LEGAL MATTERS

Acquisition of rural property by foreigners in Mexico
By: Paloma Arámburo Muñoz, Diego Robles Farías & Elías Morán Giacomán – December, 2008

In regards to the acquisition of real estate in Mexico by foreigners, Mexico is divided in two zones, the restricted zone and the rest of the country. The first one covers a swathe of territory of 100 kilometers along the borders and 50 kilometers along the seashore. Within the restricted zone, foreigners are banned from direct purchase of real estate, so they can only have the right of use through trusts. The purpose of this essay is to analyze the acquisition of rural property outside the restricted zone. Can a foreigner purchase rural property outside the restricted zone? What are the requirements to do so? To resolve these issues it is important to determine our starting point.

Rural property includes all property destined to agricultural activities, namely agricultural purposes, livestock and logging. The issue of rural property acquisition outside the restricted zone by individual foreigners and foreign legal entities is controversial because there is no explicit prohibition in the Constitution, in the Foreign Investment Law, -or in its regulatory law-, nor in the Agrarian Law.

Our Constitution provides the general principle that only Mexicans by birth or naturalization and Mexican entities have the right to acquire the domain of real property, waters and its accessions, or to obtain concessions from mining and water. It also states that the State may grant said right to foreigners, as long as they execute the corresponding agreement with the Calvo Clause. From the wording of this section it can not be determined whether it refers to foreign individuals or legal entities, nor whether the property is rural or urban.

In the same way, the Constitution regulates the acquisition of rural property by companies, but it does not distinguish between foreign or domestic ones. Moreover, a comprehensive analysis of the provision allows us to determine that it does indeed refer to Mexican corporations, because it explicitly states that the regulatory law of said constitutional provision (meaning the Agrarian Law) shall regulate the capital structure, the minimum number of shareholders of corporations which own rural property and the conditions for foreign participation in these corporations, which forcefully implies that it refers to Mexican corporations, because they are the only ones that can be regulated, by a Mexican law.

Moreover, the Agrarian Law does not explicitly prohibit from acquiring agricultural land, but in its articles 125 to 133 it regulates legal entities which own agricultural land, livestock and logging, referring exclusively to Mexican companies. It requires them to distinguish in their capital stock, a special series of shares or partnership interests identified with letter “T”. Said “T” shares represent contribution of agricultural lands, farming, logging or capital specifically destined to acquire said property. In companies of this nature, foreigners may only own up to 49 percent of “T” shares.

The General Immigration Law provides that foreigners, regardless of their immigration status, and without requiring authorization from the Department of the Interior, may acquire real state property and rights in rem, with the limits established in Constitutional Article 27 and other related laws. This article only refers to urban, and not to rural property.

The regulatory law that describes the authorization mentioned above, goes beyond the law and enables foreigners to acquire rural property, nevertheless, to be consistent with other laws rural property can not be used for agricultural purposes.

And finally, the Foreign Investment Law does not establish within the economic activities reserved for Mexicans or Mexican corporations with a foreigner exclusion clause, agricultural activities, livestock or logging, nor the ability to acquire real state property used for such ends. However, said law does not expressly enable foreign individuals or corporations to acquire real state intended for said purposes.

However, the Foreign Relations Department holds a different opinion, arguing that foreign individuals or legal entities, can indeed acquire rural property destined to agricultural activities, if they obtain the necessary permission or resolution by means of which a foreign individual or corporation can acquire real state outside the restricted zone.

The only restriction is found in exhibits attached to international treaties executed with Honduras, El Salvador and Guatemala, with the United States and Canada, as well as those executed with Chile and Japan. NAFTA´s Exhibit includes the restrictions imposed by Mexico to the national treatment principle, this means, our country used its right to preserve certain production sectors and established the following note: “Only Mexican nationals or Mexican enterprises may own land for agriculture, livestock or logging purposes. Such enterprises must issue a special type of share ("T" shares) representing the value of that land at the time of its acquisition. Investors of another Party or their investments may only own up to 49 percent of "T" shares.”

Robles, Lazo y Gallardo - Law Firm
E-mail: jgallardo@rlg.com.mx

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