LEGAL MATTERS

Requirements for a corporate entity with foreign admission clause to acquire real estate property
By Diego Rbles Farias • Photos by Jesus de Avila • June 2010

The Foreign Investment Law regulates two types of corporate entities regarding the acquisition of properties in Mexico:

1. Corporate entities that include the foreign exclusion clause, and
2. Corporate entities that execute the Calvo Clause agreement. The by-laws of the corporate entities that include the foreign exclusion clause, may freely acquire real estate property throughout the Republic, without requiring any kind of authorization.

The Corporate entities that include the foreign participation clause must execute the agreement called Calvo Clause, established in the regulations to the Foreign Investment Law that establish:

“ARTICLE 14.- When in the company by-laws the foreigner exclusion clause is not agreed, an express agreement or pact must be entered into which shall form an integral part of the by- laws, whereby the present or future foreign equity holders obligate themselves, before the Foreign Relations Department, to be considered as nationals with respect to:

I - The shares, equity participations or rights acquired from said companies;
II - The assets, rights, concessions, participations or interests that said companies may hold…

The mentioned agreement or pact must include the waiver of invoking the protection of their governments under penalty of otherwise losing their rights and assets they acquired in favor of the Nation.” The corporate entities that have executed the agreement referred to in Article 27 of the Mexican Constitution, commonly called the Calvo Clause, may acquire real estate property in the country without any restriction, except when such real estate is intended for residential activities and is located in the Mexican restricted or prohibited zone.

Such acquisitions can be distinguished as follows:

a - Real estate intended for residential activities.- Regarding the real estate intended for residential activities, corporate entities may freely acquire them, but if the real estate property is located in the Mexican restricted or prohibited area, such entities must notify the Foreign Relations Department within sixty business days following acquisition of such property. The written notice referred above shall contain an understandable description of the real estate property, the land use to which it is intended and a copy of the public instrument in which the acquisition has been formalized.

In the event that a corporate entity decides to transform its foreign exclusion clause to a foreign participation clause, such entity must notify the Foreign Relations Department within thirty business days following the amendment, and if the entity owns real estate property not intended for residential activities situated in the Mexican restricted or prohibited zone, such entity shall give the written notice referred in the preceding two paragraphs within the prescribed period.

The corporate entity that owns real estate property intended for residential activities located within the Mexican prohibited or restricted zone must transfer it to a trust prior to the amendment to the foreign clause, otherwise such entity will incur a restriction established in Articles 10 and 11 of the Foreign Investment Law.

b - Real estate intended for residential activities.- The entities´ bylaws that include the foreign participation clause and the clause calvo agreement may freely acquire real estate property intended for residential purposes if located outside of Mexican restricted or prohibited area, but if the real estate is located within such area, the legal entity can only acquire personal rights regarding this real estate through a trust. What is real estate property intended for residential purposes? The answer is in Article 5 of the Regulations to the Foreign Investment Law, that establishes that it is the real estate that is used exclusively for housing purposes by its owner or by third parties.

This legal definition is not entirely understandable, because some real estate may fall within the definition, but apparently the lawmaker did not refer to them, such as the hotels. In order to clarify this situation, the same article includes the following examples of real estate property not intended for residential activities:  

i) Those intended for some industrial, commercial or tourism activity and which simultaneously are used for residential purposes; ii) In general, the real estate intended for commercial, industrial, agricultural, ranching, fishing, forestry and those used to provide services. Finally, this article provides that when there is doubt as to whether a real estate is considered for residential activities or not, the entity may consult the Foreign Relations Department, who shall decide within a period not exceeding ten working days.

Therefore, it is important  for foreign investors to determine whether the real estate property they try to acquire through Mexican legal entities is considered or not as residential property, since this may be another vehicle to acquire real estate property located in restricted zone, in addition to the commonly know trust vehicle. Email to a friend

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

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• Robles, Lazo y Gallardo, S.C. is a Law Firm of specialists in various areas of Law, including Corporate Law, Real Estate, Immigration, Foreign Investment, among others. The Firm is integrated with a group of highly qualified attorneys and has offices in Guadalajara (Privada del Niño No. 676, Fraccionamiento Camino Real, telephone number  33-3121-3010  33-3121-3010 ) and Puerto Vallarta (Carretera a Mismaloya No. 479 interior 107, Edificio Scala. Telephone number  322-223-3218  322-223-3218 ).E-mail: jgallardo@rlg.com.mx

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