Short Outline Of Mexican Real Estate Laws
By Peter Thompson, Attorney-at-Law
This article is a brief outline of the most important Mexican laws which govern the purchase or use of real property by non Mexicans. INTRODUCTORY REMARKS Article 27 of the Mexican Constitution prohibits foreigners from having legal title (dominio directo) to real estate "within a zone of 100 kilometers (about 62 miles) along the borders, and 50 kilometers (about 31 miles) along the coast." In the interior of Mexico, non-Mexicans are permitted to obtain complete and direct title to real estate. However, in the borders and coast (the so-called "Prohibited" or "Restricted" Zone), acquisition of the property must be accomplished in other ways. The three main legal ways are: * 50 Year Mexican Bank Trust * Leases * Federal Zone Concession * Corporate title for Non-Residential Property 50 YEAR MEXICAN BANK TRUST For years, Americans circumvented Article 27 by trying to control Prohibited Zone land through now-illegal practices of Mexican name-lenders ("Prestanombres") (which means buying land in the name of a Mexican), sports clubs (Mexican organizations which owned coastal land and gave "memberships" to non-Mexicans who built houses there), physical possession of "bearer stock" in Mexican corporations owning real estate (bearer stock is illegal now in Mexico) or illegal 99 year leases. In response to the obvious need to promote touristic-type investment while still enforcing Article 27, in 1971 then President Echeverria authorized 30 year real estate bank trusts and enacted specific penalties for the subterfuges described above. Trusts are now permitted for 50 years, and they are renewable. The main idea of the bank trust is that a Mexican landowner irrevocably conveys legal title to property to a Mexican bank which acts as the trustee for the benefit of the foreigner. The purchase price is paid by the foreigner to the seller. The usual practice is that the buyer pays the fees connected with setting up the trust except the seller's capital gains tax. However, division of costs can be negotiated. RESIDENTIAL LEASES A residential lease involving a foreigner as a tenant is limited to one day less than ten years. Although many Mexican leases state that the tenant has the "option" to renew the lease for an equal term, that option is not enforceable by a tenant if the landlord refuses to renew. Another device of questionable legality is 3 consecutive 10 year leases, all signed at the same time, giving a total of 30 years. I have my doubts if this is legal even if the tenants under each separate lease are different family members or friends. If the tenant is going to pay for the construction of a house on the leased land, it's wise to state in the lease that the tenant owns the house and leases only the land. The lease should also provide that if the landlord refuses to renew the ground lease, he must buy the house from the tenant at the fair market value, which is specifically permitted in the Civil Code of Baja California. A lease may be in the form of either a recorded public document or a private contract. BEACHFRONT PROPERTY: THE FEDERAL ZONE CONCESSION No private person, not even a Mexican, can own beachfront property within 20 meters (about 66 feet) of the mean high tide line. This must be 66 feet of firm, high level ground, not cliffs or sand. That land is federal land and is in what is called the Federal Maritime Land Zone (FMLZ or "Federal Zone"). But, for a reasonable fee, you may be able to get a concession (sometimes incorrectly called "lease") which allows you to temporarily occupy that property. The concession may be renewed for a specified time, usually 6 months, 1 year or 5 years, at the option of the federal government. The granting of the concession is at the absolute discretion of the federal government, and can be revoked at any time. Failure to vacate after termination of the concession is punishable by fine, imprisonment or both. At the present time, concessions for Baja California are very hard to obtain. However, the federal zone authorities respect the rights of the occupants of these houses as long as the monthly fee is paid. Although Concessions cannot be sold or transferred, the federal zone authorities almost always respect the rights and occupancy of "buyers" of houses in the federal zone. CORPORATION TITLE FOR NON-RESIDENTIAL PROPERTY Recent changes in Mexico's foreign investment law now permit non-Mexicans to obtain direct title (without the need for a bank trust) to land in the restricted zone through the means of owning all of the shares in a Mexican corporation which owns the property, but ONLY IF the land will be used for "Non-Residential" purposes. What is "Non-Residential"? If the land will be used as a foreigner's residence, this will not qualify. If the land will be used for a factory, a golf-course, a shopping center a hotel, that use will qualify. The "gray area" is in the case where there are or will be houses, condos or apartments on the land, but the foreign owner will not live there but instead rent the units to others. In that case, the foreign owner is using the land for his own commercial, non-residential purposes, but the occupant is using the land for residential purposes. I have been advising my clients that it is possible that this use may not qualify, with the risk that they can lose the property for violating the law, or at least suffer monetary costs or penalties, so it is more prudent to acquire the land in this cases in a 50 Year Renewable Mexican Bank Trust. The procedures to acquire title to non-residential property in a Mexican corporation are as follows. First, a Mexican corporation is formed in which the foreigners can own up to 100% of the shares. At least 2 shareholders are required. Then, direct, fee-simple title to the land is transferred to the corporation, at which time the Seller and Buyer pay the usual fees and taxes for a property title. The fees and costs for a trust permit and the bank trustee charges are not applicable because this is not a trust, but a direct title.
