When a foreigner wants to acquire a Mexican property in the restricted zone, there are two mechanisms they can use.
First of all, it is necessary to clarify what the restricted zone is, well, according to the 27 Article of the Mexican Constitution, it is all the land located 100 kilometers from any national border and 50 kilometers from any ocean, so it means, properties on the coastal border.
As mentioned above, there are two ways of acquiring these kinds of properties, the constitution of a Mexican corporation, and a trust.
A Mexican corporation: as of 1995, foreigners can own, operate and manage Mexican companies, however, some restrictions remain on the activities in which a Mexican company can participate when foreigners are involved, such as mining, airports, and telecommunications; however the general rule is 100% participation. There are no investment restrictions on foreign-owned companies intended to purchase and develop the property. Mexican corporations require a minimum of two associates or shareholders. Both shareholders can be foreigners and it is not necessary to have a Mexican partner.
Now, let’s focus on the trust, it is about a three-part contract whereby the seller (the settlor) irrevocably transfers to a real estate bank (trustee) so that a third party (beneficiary) can use and enjoy such property.
Under Mexican law, only an authorized Mexican banking institution can be a trustee. The bank acquires title to the real property and is obligated to allow the beneficiary to use and enjoy the property as he/ she sees fit (as long as the way in which he does so is legal). If the beneficiaries wish to rent the property to third parties, they can do so by obtaining the necessary authorizations. The beneficiaries also have the right to sell the property at any time to receive the proceeds from the sale.
The bank cannot encumber or sell the property without the express written consent of the beneficiary.
It is important to mention that Mexican law requires that all real estate transactions be carried out by a notary public. The notary is obliged to register in his books the deed of transfer of title, have signed it by the parties involved, and registered it in the Public Registry of Property that corresponds to the location of the property. Once the deed of transfer of title has been signed in the presence of a notary public and registered with the Public Registry of Property, the real estate transaction has complied with the requirements of Mexican law.
At SILMÉXICO our specialized legal team is in charge of carrying out all the processes in the acquisition of properties in and out of the restricted area.
Contact us and ask for our consultancy services at www.silmexicooaxaca.com
Written by Jessica Hernández
Real Estate Advisor.