether in the administrative sphere or in court, the appellants were unable to present a detailed schedule/project of the works to be carried out".^[3]

However, in an analogous situation, the same retail company had its lease compulsory renewal denied by the 26^th Chamber of Private Law of the TJSP.^[4]

In that case, despite meeting the requirements of the compulsory renewal action, the plaintiff had its renewal request denied, as it was understood that the landlord could exercise its right of repossession for the installation of a real estate development project.

The case becomes even more interesting because the landlord would be part in the real estate project only as a partner in the future project.

To demonstrate the increase in the property’s value, the landlord used documents related to the work projects, including technical documents and the budget for the work.

These discussions demonstrate how essential it is to understand the legal and commercial aspects of the compulsory renewal action and the repossession of the property for landlord and tenants. These are situations that often become the subject of disputes in court.

While the tenants have the renewal action as a protection for the continuity of their commercial activities, the possible exercise of the right of repossession may allow the landlord to use the property according to his needs and interests and avoid a financially disadvantageous renewal.

A correct guidance is essential to maintain a balanced and fair relationship between landlord and tenant, capable of promoting stability in lease relationships. To avoid conflicts and ensure that the rights of both parties are respected, it is recommended that the contract provide a full description of these obstacles throughout the lease relationship, in addition to the hypotheses of carrying out these works and the consequences for the lease and its renewal.

^[1] In the resumption for more useful construction, it is not necessary that the work has been ordered by the public authority.

^[2] In leases governed by Decree 24,150, of April 20, 1934, the presumption of sincerity of the repossessor is relative, and may be refuted by the tenant.

^[3] TJSP; Civil Appeal 0152368-68.2012.8.26.0100; Rapporteur: Sá Moreira de Oliveira; judging body: 33rd Chamber of Private Law; Central Civil Forum – 26th Civil Court; judgment date: May 8, 2017; Registration Date: May 8, 2017

^[4] TJSP; Civil Appeal 1018507-22.2019.8.26.0100; rapporteur: Carlos Dias Motta; judging body: 26th Chamber of Private Law; judgment date: September 3, 2020; Registration date: September 15, 2020.