Roberto Alexandre Levy
Translation: Ligia Payão Chizolini
By regulating Articles 182 and 183 of the Federal Constitution of 1988, the City Statute - Federal Law No. 10.257, of 2001 - consolidated the constitutional order regarding the legal control of processes of land use, occupation, subdivision, construction, preservation, and urban development. This law was designed with the purpose of reorienting the actions of the public authorities at all levels of government, as well as the real estate market, property owners, and society, according to new legal, urban, economic, social, and environmental standards. At the same time, the City Statute establishes itself as a central piece, resulting from a comprehensive legal reform proposal formulated over decades by various social actors in a context marked by intense socio-political and legal disputes. However, it is worth questioning to what extent the effectiveness of urban law aligns with the principles of sustainable development and the social function of property, especially considering the challenges of reducing social inequalities.
This text aims to describe some municipal legal instruments for recovering property value appreciation, their goals of reducing social inequalities, and some federal legal instruments related to urban licensing, specifically the Economic Freedom Act, establishing a relationship between them, with the goal of demonstrating their contradictions and the effect of turning the social function of property into a mere apparent instrument, preventing its objectives from being achieved. The intention is not to exhaust the reflections but to raise legal contradictions that demand attention regarding violations of the legal foundations of Urban Law.
Instruments for Recovering Property Value Appreciation
Before advancing the discussion on the recovery of property value appreciation, it is important to emphasize the fundamental role it plays in the pursuit of reducing social inequalities. In particular, the instruments for recovering property value appreciation are legal mechanisms that should help redistribute wealth and promote reductions in socio-economic inequalities.
These instruments carry with them the need for a deeper understanding of their legal foundations and the principles of Urban Law. According to the UN, the "Sustainable Development Goals are a global call to action to end poverty, protect the environment and the climate, and ensure that people, everywhere, can enjoy peace and prosperity" (United Nations, 2024), in more concrete terms, improving the quality of life for individuals. To achieve this goal, it is imperative to enforce the principle of solidarity, seeking to share the costs and benefits of the city for the city.
In the face of scarce resources, it is necessary to manage economic values not yet made available, and one of the inexorable paths is the recovery of property value appreciation or land surplus value. The right to property is guaranteed in legal foundations and brings its social function in an inseparable and mandatory way. According to legal philosophers Liam Murphy and Thomas Nagel, "it is legal institutions that define who owns what, and these institutions must meet independent criteria of distributive justice," i.e., property only exists if it meets distributive justice or social function, as it is known in Brazil.
But what is property? According to the Brazilian Civil Code:
"The ownership of the land includes the ownership of the corresponding airspace and subsurface, in height and depth useful to its exercise, and the owner cannot oppose activities carried out by third parties at such a height and depth that they have no legitimate interest in preventing them [...] The owner may construct on their land whatever they please, except for the rights of neighbors and administrative regulations" (cf. Rabello, 2018).
What delimits individual property is the basic index, or useful index, necessary for the use of the thing. Anything beyond the useful index ceases to be private and becomes collective, the right to collective construction. Regarding the social function of property, this text will rest on the theory of Léon Duguit, which gave rise to the legal concept, considering a break from pre-20th century concepts based on modern philosophical foundations. Property and its use must serve the common good, contribute to the general wealth, and benefit others.
Now attention is drawn to the social function of public property, the social function of the city, which is of much greater scope and responsibility than private property, elevated from the particular to the universal. This, with its myriad characteristics, brings us back to the topic mentioned earlier: the recovery of property value appreciation. The social function of property as power-duty. The power-duty to act is the inalienable and mandatory administrative power conferred upon the administration, aimed at achieving the public goal, a duty to act, and an obligation of the public administrator to act in the benefit of the community and its individuals (Jus, 2014). The pure concept of active determination of the property content with the inseparable obligation of the social function required by the community never presents itself as a limitation on the right as an externality but rather as the content of the property itself.
Among the instruments of urban territorial management, it is important to highlight the Progressive Tax, in the forms of progressive IPTU (Property Tax) and ITBI (Transfer Tax). It is already possible to envision the application of equality and solidarity, and beyond that, to effectively distribute wealth. The mechanisms are not exhausted, nor is the creative power-duty of management in seeking solutions for municipal demands. At this point, it is necessary to recall the governing principles of Urban Law, namely, human dignity, equality in benefits arising from the urbanization process, and the prohibition of unjust enrichment. The Civil Code states verbatim: "he who, without just cause, enriches himself at the expense of another shall be obliged to return the duly received, with monetary value adjustments" (Jusbrasil, 2021). Therefore, there is no doubt about the inexorable application of measures to recover the land surplus value. Property taxation is an urban policy instrument, and the Progressive Tax is a means of capturing more from those who have more and less from those who have less, although underutilized by public authorities today.
Economic Freedom Act
Despite the promise that property value recovery instruments offer in theory, practice is often more complicated. One of the main barriers is the recent Economic Freedom Act, which presents itself as a significant counterpoint to these instruments. In this second part, we take a temporal leap to briefly understand issues related to urban licensing, specifically in the form of the recent Law No. 13.874/2019 or the Economic Freedom Act. Its aim is to guarantee protection for free enterprise and the exercise of economic activity, leading to a broad debate in the legislature about its constitutionality, especially regarding Urban Law in its provisions.
Right from the first article, the provision presents itself in a confusing and unconstitutional manner, as can be seen in the excerpt from a technical note issued by the Brazilian Institute of Urban Law:
] "This definition of public acts of authorization confuses the right to free enterprise with the exercise of the right to property. Although close concepts, their legal regimes are entirely distinct. In the case of urban property, for example, planning has a binding legal nature, making the rules of the master plan mandatory for both the public and private sectors. Economic activities, by contrast, are governed by full freedom of action. State planning could not, in fact, limit free enterprise in this case. However, the bill, when addressing economic freedom, confuses these two dimensions, leading to a manifest unconstitutionality" (Researchgate, 2019).
Article 3, clause I, states that one may "engage in low-risk economic activity, relying solely on their own private property [...] without the need for any public acts to authorize the economic activity" (Law No. 13.874, 2019). However, the reference to "low-risk economic activity" lacks a definition of specifics, leaving room for any subjectivity in the application of the provision. Clause XI, which is of most interest in this analysis, encompasses the non-requirement of "abusive compensatory or mitigating measures" with a view to impact studies and other relevant authorizations, without addressing specifics that would help qualify what is considered abusive or fair, resulting in an ambiguous provision, with severe difficulties in interpretation. Article 4 attempts to give shape to the content of the previous article, but remains anchored in abstract definitions, without any specification or determination of clear parameters for categorizing any of its items, again leading to ambiguities and misunderstandings, compromising, and even completely nullifying, the social function of property.
Another excerpt from the same aforementioned technical note provides irrefutable closure to the present argument: "if the protection of collective well-being burdens private interests, the bill unconstitutionally provides that the State must refrain from action and succumb to the autonomy of private will, rather than the public interest" (Researchgate, 2019). As can be seen, there is a gap regarding specific licensing rules, particularly at the federal level, which clearly supports the implementation of the provisions of the Economic Freedom Act, under the false guise of debureaucratization, when in fact serving to promote urban deregulation.
Measures or Countermeasures?
Based on the previous discussions on property value recovery instruments and the Economic Freedom Act, it becomes evident that there is significant tension between aspirations for social equality and legal and economic realities. This leads to the question: are we facing measures or countermeasures in the Brazilian urban scenario?
One must not forget that the principle of internalizing externalities is closely linked to the quality of life in cities. As previously discussed, the social function as power-duty rests on the concept of actively determining the content of property with the inseparable obligation of the social function required by the community, never presenting itself as a limitation on the right as an externality, but rather as the content of the property itself.
Finally, evidence was found that Brazilian legislation has long contained underutilized instruments for recovering property value. Nevertheless, in current reality, new provisions are being implemented that prevent the effective application of previous ones by the public authorities, favoring large urban property owners who only superficially prove the social functions of their properties. Supported by legal ambiguities and misunderstandings, this results in the violation of the basic principles of Urban Law and the fundamental objectives of the Brazilian Federal Constitution. Urban Law thus becomes merely reduced to regulations and adapted to technical advancements. For jurists, the only role left is to operate within the category of what ought to be
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[1] Excerpt discussing the legal terms of property, neighborhood rights, and construction rights.
[2] French jurist and prominent legal sociology theorist.
[3] Montesquieu, Hobbes, Rousseau, Bossuet, Mirabeau, Bentham, Locke, and José Diniz de Moraes (cf. JELINEK, 2006).
[4] According to the 1988 Federal Constitution, the fundamental objectives of the Republic include building a free, just, and solidary society
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