Investing in Real Property with a History of Having Been Communal Property (“Ejido”)

May 10, 2014
Investing in Real Property with a History of Having Been Communal Property (“Ejido”)

Multiple hotel developments, golf clubs, industrial plants and a whole range of investments in Mexico have been and continue to be developed on tracts of real property which, at one time or another, were communal properties (“ejidos”). One often hears stories of investors who were fooled into believing that they were purchasing private property, when in fact they were being offered to purchase ejido land, which caused many “headaches” for such investors.The regime of land of communal origin presents various peculiar features, which must be understood. The Agrarian Law (Law) classifies communal properties as real property for communal use, real property for human settlements and real property that is divided into parcels. In principal, only parceled real property can be subject to being sold to third parties not belonging to the ejido, as the group meeting of the members of the ejido have the power to change the intended use of communal property and to assign such property as long as they comply with certain formalities provided for in the Law. Likewise, the meeting of the communal property members is that which can determine to authorize the communal property holders so that they may opt to obtain the total ownership of their parcels and, as a consequence, that such will be governed by Civil Law, therefore making it possible for an individual to purchase it and become its owner. For such purpose, once the meeting of communal property members has issued its approval, such interested communal property holders must go directly to the National Agrarian Registry to request the cancellation of their parcel certificates and to have a deeds of property issued, which must be recorded in the corresponding Public Registry of Property where the real property is located.Although the Law indicates that a communal property holder obtains “complete ownership” of his parcel with his deed of title, the first transfer to other parties not part of the ejido involves specific mandatory requirements and formalities, as follows: (i) formal notification of the right of first refusal corresponding to the family members of the seller, those that have worked the parcel, the communal land holders, the neighbors and the nucleus of the communal population. In order to comply with this requirement, the Law establishes the possibility of giving notice of the terms of the offer to the Communal Property Commission, which must be published in the most visible location of the communal property, so that interested parties can exercise the right within 30 calendar days following the notification; (ii) notification of the right of first refusal of the state or municipality where the real property is located, in such cases in which such is a part of the territorial reserves in the plans for development; and (iii) the sale price at all times must be equal to or above the commercial value of the real property, which is determined by means of an appraisal prepared by the Appraisals Commission of National Assets or any authorized banking institution.After the previously described first sale, subsequent sales of the real property originating from communal property are no longer subject to compliance with special requirements.It is important to note that timely compliance with the aforementioned aspects has been the subject of different opinions by the Judicial authorities, which must be taken into account in order to ensure the legal validity of the purchase and sale; otherwise, a risk exists that legal authorities may invalidate the purchase and sale as legally null and void, which can also affect the chain of title for any future sales of the former ejido property.

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