Legal Due Diligence Report - BFRE - Brazilian Finance e Real Estate

Lawsuit against
Brookfield
DOCS - 351174v1
paying such program, this could negatively impact the sale of the
Shopping. No document has been provided on this issue yet.
We have also identified that there is one lawsuit against Brookfield, that
could impose upon Brookfield the payment of a significant indemnification
to the plaintiff, which value is as of this moment not appraisable. If
Brookfield does not have sufficient cash or assets to pay such
indemnification, the acquisition of Brookfield’s interest by the JV could be
challenged.
Labor Issues There are 39 lawsuits filed against BPS. However, the real liability was not
informed for all of them, but only an estimative pointed by the plaintiffs
when filing the claim. Also, in relation to 18 of these lawsuits, the object
was not presented.
We verified that 80 employees resigned and 102 were dismissed during
the period from September, 2009 to August, 2011. It is important to have
information on the reason for the high number of terminations and
examine its possible negative impact, knowing that the statute of limitation
of 2 years for the filing of labor claims is still in course.
A few relevant documents and information were not provided regarding
labor practices, work routine, labor policies, etc. Thus, we will not be able
to comment on such aspects and verify if they may raise any concern.
Tax Issues IPTU: No document has been provided by Brookfield in connection with
the IPTU levied on Botafogo Praia Shopping. Nonetheless, we are aware
that the Municipality of Rio de Janeiro changed the criteria of the
assessment of such tax as of tax year 2009. At this time, the tax
authorities formally recognized that no complementary IPTU tax was due
with regard to the previous years. Until tax year 2008, the tax was
imposed considering each suite, cinema and park area of the shopping as
an independent real estate. However, given the fact that Botafogo Praia
Shopping is registered with the Real Estate Registry in only one
enrollment, the Municipality, as of 2009, opted to assess the IPTU
considering the shopping as one real estate only. As a result, the total
amount of IPTU was substantially increased, from January 01, 2009 on. In
2009, for instance, the total amount of IPTU was increased from R$ 1.8
million to R$ 5.2 million. The co-owners of Botafogo Praia Shopping are
presently challenging the assessments of IPTU regarding tax years 2009,
2010 and 2011 in court through two different lawsuits (one related to the
years 2009 and 2011, and the other related to 2010). The amount
involved in such lawsuits comprise the total of approximately R$ 18,7
million. We have evidence that the amounts of 2009, 2010 and 2011 have
been deposited by the co-owners at the administrative level and therefore
such amounts will revert to the co-owners should they be successful in
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