Expropriation: Types and the Compensation Owed to the Property Owner

This page is a translation of the original Portuguese text, provided for convenience. It deals with Brazilian law. If there is any discrepancy, the Portuguese version prevails. Read the original in Portuguese

Expropriation is the legal mechanism by which the State compulsorily transfers private property to the public domain or to those acting on its behalf. As a rule, it is conditioned on prior, fair compensation paid in cash. Depending on its purpose and constitutional basis, the types of expropriation differ significantly in how the owner is compensated.

Constitutional foundations and types of expropriation power

The Brazilian Federal Constitution addresses expropriation in several provisions, each setting its own requirements and compensation rules. The ordinary type, based on public necessity, public utility, or social interest, is found in Article 5, item XXIV, and requires prior, fair compensation in cash. Below the constitutional level, it is governed by Decree-Law 3.365/1941 and Law 4.132/1962.

Expropriation for agrarian reform, provided for in Article 184 of the Federal Constitution, applies to rural properties that fail to fulfill their social function. In this case, compensation is paid in Agrarian Debt Bonds (Títulos da Dívida Agrária), redeemable within up to twenty years. The only exception is for useful and necessary improvements, which must be paid in cash up front, as provided by Law 8.629/1993.

There is also punitive urban expropriation, a tool under Article 182, paragraph 4, item III, of the Federal Constitution. It applies to owners of urban property who fail to comply with the municipal master plan. Under this type, compensation is paid through public debt bonds, issued with the prior approval of the Federal Senate and redeemable within up to ten years. The effect is to penalize financially an owner who holds urban land without putting it to a use consistent with its social function.

Indirect expropriation and forfeiture without compensation

Indirect expropriation (a de facto taking) occurs when the government seizes private property without following the legal expropriation procedure, which amounts to administrative dispossession. Although the seizure is irregular, case law has settled on the view that once the property has become part of the public domain and been irreversibly devoted to public use, the owner can no longer recover it. The owner is entitled only to equivalent compensation, plus interest and monetary adjustment.

At the opposite extreme is forfeiture without compensation, provided for in Article 243 of the Federal Constitution. This confiscatory measure applies to properties where illegal crops of psychotropic plants are found or where labor is exploited under conditions analogous to slavery. In this case, there is no right to compensation, and the property is allocated to agrarian reform or public housing programs.

Fair compensation is not limited to the property’s assessed value: it covers all actual losses the owner suffers because of the compulsory loss of the property.

The distinction between desapropriação (expropriation with compensation) and expropriação (forfeiture without compensation) shows how the constitutional system scales its response to compliance with the social function of property. In the first, the State pays for the property. In the second, the absence of any payment is itself the sanction for conduct contrary to the constitutional order.

What makes up fair compensation in ordinary expropriation

In ordinary expropriation, fair compensation must reflect the property’s real, current value, determined by a technical appraisal, with no discount and no artificial inflation. The central criterion is the property’s market value on the date of provisional possession, plus any improvements the owner made up to that point, provided they are properly documented and were not made to artificially inflate the compensation.

In addition to the property’s value, compensation includes compensatory interest, owed from the date of provisional possession until the property is actually incorporated into the public domain, and default interest, counted from the date the judgment becomes final and unappealable. Monetary adjustment applies to the amount determined, to preserve the compensation’s purchasing power over time. Attorneys’ fees are set on the difference between the expropriating authority’s initial offer and the final award.

Courts also debate whether compensation may include the so-called goodwill of a business, the lost profits resulting from the shutdown of an economic activity operating on the property, and any proven actual losses. Brazil’s Superior Court of Justice allows these items when there is a direct causal link between the expropriation and the loss established, as long as the owner shows that the property was actually being used for economic purposes before the expropriation.

Frequently Asked Questions

Can the owner refuse the expropriation and keep possession of the property?

No. Expropriation is a unilateral, binding act of the State, grounded in its sovereign authority. The owner cannot refuse to transfer the property. What the owner is guaranteed is the right to challenge the amount of compensation offered in court, through an expropriation action. This does not prevent the government from taking provisional possession once the amount set by the expropriating authority has been deposited with the court.

How long does the owner have to wait to receive compensation after possession is taken?

In ordinary expropriation, compensation must be prior, meaning it must come before the final transfer of possession. The law does allow provisional possession upon a court deposit of the amount estimated by the expropriating authority, with any additional amount paid later, after an appraisal and a judgment. How long the case takes depends on its complexity and on how far apart the parties’ valuations are. Cases that run for several years before full payment are common.

Can a property with unpaid IPTU or title irregularities still be expropriated?

Yes. Unpaid taxes or title irregularities do not prevent the expropriation process. Any unpaid IPTU (Brazil’s municipal urban property tax) can be deducted from the compensation, because the municipal treasury holds a privileged claim over the property. As for title irregularities, case law allows expropriation even of properties that have not been formally regularized. The owner must then prove ownership by other means to be eligible to receive the corresponding compensation.

As informações deste artigo são de caráter informativo e não substituem consulta jurídica individualizada. Cada caso possui particularidades que exigem análise específica.