Is it a Lease? Leases vs Fideicomisos or Escrituras? Mexico Property Transactions.
By Cheryl Miller, AMPI; NAR; CIPS; ABR
There is not a day that goes by that a person does not come into my office to ask about buying property and the rules for “leases”. It seems that despite over 38 years of the well established Constitutional process for foreign purchases being in place, that the word simply has not gotten out to be common knowledge among foreigners. Amazing! So here is the real skinny!
In Mexico, as of 1974, the Mexican Constitution was amended to cover foreign ownership in Mexico. Prior to that time, YES, foreigners could not own property in Mexico on their own. They needed a majority partner of a Mexican national or simply were barred from obtaining legal rights on a property. Many people tried to “outsmart” the laws, (even to this day there are instances of this, seems that people are hard to learn the lessons, or simply do not understand that Mexico has very sophisticated real estate laws). Not surprisingly, many of these people who tried to outsmart the law, ended up loosing their investments or were thrown off “their” property in legal cases or from additional transfers that occurred later. HEY, fair is fair. I would never put that kind of chunk of money down on a property without being SURE I had the property in my name/control and done 100% legally in the U.S.. Why would you do so in a foreign country?
Yes, there were also people who have “leased” residential land and property, as well. Many “leased the land” and then proceeded to build expensive homes on the property. Now, think about it. What is a lease? It is a temporary “rental-type” agreement for the ability to use the property, generally under certain very defined circumstances and rules, and for a limited period of time. Improvements are simply an investment you lose when the lease is up. All leases have time periods specified as well, and if not, the Mexican law limits residential leases to 10 years, despite what your contract may say. Essentially, after 10 years, the lease is up LEGALLY, and there is no law that forces the leasor to renew a lease. It is simply up! We realtors in AMPI Los Cabos, of which Baja Realty and Investment are members, are simply not allowed to represent ANY leased property, or any property that a title transfer can not occur. Period. That is for the protection of the public. SO, no, we (AMPI Los Cabos and MLS members) don’t have any leased residential property available for sale.
Personally, I would NEVER invest tens of thousands of dollars to improve a leasehold, unless it were a commercial space (that is fairly normal both here and in the United States). But, to build a home? No, that only financially benefits the leasor, not the leasee. But, believe it or not, there are many instances of this occurring in Mexico and in some even here in Los Cabos. Personally, again, I have no pity for anyone whose lease runs out and is asked to leave. None. They must do so, leaving with only their personal belongings in tow.
The laws under the Constitution in 1974, and further amended in 1994 during the NAFTA Agreement, established a “restricted zone” where foreigners can purchase residential property in a bank trust or “fideicomiso”. This restricted zone is also defined in the Constitution as 30 miles from ANY coastline and 60 miles from any border. Essentially, all of Baja California is a restricted zone. Anything outside of this zone, like Guadalajara or Mexico City can be foreign owned fee simple.
The Fideicomiso holds the property in the bank’s name with the Purchaser listed in this REGISTERED, LEGAL transfer document, as the beneficiary of all use and enjoyment for a period of 50 years, renewable, ad infinitum. There are restrictions and requirements, mainly having to do with your agreement to inform the bank as to any change of address, legal status, death, etc. You agree to use the property for its listed uses, to pay for property taxes and trust maintenance fees and not engage in illegal activities such as drug and arms trade. You are allowed to construct, to remodel, to will the property rights, to sell and to renew the term of the trust. You must do these activities legally, with permits and follow the laws, and inform the bank, but, essentially, you have all of the rights of fee simple ownership.
What is the difference between a lease and a fideicomiso? Simple, you have all the beneficial rights of ownership, including the benefit of any profits. You also carry the responsibilities that come with ownership too, such as the requirement to pay property taxes and capital gains. Over 2 million U.S: citizens own property in the restricted zone in this manner as of 2010 and this number is rising yearly, as many of the baby boomers have chosen Mexico for their retirement destination. It is projected that over 15 million expats from the U.S. will own property in Mexico by 2020. And why not? The lifestyle is tranquil, the culture ancient and profound, the food is fantastic, medical care is good, the cost of living a fraction of the U.S. urban centers, and Mexico is still close and accessible to the U.S., particularly Los Cabos, where an 1-1/2 hr. plane right takes you to many of the southwest major metropolitan areas by plane. And Los Cabos is also safe. Low crime and a small town atmosphere with beautiful beaches and a climate that is paradise!