i Ownership of real estate

Mexico is organised as a federation formed by 31 states and a federal district. Original ownership of land within Mexican territory belongs to the nation, with all private ownership deriving therefrom.

In general terms, ownership of the following is reserved to the nation: (1) coastal waters and interior waters that are connected thereto, including rivers, lakes and the land underneath, as well as all underground water, (2) listed mineral deposits that may be industrially exploited, and (3) liquid, solid and gas hydrocarbon deposits.

Based on the foregoing, private parties may own land and constructions, but not (1) rivers or lakes (nor the land areas covered by them) connected to federal waters, and (2) listed natural mineral deposits, nor hydrocarbons. This is an important distinction between Mexico and other countries, as the existence of exploitable mineral or hydrocarbon deposits may impose important restrictions on private property rights, which may result in an expropriation or temporary occupation.

In addition to the foregoing, under Mexican law there exist agrarian community ownership regimes: ejidos and comunidades. Save for minor differences in their organisation, ejidos and comunidades are equivalent regimes that basically provide for ownership of land by an agrarian community under a special regime different and distinct from private property (ejidos and, attributively, ejido). Of interest to private parties is the fact that ejidos cover a substantial portion of the Mexican territory, that ejido land may become private land under certain circumstances, and that private parties may enter into agreements to use ejido land subject to certain requirements and conditions, all as regulated by the Agrarian Law.

ii System of registration

Private property is governed by the civil code of each state, with each state and the federal district having its own public property registry system, with offices in different locations within the state (the Public Registry). The majority of the states’ civil codes, and that of the federal district, establish that the purpose of this recordation of real estate transactions is to publish them, and not to create a registry that is constitutive of rights.

This means that a purchase and sale contract, for example, will be valid and enforceable between the parties executing the same, but has to be recorded to give it full effect before third parties. If a purchase and sale transaction is entered into but not recorded, a later purchase and sale transaction over the same property that is recorded would have preference over the first transaction.

Most states allow for notary publics to file a preventive notice with the Public Registry before a real estate contract is executed, to freeze recordings on the property for a certain period, allowing the parties to enter into the corresponding agreement before the notary and have it filed for recordation before such a period ends, eliminating the risk of another recordation being made in the interim between execution and recordation.

The creation of ejidos are recorded in the National Agrarian Registry, which is a federal agency with offices throughout the country. When a property ceases to be ejido land through the corresponding procedure established in the Agrarian Law, title to the same is recorded in the Public Registry and is cancelled in the National Agrarian Registry.

In addition to the foregoing, note must be taken of the existence of the Federal Property Public Registry, which relates to properties owned by the federal government and by federal agencies, and is regulated by the General Law of National Properties, which establishes that in the event of a discrepancy between a Public Registry recording and a Federal Property Public Registry recording, the second shall prevail.

Note also that there is no specific guaranty from the Public Registry or from the notary against damages for legal defects in title deeds or registrations. Although a registrar or a notary may incur personal civil liability for negligence, successful lawsuits to recover damages from them are unheard of in practice. Considering this, and although, as with any insurance, there are exclusions and exceptions, title insurance should be considered as an option to reduce the risk of economic loss due to title defects; title insurance has been available in Mexico for around 15 years.

iii Choice of law

Civil codes do allow the parties to a contract to agree on a foreign law to govern the contract, but foreign laws will not be applied in the case of provisions contradicting public order provisions of local laws.

By constitutional mandate, real estate properties (and thus real rights) are governed by the law of the state in which the property is found. This principle can be considered as one of ‘public order’ and therefore any choice of law provision relating to real property or rights would not be valid.

Considering the foregoing, it is not recommended to agree on substantive laws different from those in effect in the state where a property is found to govern a real estate contract.


Mexico has seen tremendous movement in the real estate market in the past three decades. The opening of the country to foreign investment in the early 1990s brought direct investment both from large international manufacturing companies and from investment funds.

Notwithstanding the fact that, with the advent of democracy, there have been changes in power at the federal government level, the country’s economic model has not changed and foreign investment continues to be an important component of the same.

Even through different worldwide crisis periods in recent times, foreign investment has continued to arrive in different parts of the country, creating demand for industrial properties, office buildings and infrastructure.

Mexico has a strong financial system, with loans available from institutional banks. There is also a substantial presence of capital in the market from private equity funds (both local and foreign).

Another source of financing for infrastructure development have been equity development certificates (CKDs), a product that has allowed investment to flow from the Mexican retirement fund managing system, through the Mexican stock exchange (BMV). Currently there are over 70 CKD issuers listed with the BMV.2

Additionally, Mexican tax laws have been revised in recent years to create incentives for real estate development, the most important of which is the creation of real estate investment trusts (FIBRAs). Today there are 12 FIBRAs listed with the BMV.3

Finally, recent new laws opening the energy sector to private investment (both foreign and local) will have an effect on the real estate market in the long run, as a natural consequence of private investment flowing to this sector.


Foreigners may not under any circumstance acquire directly title to real estate properties located within 100km of Mexican borders or within 50km of its coastal beaches (the Restricted Zone).

To directly acquire properties within Mexican territory but outside the Restricted Zone, foreigners need a permit from the Ministry of Foreign Affairs, and also need to agree to be considered as nationals with respect to the property being acquired and not to invoke the protection of their governments in connection therewith, under penalty of losing the property to the Mexican nation if they breach the agreement. Mexican companies with foreign investment are also required to conclude such an agreement, and may not acquire residential properties in the Restricted Zone.

The Foreign Investment Law provides that the Ministry of Foreign Affairs may issue and publish general rules exempting foreigners from obtaining a permit, with conclusion of the aforementioned agreement being sufficient for the acquisition of a property outside the Restricted Zone. Currently, there is a rule so issued and published exempting nationals from countries with which Mexico has diplomatic relations from obtaining such a permit.

Foreigners may acquire personal (as opposed to real) rights to use and enjoy properties located within the Restricted Zone through trusts established with Mexican financial institutions, and with prior authorisation from the Ministry of Foreign Affairs.

Additionally, there are restrictions on private ownership of agricultural land by a single individual, to avoid the accumulation of large estates in the hands of few owners. The maximum amount of land that may be owned by a single individual is determined based on the quality of the land for agricultural purposes or for raising cattle. For example, the maximum area of prime agricultural land that may be owned by a single individual is 100 hectares. With respect to legal entities, they may own up to 25 times the maximum amount, but must issue a special series of shares, called ‘T’ shares, which should be distributed to sufficient individuals such that the maximum allowed per individual is not exceeded. Only shareholders holding series T shares may receive agricultural land upon liquidation of the company. Foreign investment in series T shares is restricted to 49 per cent. Companies failing to comply with this restriction may be forced to resolve the situation or sell properties that exceed the limit.


There are different ways to structure a real estate investment. Most common are:

  1. private real estate trusts;
  2. stock corporations, namely the sociedad anónima, or SA, and the sociedad anónima promotora de inversion, or SAPI;
  3. limited liability companies (S de RL);
  4. FIBRAs; and
  5. contractual arrangements that do not constitute a legal entity nor a trust, including the participation partnership (AP).

Private real estate trusts are contracts under which private parties convey, as settlors, ownership of real estate properties to a trustee (a Mexican financial institution authorised to offer trustee services), with certain objectives for that property (its development and sale or lease, for example), for the benefit of the settlors or of different beneficiaries named by the settlors.

A trust can be structured as a pass-through entity for tax purposes or as a tax entity different from the settlors or beneficiaries. Also, the trust may include a technical committee, which could work like a board of directors of a company.

Benefits of the trust include that (1) it can be a pass-through entity so each settlor or beneficiary has its own tax treatment based on its own situation; (2) title is held by a financial institution, thus protecting it against creditors of the settlors or beneficiaries; (3) the structure can include corporate governance provisions similar to those of a company or corporation; (4) the settlors or beneficiaries may terminate the trust and recover the properties previously conveyed to the same; and (5) for purposes of federal taxes, and in most local jurisdictions, the conveyance of a property to a trust is not considered a taxable event until the settlor irrevocably designates a different person as beneficiary and loses the right to reacquire the property.

Stock corporations, namely the SA and the SAPI, are the most common corporate structures used in Mexico. They are very similar, with the SAPI giving more rights to minority interests (10 per cent interest grants the right to a seat on the board, as opposed to 20 per cent in an SA, for example) and also having the flexibility of the company being able to repurchase its own shares. They are legal entities, different and distinct from their shareholders for legal and tax purposes.

The stock corporation grants to the shareholders the benefit of limited liability in most circumstances, and the option to establish institutional corporate governance provisions and special rules on transfers of shares (drag-alongs, tag-alongs, rights of first refusal, etc).

The S de RL is the second most common corporate structure. It does not issue stock. It grants limited liability to its partners and is a different and distinct entity for legal and tax purposes. It is used mainly by US investors, as current check-the-box elections allow for its treatment by US shareholders as a corporation or a pass-through entity.

FIBRAs are real estate investment trusts with certain tax benefits, created to promote real estate developments for lease. Benefits include, among others, the following: (1) FIBRAs are exempted from income tax provisional payments; (2) foreign pension and retirement funds have an exemption from paying income taxes deriving from the certificates and from capital gains upon their sale; and (3) Mexican individuals and non-resident foreign persons have an exemption from income tax on capital gains of publicly traded certificates issued by the FIBRAs.

Other contractual arrangements that do not create a trust or a legal entity are used in the market, although not so much for institutional investments. One of them is the AP, which is regulated by the General Law of Business Organisations and under which one partner contributes resources and the other partner develops the project in a fronting arrangement and in relation to third parties. The AP was widely used in the past but is no longer an option for many investors or developers as current tax laws consider it to be a tax entity, distinct from its partners.


i Planning

Mexico has three levels of government: federal, state and municipal.

As regards use of land, three removal and construction permits are issued at the municipal level, but environmental impact authorisations are required at the state and, in some cases, at the federal level.

Municipal plans dictate zoning, but forest lands require a change-of-use permit issued at the federal level by the Ministry of the Environment and Natural Resources (SEMARNAT). Sometimes a developer may have the municipal permit but still require the federal forest-land change-of-use permit, which involves impact and justification studies.

Changes of use of land that require a deviation from approved zoning plans require a meeting of the municipal council to approve the change at the zoning-plan level. Timing can be an issue as approval is not issued by a single officer of the municipality, but by its council.

In some jurisdictions, coordination by the three levels of government may not be optimal, therefore a careful study by expert consultants of permits required at each level of government for a development is a must.

ii Environment

Landowners and parties in possession of land are jointly liable for remediation in the event of contamination. This calls for careful structuring of real estate transactions, so that a party acquiring a property or rights to use the same does not assume liability for contamination of a site by taking possession before it is strictly necessary. For example, if a lease is entered into subject to certain conditions (such as satisfactory due diligence), the agreement should establish clearly that the tenant will not take possession of the site until all conditions are satisfied.

Additionally, a site contaminated with dangerous residues may not be conveyed without approval from SEMARNAT.

iii Tax

Federal taxes that may be caused by the sale of real estate include income tax and value added tax. Value added tax (currently 16 per cent) is applicable only on the conveyance of improvements, not land. There are certain exemptions in the case of sales of residential properties.

In addition to federal taxes, the acquisition or transfer of property also produces a local tax. The rate of this tax may vary from state to state, but most charge a rate of 2 per cent on whichever of the officially appraised value and the purchase price is the higher.

In most jurisdictions, the notary public before whom a purchase deed is signed cannot fully approve the deed for recordation until the real estate transfer tax is paid. Payment of this tax within the effective term of the preventive notice is of upmost importance, therefore, otherwise the deed cannot be filed for recordation with the Public Registry.

Finally, as the transfer or acquisition tax is regulated by each state, there may be transactions that in one jurisdiction produce the tax yet in others do not. For this reason, each transaction has to be analysed on the basis of the location of the property.

iv Finance and security

Security over real estate is granted either through mortgages or through guaranty trusts.

In both cases it is very important to have the security recorded in the Public Registry for it to be effective against third parties.

Special note must be taken about mortgages securing future obligations, as a filing with the Public Registry is required by most state civil codes each time a secured future obligation is created. In this scenario, a guaranty trust may be more practical as no additional filings would be required once the trust is established and recorded.

As guaranty trusts have become widely used, trustee fees are lower than before and in certain cases this option may be preferable to the mortgage.


Leases create personal (as opposed to real) rights to use real estate properties in Mexico for a determined consideration. Lease terms have different maximum limits depending on the state in which the property is found.

Civil codes are generally protective of tenants. With variations depending on the state, landlords’ obligations include (1) guaranteeing the property is fit for the intended purpose; (2) non-disturbance of the tenant’s use of the leased property; (3) guaranteeing quiet use and possession; (4) making all repairs necessary to maintain the property during the term (except for minor repairs that are to be performed by the tenant); and (5) indemnifying the tenant for hidden defects.

In general tenants are presumed liable for fire affecting the leased property, and thus are usually contractually required to maintain property damage insurance.

Rent increases are usually indexed by contract to the consumer price index (CPI). In some cases rent is set in US dollars and indexed to the US CPI; note that in such cases, pursuant to the Monetary Law of the United Mexican States, any payment obligations established in a foreign currency to be paid in Mexico can be fulfilled by paying Mexican currency at the applicable exchange rate on the date of payment, as determined by the Bank of Mexico, the Mexican central bank.

It is very common in Mexican leases to include a solvent individual or entity related to the tenant as surety for payment of rent in the event that the tenant fails to do so. Such a guaranty can be structured as a ‘joint and several liability’ or as a personal civil guaranty. In the case of a personal civil guaranty, the tenant would have to be sued and its assets attached before going after the guarantor, unless the guarantor expressly waives the corresponding civil code provisions. When there is no satisfactory guarantor surety, bonds issued by authorised surety bond institutions are also a common option.

The market has evolved because of foreign investment, and lease contracts can be as complex and sophisticated as leases in the United States and some European countries, with triple net leases, build-to-suit leases, ground leases with tenant construction rights, etc.

Note should be taken that although many provisions with origins in other jurisdictions may be validly agreed upon in the lease contract, waivers to civil code provisions have to be included expressly in the document.

Nonetheless, there are provisions that are not valid in Mexican leases, and certain civil code provisions cannot be waived; for example: (1) provisions relating to recovery of possession by the landlord without a trial are not valid; (2) a waiver to termination rights because of the impossibility of using the property for a certain period as a result of a force majeure event is not valid; and (3) provisions waiving maximum length of lease terms established in the civil code are not valid.

Most state civil codes establish a right of first refusal in favour of the tenant in the event of the sale of a property if the tenant has been leasing the property for a certain period and if it has made improvements to the same.

In general, state civil codes establish that when a leased property is sold or otherwise transferred by the landlord, the lease remains in place and the new owner becomes the landlord.

It is important to consider local registration requirements in most states for leases to be effective in respect of third parties when they exceed a certain duration, or when more than a certain number of monthly rents have been prepaid.

It is also important to consider that in some states having a lease ratified or granted before a notary public may allow for a faster procedure to evict a defaulting tenant, so it is worthwhile for a landlord to consider the small expense of observing such a formality.

In particular in the case of ground leases, where the tenant will make an important investment in construction, the tenant may consider title insurance to cover its leasehold interest.



Mexico incorporated into its legislation a tax incentive so that, through trusts with a specific purpose, all types of investors, including private parties, pension funds and foreign persons, would invest in real estate properties destined for lease. We can currently say that the legislation has been successful.

A FIBRA is a trust that may be privately or publicly held, in which 70 per cent of the assets should be real estate properties, and whose main purpose has to be: (1) the acquisition of real estate properties for lease to third parties; (2) the acquisition of lease collection rights; or (3) the financing of the foregoing activities.

The general legal framework for FIBRAs is the same as other trusts, but is subject to specific regulation for the protection of investors and with respect to the tax treatment of real property contributions and the returns and other economic benefits they grant. The following are some particularities that stand out:

  1. the bank acting as trustee issues certificates to each investor that represent an undivided interest in the properties contributed to the trust, the return generated by them and the price received in the event of a sale;
  2. the trustee bank must calculate the tax result and withhold 30 per cent of the income tax corresponding to the income of the FIBRA (with the exception explained at (d)) and distribute each year at least 95 per cent of the result obtained;
  3. whoever contributes a property to the FIBRA can defer the income tax deriving from such a conveyance until the trustee sells the same or the investor conveys the certificates received for its contribution;
  4. pension and investment funds referred to in Article 153 of the Income Tax Law are exempt;
  5. income tax withholding by the trustee is considered a provisional payment for Mexican tax residents and definitive payment for foreign tax residents (subject to a lower withholding rate under certain international treaties to which Mexico is a party); and
  6. the sale of certificates through the stock exchange is exempt from income tax for individuals residing in Mexico and for foreigners.

In conclusion, the FIBRA is an interesting instrument that combines fixed and variable rent components.

ii Superficies rights

In recent years, several states have incorporated into their civil code the concept of superficies rights. This differs from a lease as a leasehold interest is considered a personal right, whereas the superficies right is considered a real right.

Depending on the state there may be maximum terms applicable to the superficies right.

This right can be granted over land surface area or over construction surface area, entitling the superficies rights holder to make and own improvements thereon.

There are statutes of limitations after which the right is lost if it is not used; that is, the right can be lost if improvements are not made.

This concept gives more flexibility for land development as, for example, in the state of Nuevo León, there is no subdivision process required to grant superficies rights over a portion of a parcel of land.

The parties are free to agree on whether there should be compensation to the superficies rights holder at the end of the term, deriving from the improvements made by it.

iii Occupation rights in energy projects

At the end of 2014 new energy laws opening the energy industry to private investment were finally passed.

One very important aspect of any energy project is real estate, from the land needed for extraction activities or for the generation of energy to the land needed for the installation of pipelines, cables and other essential energy infrastructure.

Occupation of land by private parties for energy projects was not specifically regulated in the past as participation in the energy sector was very limited. Private parties’ participation in the industry was largely in electric energy, as permits for generation for self-consumption have been available for years.

With the enactment of the new energy laws, the occupation of land has been regulated. Main concepts to consider are:

  1. the energy company has to provide the landowner with a written explanation of its interest in using or occupying the landowner’s land or a portion thereof;
  2. the energy company must provide and describe the project and address any questions and inquiries from the landowner, so that the landowner understands all implications;
  3. the Energy Ministry may require the participation of community witnesses;
  4. the energy company has to notify the Ministry of Agrarian, Territorial and Urban Development of the initiation of negotiations with landowners or parties in possession of the land;
  5. the legal structure of the occupation (purchase, easement, lease, etc.) must be adequate for the development of the project;
  6. compensation has to be proportional; it should be made considering market value and cover (1) payment for affected goods or rights other than real estate, and (2) payment for occupation rights, easement or use of land;
  7. the amount of compensation and terms and conditions of occupation have to be established in writing subject to guidelines and forms issued by the Ministry of Agrarian, Territorial and Urban Development in coordination with the Energy Ministry;
  8. the agreement has to include dispute resolution mechanisms;
  9. agrarian property occupation is subject to additional specific requirements;
  10.  particular requirements are to be met in connection with appraisals; and
  11. agreements have to be filed with a competent court for validation.

This is a general list of items that must be addressed; there are further particularities in the corresponding legal provisions.

Even though requirements may look burdensome, if complied with, the level of legal certainty for the energy company would be very high considering the final agreement would be validated by the judicial system.


Mexico’s openness to foreign investment, including the newly approved energy laws, and the growing economy, make it easy to predict a very active real estate market for the foreseeable future.

As our country continues to develop and to attract foreign investment, our real estate market keeps growing and becoming more sophisticated.

The application of municipal, state and federal laws to different aspects of a real estate project calls for careful due diligence and project planning.

Our registration system, complemented by the availability of title insurance, provides a very good degree of certainty to both local and foreign real estate investors.

Considering the foregoing, together with the country’s sound banking system, the availability of, and thirst for, investment by private equity funds, instruments that permit participation in the sector by the Mexican pension fund system, and incentives for private parties and foreign pension funds to invest in real estate, the financial foundations for the future growth of the real estate industry in Mexico seem very strong and we expect to see our industry continue to grow steadily.

1 Enrique Iglesias Elizondo, José G Pozas de la Vega and David Páez Gonzalez are partners at Iglesias, Pozas y Páez.

2 www.bmv.com.mx/es/emisoras/informacion-de-emisoras.

3 Ibid.