Acquisition of Real Property: Restricted Area Trust

by – Lic. Greta Robledo.

In accordance with article 27, section I, of the Mexican Constitution, Mexican companies with foreign investment may acquire real estate property in any part of the national territory outside of the restricted area. The restricted area is a strip of 100 (one hundred) kilometers wide along the borders and 50 (fifty) kilometers wide along the coasts in which – according to current legislation – foreigners cannot acquire ownership of land and water directly.

Notwithstanding the foregoing, the acquisition of real estate property within the restricted area can be carried out by:

  • If such companies include a clause in their bylaws in which its partners/shareholders agree to be considered as Mexicans, with respect to the rights and obligations arising from the agreements, the shares or quotas, and the assets or interests of which they are business owners, resigning to invoke the protection of their governments under the penalty of losing the property in benefit of the Mexican Government in the event of default.
  • If the real estate property that is purchased is  destined for non-residential purposes, and a notice is filed with the Ministry of Foreign Affairs (MFA) within 60 (sixty) business days following the acquisition of the real property, in terms of article 10, section I, of the Foreign Investment Law (FIL), and article 5 of its Regulation.

The origin of the restricted area trusts is found in the agreement from November 22nd, 1937, executed by President Lázaro Cárdenas, by means of which the national credit institutions were authorized to carry out trust operations and to acquire real estate property in Mexico, allowing their use and enjoyment to the non-Mexican nationals.

The purpose of the restricted area trusts is that the trust institution allows the trustees to use and exploit the assets that are part of the trust without holding the ownership rights. The use and exploitation of the trust assets should be understood as the granting of the rights of use, enjoyment, and exploitation by non-Mexican nationals, including the obtaining of its products, and in general any benefit, during the operation and lucrative exploitation of the real properties.

The special requirements of the restricted zone trust agreements are provided in article 11 of the FIL Regulations which establish certain requirements that must be contained in the trust agreement, also indicating the consequences of establishing it without any of them.
Some of such requirements are the following:

  • Calvo clause. It is the statement made by non-Mexican nationals in which they agree to be considered as Mexicans regarding their rights granted to them as trustees, and their agreement not to invoke, the protection of their governments, under penalty, of losing said rights in benefit of the Mexican Government.
  • Conservation of fiduciary ownership. It means that during the entire term of the trust, the trust institution retains ownership of the trust assets, without, granting ownership rights to the trustees.
  • Information on the fulfillment of the purposes of the trust. The trustees are obliged to inform the trust institution about the fulfillment of the purposes of the trust, and the trust institution is obliged to inform the MFA about the same, when required to do so, if there are grounds that imply that there is a breach regarding the conditions under which the permit to form the trust was granted.
  • New permit in the event of the contribution of new real estate properties, or change of trust purpose. That the trust institution obtains a permit from the MFA in the event that an additional real property is contributed into the trust or there is a change in the purposes of trust;
  • Notice of Termination of Trust. That the trust institution agrees to notify the extinction of the trust to the MFA, within 40 (forty) working days following the date of its termination, and
  • Termination of the trust at the request of the MFA. That the parties in the agreement agree to extinguish the trust at the request of the MFA, within a period of 180 (one hundred and eighty) days from the date of notification of the requirement, in the event of breach or violation of any of the conditions established in the permit that was issued to form the trust.

Restricted zone trusts have a maximum duration of 50 (fifty) years. Such term may be extended at the request of the interested parties – that is, of the trustees – to the MFA, through the institution that acts as a trustor, within the 90 (ninety) business days prior to the expiration of the term.

In the event that the term of the trust ends without requesting the extension of the term, the trust must be extinguished, and the real estate properties in the trust must be transferred to an individual capable of acquiring real property in a restricted area.

Lastly, in terms of article 32 of the FIL, real estate trusts located in a restricted area, whose trustees are foreign individuals or legal entities, or those whose assets are real estate property intended for residential purposes, and a Mexican company with an admission clause for foreigners, must be registered in the National Registry of Foreign Investment.

Leobardo Tenorio-Malof   |
Héctor Torres-López   |
Alejandro Pedrín   |
Mauricio Tortolero   |
Daniel Gancz-Kahan   |
Alejandro Ceballos   |


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