What Would Be The Impact of the Rental Reform?

Mexico’s powerful northern neighbor is experiencing some severe convulsions in its real estate market as a record number of eviction orders are scheduled to be litigated, issued and potentially executed over the next couple of months in the wake of economic devastation derived from COVID-19. This would eventually generate some degree of social and political response in Mexico, and now that response has arguably materialized: last Wednesday July 8, the MORENA legislative block submitted a reform project for consideration that calls for extensive changes to the country’s property laws and the regulations governing the act of renting out property.

Juan Miguel Martínez Mendieta, an attorney from Ibarra, del Paso y Gallego, synthesizes in this article by Inmobiliare the most important changes proposed in this reform: leases will need to have a minimum duration of three years instead of one, landlords will be prohibited from requesting other property titles as guarantees, evictions will be illegal across the board without a minimum two-month notice, tenants will have the right to ask that their deposit be no more than one month of rent and landlords will lose their rights to keep the deposit if a lease is terminated before the contract expires. These are not the only changes proposed in these reforms but they are among the ones that have raised the most eyebrows among real estate developers and property owners. 

Another important change is the exact legal definition of a “leasing contract.” According to Mendieta, the renters’ rights to enact legal protections to defend him or herself against whatever he or she argues might constitute landlord abuse will be greatly expanded. The effect of these changes will be complex and, while there will be an effect in terms of disincentivizing real estate investment, the real impact will be felt in Mexico’s legal system, which by his estimation is already excessively weighed down by these kinds of conflicts. In other words, the ultimate added effect of all of these changes could be that the number and magnitude of legal battles between landlords and tenants could increase to unsustainable and greatly debilitating levels.