When Is A Lease Preferable To A Trust?
By Peter Thompson, Attorney-At-Law
The 50 Year Renewable Bank Trust ("fideicomiso") is usually the best way for a non-Mexican to buy property in the coasts of Mexico. The principal reason is that a Bank Trust gives you recorded title through a Bank, whereas a Lease can be only for 10 years for residential property. However, you should keep in mind that a Lease sometimes has its advantages over a Bank Trust. The first possible advantage of a Lease is that sometimes a lease is the ONLY WAY you are going to be able to acquire the use of a certain choice piece of property. You must realize that a Trust requires the Mexican seller to make an official (and sometimes expensive) subdivision of his lot. But, with a Lease, all the seller has to do is draw-up a map and set the boundary stakes. In many cases, the seller just doesn't want to go through the trouble and expense of a subdivision, so all he or she can offer you is a Lease. Also, a lease may require the "seller" to pay capital gains income tax, so the seller may not be willing to sell to your trust. If the property appeals to you, a Lease may be the best you can get. The second possible advantage of a Lease is that it SAVES CLOSING COSTS. You see, when you buy Mexican property through any kind of recordable Public Deed (Escritura Publica), you as the buyer will pay for the Appraisal (Avaluo), the No Lien Certificates (Certificado de No Gravamenes), the Notary's Professional Fee (Honorarios), the Recording Fee (Registro Publico) and (if it is a Bank Trust) the Trust Permit and the Trustee Bank Fees. These closing costs usually amount to at least a few thousand dollars, depending on the value of the transaction and the geographical location. Plus, if you decide to use a private attorney, you will have his or her fees too. But with a Lease, you avoid all these charges, except any private attorney's fees or recording fee if you decide to record the Lease. The third possible advantage of a Lease is that you REDUCE OR ELIMINATE CLOSING TAXES. When a property is transferred by a deed, the seller must pay his or her Mexican Capital Gains Income Tax, which is either 20% of the price or 40% of the gain. In many cases, the seller will pass his tax through to the buyer, either directly or by raising the price. Also, the buyer is responsible for the Acquisition Tax, which is 2% of the price of the sale. This tax would not need to be paid if you just lease the property. I should mention that if you decide to record the lease for your protection, the Seller would have to pay an income tax on the rent and the buyer would have to pay a recording fee based on the total income stated in the lease contract. However, a trust is much better because a trust is a form of recorded title in your name, and a lease is just a contract. As you can see, if you have a choice between a Trust property and a Lease property, each choice has advantages to consider.
