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Foreign
investement& Real Estate Law
Pursuant to your kind request,
following you will find a general guidelines and information
about the legality of acquisition of real estate in the restricted
zone by Mexican Corporations with foreign partners to do business
in the State of Baja California – Mexico .
Foreign Investment
Laws relating to the acquisition of real estate by foreigners.
First of all, it is important
to review the content of the first section of article 27 of
the Mexican Constitution that regulates the ownership of lands
and waters in Mexico .
The first paragraph of Article
27-I states, "Only Mexicans by birth and Mexican Companies
have the right to acquire ownership of lands, waters and their
easements, or to obtain concessions for the exploitation of
mines or waters". Moreover, the same paragraph states, "The
Mexican Government may grant the same right to foreigners provided
they agree before the Ministry of Foreign Affairs to consider
themselves as Mexican nationals with regard to said land and
waters and not to invoke the protection of their governments
in matters relating thereto, under penalty, in case of default
to comply with this agreement, of forfeiture of the property
they had acquired to the benefit of the nation".
The referred article adds
that under no circumstances foreigners may acquire direct ownership
of lands or waters within a zone of one hundred kilometers
from the borders and fifty kilometers from the seashores of
the Mexican Republic . These zones are known as the restricted
zones.
In order to provide a specific
interpretation of the first section of article 27 of the Mexican
Constitution, the Mexican Government enacted a new Foreign
Investment Law, which was published in December 27, 1993 .
Since then, the law has been amended in order to provide a
more flexible and clearer interpretation of the aforementioned
Constitutional provision, thereby facilitating its comprehension.
In general, the Foreign Investment
Law provisions allow foreigners to acquire real estate outside
the restricted zone providing that such buyers file a petition
before the Ministry of Foreign Affairs in which they agree
to be considered as Mexican nationals, thereby waiving the
protection of their governments with regard to such acquisitions,
and in such case obtain an authorization from the Ministry
of Foreign Affairs. The Ministry of Foreign Affairs will determine
in which cases an authorization will not be required. On March
2, 1998 , the Ministry of Foreign Affairs published a resolution
in which it was stated that all nationals from countries that
maintain diplomatic relations with Mexico shall only be required
to file a petition agreeing to be considered as Mexican nationals
in the same terms as above.
If the real estate or property
is located in a municipality partially considered to be within
the restricted zone, the Ministry of Foreign Affairs will resolve
the petition for the acquisition permit within a 30-day period
upon the filing of such. On the other hand, if such real estate
is located outside the restricted area, the authorization will
be deemed granted if the Ministry of Foreign Affairs does not
publish its refusal in the Official Gazette, within 5 days
of the submission of the petition.
Article 10 of the Foreign
Investment Law provides that a foreign owned Mexican Corporation
may own real estate in the restricted zone ( Baja California
), provided that said property is destined for non-residential
purposes (real estate, time share, tourist or vacation). In
this case, registration of the acquisition before the Ministry
of Foreign Affairs will be required within 60 days of the date
of acquisition.
The Calvo Clause is a conceptual
waiver that the Mexican government uses in general terms regarding
foreigners that acquire rights in Mexico (like real estate)
or that do business in Mexico . It basically states that the
foreigners will consider themselves as Mexican nationals regarding
the rights and obligations they acquire in Mexico and will
not request that their foreign government intervene upon their
behalf in such matters. The Federal Mexican government presently
has agreement terms for foreigners that are an extended version
of the original Calvo Clause that it is using.
The Restricted Zones
in Mexico
The Restricted Zone in Mexico
(known in the past as the "Prohibited Zone") is set
up as such in the Mexican Federal Constitution. It is: (1)
the land area within 100 kilometers of Mexico 's international
land borders (with U.S. , Belize and Guatemala ) (all of the
border towns and a little more); and (2) the land area within
50 kilometers of Mexico 's ocean front areas (the coast line
of Mexico ).
In the Restricted Zone foreigners
(individuals) to Mexico can not own direct (fee simple) title
to real estate located therein. They can however hold the title
thereto via a Mexican Corporation (depending
upon the use of the property).
In the case that the property
in question is commercial (to be used for business purposes)
then the foreigner can either hold the title to the property
in the mentioned title through a Mexican Corporation, to which
he can hold ownership (note: there are limitations on Mexican
corporation ownership, depending upon the business activity
it performs).
Federal Maritime Land
Zone in Mexico
The laws of Mexico determine
that there is a strip of land on the beach that is considered
as part of the Federal Public Domain of Mexico, as is the sea
along the coast of Mexico .
This area comprises the full
length of the beach along all of the coasts of Mexico and 20
meters in from the high tide of the sea at any one given location.
This area is known as the Federal Maritime Land Zone of Mexico
(ZoFeMaT = Zona Federal Maritimo Terrestre).
The laws of Mexico foresee
the possibility that the owners of the land located adjacent
to this Zone may apply for and normally receive a concession
on that portion of the Zone that is adjacent to their property.
The office of government in
Mexico that has direct control over these matters is the Federal
General Administration of the Federal Maritime Land Zone(Dirección
General de Zona Federal Maritimo Terrestre) , which is part
of The Federal Sub-Ministry of Natural Resources (Subsecretaría
de Recursos Naturales). This latter sub-ministry is part of
the National Ministry of Ecological and Natural Resources (Secretaría
de Medio Ambiente y Recursos Naturales).
The party that wishes the
concession must file certain papers. Once granted, the government
will charge the concessionaire an annual fee for the concession
Residential
Property versus Commercial Property concerns in the Restricted
Zone.
Commercial Property is that
which is used for such purpose. Where the acquisition by foreigners
of real estate in the Restricted Zone may be acquired through
a Mexican Corporation (please note that the limit on the ownership
of the Mexican company is based upon rules set by the Foreign
Investment laws - including the limitation based upon the corporate
purpose).
Under the 1993 Foreign Investment
Law of Mexico, a Mexican b Corporation is considered Mexican
under said law, even if all the shareholders are foreigners.
Thus, foreigner can acquire real property in direct ownership
(similar to fee simple) in the US .
The Regulations of the Foreign
Investment Law states which are considered the commercial activities
or corporate purpose for the Mexican Corporation that owns
property in the Restricted Zone (used for non-residential purposes),
such as:
1. Promotion and sale of timeshare
rights of use to real estate (here no ownership of
real estate is given but rather rights of use);
2. For industrial, commercial
or tourism activity that may simultaneously contain a residential
component for the subsequent buyer;
3. Real estate acquired by
credit institutions, financial intermediaries, and auxiliary
credit organizations to recover debts owed to them and in the
ordinary course of business;
4. Real estate used by entities
in the course of their business consistent with sale, development,
construction, subdivision and other activities included in
the development of real estate projects, until these are sold
to third parties that use them for residential occupation;
and
5. Generally, real estate
destined for use in commercial, industrial, agricultural, cattle,
fishing, forestry, or service related activities.
Notary
Publics
The Notary Publics normally
perform their duties either in the issuance of a Public Instrument
("Escritura Pública") that will contain that
sought by the parties or they will affirm to the signature
of a party that signs a document before them.
In Real Estate. In cases
where title of ownership of real estate is transferred, the
Notary Publics are charged with the preparation of the title
transfer document/contract (their own document or a draft given
by the intervening parties that they will review and revise
as needed) which takes the form of a Public Instrument and
with the acquisition and attachment (to the Public Instrument
file) of documentation evidencing the seller's ownership, any
power of attorney (in the event of an agent acting on behalf
of a principal), the certificate of non-encumbrance and title
holding from the corresponding Public Registry of Property,
an affidavit of appraisal, non-debt of water, and non-debt
of land taxes.
As well, the Notary Public
calculates the taxation and fees that will be payable to government
agencies and collect them from the intervening parties and
(when the parties so request) performs the registry of the
new title at the corresponding Public Registry of Property.
Mexican Corporation
The "Sociedad Anónima" (Corporation)
is a company with a denomination consisting of shareholders
whose only obligation is to deliver the portions they subscribe
to (in the corporate capital) and which are attributable to
the company, which parts are represented by negotiable instruments
(stock), (no bearer instruments/stock), and which company parts
may or may not be of restricted transferability (depending
on the company bylaws). This type of company requires a minimum
of two stockholders in order to incorporate and exist. This
type of company may, (if set in the articles of incorporation)
have a variable capital portion which would permit it to raise
or lower the variable portion without changing the articles
of incorporation or bylaws (however it would require an extraordinary
shareholders' meeting). This company type description (at the
end of the name) can be abbreviated by the letters "S.
A.", or if of the variable capital type then "S.A.
de C.V.".
Conclusions
You as foreigner, don't need
to worry about a title trust, you can take the beach property
in a Mexican Corporation. If everything else is ok (regarding
the title), and the preponderant purpose or sole purpose of
use of the property is business, then a Mexican Corporation
could hold direct title to it. If the Mexican Corporation is
created correctly and the nature of the business it will do
permits (by the Mexican Foreign Investment Law) foreign shareholders,
then you may acquire shares of stock in the Corporation (to
the limited permitted by the mentioned law).
For
additional information, please contact Luis Humberto Lopez
or Eduardo Martinez at lhlopez@lmklaw.com or emartinez@lmklaw.com or
dial to (++52) (664) 686.1006 at our Tijuana Offices or at
(619) 595-3173 at our San Diego Office.
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