Payment guarantee in Brazil
Fiador, Seguro fiança and caução are the most common arrangements lessors use to guarantee the payment of rents in Brazil. In this article, we will provide a more detailed approach of each of them.
In Brazil, the law that regulates everything about lease and other real estate matters is the Lei do Inquilinato (Tenancy Law). According to the legislation, the owner of an asset or real estate companies that work as mediators can require one of the following three arrangements to guarantee the payment of the rents:
- Fiador
- Seguro-fiança
- Caução
The common practice is Fiador, which is seen as a confirmation of the good conduct of tenants or lessees. Below, we will explain in detail each of these arrangements.
Fiador
It is the most used and well known among the payment guarantee forms, in which the tenant indicates a third person that, in case he fails to comply with the contractual obligations, will assume all the expenses instead. The guarantor must provide proof of financial position to afford the debt assumed by the tenant among other requirements that vary from deal to deal.
According to the law, landlords and real estate companies are allowed to make their own requirements regarding the guarantors. In some crowded urban areas, such as São Paulo and Rio de Janeiro it can get very difficult to find a guarantor fitting in their demands.
Normally, they require the guarantor to live in the same city where the real estate is located, have income equal to or exceeding three times the amount of rent and be the owner of one or more properties that values around the same as the realty to be rent. Sometimes a second guarantor is required as an additional demand.
Generally, tenants ask their acquaintances or parents to be their guarantors, but there are also a large number of companies that provide the so-called “professional guarantors”, unknown people that will “lend” documents to fulfill the contract. This service is informal and charged around one rent per month. The practice is not a crime, but it can bring serious consequences to people that use it without minimum precautions.
When there isn't a guarantor in sight an option is to hire seguro-fiança - that replace the need of a guarantor - which we will explain in the following topic.
Seguro-fiança
This arrangement costs around one or two rents per year and, in case of default, an insurance company will assume responsibility for the payment of rent and other charges (if hired) until the release of the property, including legal costs related to eventual eviction of the tenant. The insurance policy is valid for the period of one year, so it is necessary to renew the services annually. The coverage is determined by the owner or the real estate company, what influence how much the tenant will pay on insurance.
Each insurance company has its own criteria of evaluation to be the guarantor of a lease contract. Generally, if the renter's name appear on any register of defaulters hiring insurance becomes more difficult. The register also checks for criminal records.
Furthermore, it is common to demand proof of income three times the amount of rent. If the income is not sufficient, insurers tend to accept the composition with two people who will occupy the property, or with another person or family who will not live or divide the property with the tenant.
Caução
This arrangement is increasingly falling into disuse in Brazil. Caução is the payment guarantee in cash to be refunded by the owner after the end of the contract. According to the law, the value of caução cannot exceed the corresponding amount of three months’ rent.
Basically, the deposit serves as a guarantee that the landlord has no losses in case of default by the lessee, just as the other two forms we've discussed above. It also serves to give security to the owner of the property in case of any damage caused by the person who leased the house or apartment. The amount is paid by the closure of the lease contract.
The amount paid on caução must be deposited in a bank account and then be returned with interest after the end of the lease. The deposit savings should be open in a joint account between lessor and lessee.
As the account is joint, withdrawals can be made only under the following situations: if the landlord has permission of the lessee, the lessee has permission of the lessor or by court order. In the latter case, money is always removed after long periods, due to the moroseness of Justice.