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contract by which a settlor transfers title and management of certain assets and/or rights to a trustee — generally a bank or any other financial institution authorized to act as such under applicable Law — , so that the trustee manages such assets under agreed terms, for the benefit of a person — could be, among others, a Mexican Corporation, a foreign individual or a foreign entity — appointed as beneficiary thereto. The bank, as trustee, will be subject to fiduciary duties while representing the settlor’s interests in the trust assets. For example, should the trust purchase real estate property, the trustee should only carry out the transaction after verifying that all the title documents, property dimensions and/or any other documentation related to the property, are in order. On the contrary, if the real estate is not in good standing or up to date with the applicable legislation, the bank’s fiduciary duties shall prevent the trust acquiring such irregular property. During the past few decades, it has been very popular among foreign investors to hold property of real estate through a Mexican trust, where the individual investor or a corporation transfers financial resources to the trust and then the trust itself acquires the real estate and holds title thereof. Thus, it can be created to indirectly acquire the property, whereby the real estate is settled in trust, since no real estate rights would be owned directly by the trust beneficiaries, they would only hold trust rights. The maximum duration of such trust is 50 years, subject to renewal; provided further that, in such cases it is required to obtain a permit from the SRE in order for such trust to own the relevant real estate
property in the Restricted Zone. As of today, there have been no amendments to the relevant laws in order to delete this foreign investment restriction on real estate. There are great benefits and advantages of holding real estate property through a Mexican trust, for example, the trustee shall be legally responsible for the administrative work and for the conservation and protection of the trust assets — subject to an annual fee paid to the trustee — , the investor’s heirs can inherit the rights to the trust and some tax advantages, among others. However, trustees often require that the day-to-day administration of the trust property – the real estate property – be delegated either to the settlor, a technical committee or a hired administrator through a management or services agreement. Nonetheless, the trustee’s fiduciary duties and responsibility cannot be delegated. (c) Real Estate Investment Trusts In recent years, Real Estate Investment Trusts ( Fideicomiso de Inversión en Bienes Raíces or “ FIBRAs ”) have also become important investment vehicles for foreigners who seek to invest their capital in the real estate market in Mexico. They are a specific type of trust designed for the real estate business and are regulated by, among others: (i) the LGTOC; (ii) the Mexican Securities Law ( Ley del Mercado de Valores or “ LMV ”); and (iii) the Mexican Income Tax Law ( Ley del Impuesto sobre la Renta or “ LISR ”). A FIBRA would be the equivalent to a REIT in the USA. The Mexican Congress, in order to make more attractive the investment of capital in the real estate market in Mexico,
ILN Real Estate Group – Buying and Selling Real Estate Series
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