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Navigating Communal Lands for Investment a Delicate Matter

By Odilisa Gutiérrez Mendoza - Odilisa Gutiérrez Mendoza & Asociados
Founding Partner and Chief Executive Officer


By Odilisa Gutierrez | Founding Partner and CEO - Tue, 02/21/2023 - 11:00

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Social land in Mexico is comprised, among others, of private property and social property, the latter in turn is made up of ejidos and communities, which add up to almost 100 million hectares that, according to the latest available data, make up  50.8% of Mexico’s total surface.

The vast majority of investment and tourism projects are being carried out in places that, due to their climatic characteristics and geographical location, are attractive to investors, these being forests and beaches, of which 70% of the forests and 60% of the coastlines are found within areas that belong to the ejidos and communities. That is, they are social property lands.

To carry out projects located within a common land or community, there must be assurances that such a project will have an orderly development and adhere to the law. It is necessary, therefore, for investors to have certainty about the land in which they intend to invest: even if it is parceled land, it continues to belong to the agrarian nucleus, either ejido or community, who is the sole owner. These owners are  empowered by the agrarian nucleus to contribute the land to the projects through the various legal figures. The contribution of this and to a company is done through the acquisition of shares called “T-Series,” which correspond to the ownership of the land itself. To determine the number of shares, an appraisal must be made by the Institute of Administration and Appraisals of National Assets, which is a decentralized body of the Ministry of Finance and Public Credit. It can  also be carried out by any credit institution. In this type of contribution, there must also be the participation of the Agrarian Attorney's Office as a decentralized body of the Ministry of Agrarian, Territorial and Urban Development. This office will analyze and issue an opinion on the certainty of the project, the rational and sustained use of natural resources and the equity and conditions of the terms that are proposed in order to seek the conditions of equity for the ejidatarios and/or community members as well as for the agrarian nuclei to which they belong.

There is also the possibility of carrying out legal procedures to regularize the land so that projects can be developed, for which it is necessary that the agrarian nucleus agree that the ejidatarios assume freehold ownership (dominio pleno) of their parcels and thus be free to carry out the projects that they consider convenient for themselves or their families with a freehold treatment as if it were a land area of the civil regime in private property. The foregoing is possible by carefully taking care of the procedure for the adoption of freehold ownership and its first transfers. Despite the fact that it is private property, the Agrarian Law contains legal provisions that regulate the first alienation after the adoption of freehold ownership.

Although the agrarian nuclei cannot dispose of their lands for alienation because the law prohibits acquisition by persons outside the ejidos or communities, even to the extreme that ejidatarios are not allowed to use their lands to guarantee credits or cover debts through embargoes,, the general assembly does have powers to contribute them to commercial or civil companies in which it is considered that there is a manifest utility. In the contribution, the transmission of these lands is carried out to companies with the participation of the agrarian nucleus and/or the ejidatarios. In this way, joint projects can be carried out in which investors make the contribution of external capital and the agrarian nucleus makes the contribution of ejido or communal lands.

The situation is different when the development entities  for the projects are only the ejidatarios and community members. In this case,  to be in a position to carry out the project, they need to have the economic resources that allow them to carry out the project’s planning and execution, for which an alternative is to request loans from financial institutions, since they necessarily require financial leverage for the project.

For financial institutions to be in a position to grant a loan to a natural or legal person, they require a real guarantee that allows them to back the loan, which in civil matters constitutes a guarantee on the real estate in which the project will be carried out, which has the purpose of responding to the debt before the credit institution in case of non-payment; however, in agrarian matters this is not possible.

According to the Agrarian Law, the population center or individual ejidatarios in the case of parcels, can grant the usufruct of their lands to credit institutions as collateral, which is not at all attractive to the creditors because in case of non-compliance with the obligation, the guarantee can never become the property of the credit institution, since it is only guaranteed with the usufruct, that is, the use of it, which the credit institution may have for the time defined in the credit contract, which can never be greater than 30 years.

As I have pointed out in the previous paragraphs, the ejidal or communal population centers as well as their individual members, ejidatarios and comuneros, have a great difficulty in obtaining credit that requires a  guarantee with the ejido lands, since the credit institutions seek real guarantees so that in the event of non-compliance with the payment obligations they can take over  the property for its disposal, which is not possible with social lands. Because  the debt cannot be guaranteed, there is hardly a possibility of being granted a loan whose real guarantee is the asset on which the project will be developed, since the credit institutions do not have as their objective and purpose the leasing of real assets, much less for a certain period of time, after which it must be restored to the owner, in this case the agrarian nucleus.

Photo by:   Odilisa Gutiérrez Mendoza

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