New regulation for condo-hotel public offers in Brazil
Brazilian Securities and Exchange Commission enhances legal Certainty of Condo-Hotel Collective Investment Contracts (Hotel’s CIC) by publishing rule #602/2018*
The Brazilian Securities and Exchange Commission (“CVM”) published Rule #602/2018 (“Rule”) on 08/27/2018, disposing of Hotel CIC public offers that have as purpose construction financing for hotel buildings structured as condominiums (“condo-hotel”).
Note that public offers of parcels of hotels not structured as a condominium are still governed by CVM’s specific rules for securities public offering.
One of the main innovations of the new Rule is the change of the hotel operator’s role in the offer. The Rule defines as offeror “the developer company or any other person that implements Hotel CIC public offer distribution efforts”. Thus, it acknowledges that the hotel operator, in most cases, has no interference nor participates in the sales of Hotel CICs, thus, it should not be categorized as an offeror in such condition.
The new regulation also provides more flexibility to the hotel operation, given that, after the third operational year, the condo-investors’ assembly may waive the request of independent auditing of the quarterly and annual results of the enterprise.
One other novelty is that the prior approval of the marketing material is now optional, which expedites the registration request for Hotel CIC distribution. In the new model, the registration request’s analysis is not conditioned to the availability of the marketing material when of the filing of the request at CVM. The Rule also establishes objective and detailed content and format requirements for the marketing campaigns and condo-hotel contracts and waives CVM’s approval to modifications and updates of the marketing material, which shall expedite the related registration procedures and reduce offeror’s costs.
Other notable changes are:
- Offers are subject to prior registration at CVM, except in specific situations in which there is automatic registration waiver.
- Definition of the public offer duration schedule, establishing the initial and final terms for the offer, as well as for the notice of the development brief registration at the relevant real estate registry office.
- Improvement of the prospectus’ and economic and financial feasibility studies’ content for the hotel enterprise.
- Establishment of the duty of the developers to inspect the real estate brokers activities, in order to induce the improvement of the commercial practice during such offers.
Such modifications certainly create a better balanced regulatory regime, in which the non-offering hotel operator shall collaborate with the drafting of offer’s advertising materials but shall not, on the other hand, remain liable for attributions that are naturally held by the persons that effectively distribute the securities.
The Rule is in line with CVM’s recent change of mind. In a recent administrative judgement, of 08/28/2018, the CVM Panel absolved a hotel operator and its managers, based on the understanding that the hotel operator typical acts differ from the sales and marketing, having the report judge called the attention to the alignment between such decision and the recent issuance of the Rule, in special its art. 2, II.**
*, ** – Hyperlink to the content of the Rule and the decision on CVM procedure RJ2017/2225 hereunder:
CVM RJ2017/2225 (Dir. Gustavo Gonzalez)
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