Typical or atypical: nearly 70% of contracts signed in recent years carry 60-month terms

Contracts with five-year terms, commonly associated with “typical” agreements, are currently the most common in Brazil’s industrial properties market. SiiLA prepared an estimate of lease terms for occupied areas between 2021 and 2026, showing that 69.68% of these agreements have an initial term of 60 months, equivalent to five years. This places leases signed in 2021 and 2022 under the spotlight as some of the market’s main movements expected next year. 

The same report points to gross absorption of 4.3 million sqm in 2021 and 3.9 million sqm in 2022. Combined, these areas account for 48% of the total leased space over the past five years, approximately 17.4 million sqm. 

The expiration of these contracts revives the long-standing debate surrounding the concept and viability of “atypical contracts,” usually associated with models such as Build-to-Suit (BTS) and Sale and Leaseback transactions, due to their longer terms, customized investments, and stricter exit rules. 

Fernanda Amaral, attorney and partner at Freitas Leite, spoke with REsource and explained the differences between lease agreement models. “The market commonly refers to typical and atypical contracts, but today, in practice, both are considered typical. Historically, an ‘atypical’ contract was one not expressly provided for by law. This classification dates back to a period before Article 54-A was included in Brazil’s Tenancy Law,” she explained. 

The article in question, introduced in 2012, establishes that in commercial leases requiring construction or renovation exclusively tailored to the tenant’s operations, the previously agreed contractual conditions prevail. As a result, BTS and Sale and Leaseback agreements, which were previously structured as if they were outside the scope of the Tenancy Law, became formally recognized under the legislation. 

Regarding these lease structures, Fernanda explains that contracts are generally longer to justify the property owner’s return on investment, although they do not necessarily have a predefined duration. “In so-called ‘atypical’ contracts, such as built-to-suit agreements, the property is developed specifically for the tenant. In these cases, rent does not compensate only for the use of the property, but also for the investment made by the landlord. Therefore, the contract term is usually defined based on the time required for the landlord to recover the investment,” she said.