Pablo Gutiérrez de la Peza
Managing Partner
O’Gorman & Hagerman
/
Expert Contributor

Key Factors for Procuring Land and Social License for Development

By Pablo Gutiérrez | Mon, 04/18/2022 - 09:00

Q: What key factors should companies prioritize to deliver successful projects in Mexico?

A: From my area of expertise​​, which is the acquisition and defense of land rights in rural areas, I see two key factors for successful projects in Mexico:

  • Real estate rights. That is, valid title over land acquired from its rightful owner, through legally binding and registered agreements, enforceable against any and all third parties;
  • Social license. That is, that the communities surrounding the project allow for its development. Many consider it granted from a lack of frontal opposition or local resistance but it is always better to be proactive and have it expressly granted.

I am always amazed when consulted over projects that have been many years in development to see that they have neither duly in place. As experienced developers know, to get both is a task much easier said than done. In Mexico, the property system is particularly complex, with three main types of regulations, each with its own laws, authorities, stakeholders, courts and challenges:

  • Public property. That is, land owned by governmental entities, at the federal, state and municipal levels, for public purposes. These include national lands, roads, railways, most waters and the coast;
  • Social property. A unique system created in Mexico that comprises ejidos and agrarian communities, which are legal entities originally formed by farmers and native people who were granted or recognized as owners of land, whose rights are specially protected by law;
  • Private property. As in any other country, but with local and particular provisions in each of the 32 states.

Q: What are your recommendations for companies looking to develop projects in Mexico and what challenges could they face?

A: As far as land rights are concerned, what I can recommend is to execute a three-stage process. First, make a preliminary assessment to map out the legal standing of the land required, the communities that would be involved, the rights the developer has already in place and any legal, social or geographical red flags that could derail the project. Some big issues and risks can be spotted with minimum expenses and at a very early stage. This allows companies to have an initial assessment of the situation, the challenges ahead and to decide if they are willing to keep going.

Second, an in-depth discovery and due diligence to fully understand the legal standing, social risks and geographical challenges of the land and communities that will be impacted or that have already been impacted by the project. At this stage, the key factor is to get verifiable information directly from all relevant and available sources. All data must be vetted, cross-referenced and structured to answer some critical questions and define a clear strategy to procure land rights and social license and approach any existing conflicts and relevant risks, either current or foreseeable.

Third, execute the defined strategy and actions to procure land rights and social license in an efficient and thoughtful process, seeking to get in place well structured, fair and transparent agreements that provide certainty to the project and create long-lasting trust relationships with owners, ejidos and on-site stakeholders.

With all the good things our country has to offer, it is always full of surprises. Land rights are no exception. In the discovery process, there are many challenges. Most information is not structured and must be collected from multiple sources, some of which are not readily available. Many are not aligned or connected. Sometimes, it is a real challenge to determine what legal regime applies to a certain piece of land and who is the actual owner. It is common to find overlaps, conflicts and irregular titles. There are also inconsistencies between legal documents and the physical reality, unprocessed inheritances, a lack of plans and arbitrary descriptions. With private properties, maps are rarely georeferenced. One can find owners without possession and possessors without title. Public highways and roads can be registered as ejido property while there are Indigenous communities that no one considered.

On the social side, one cannot lose sight of the fact that even after buying the land, the project becomes part of the community. To maintain social license, it is fundamental to know and understand the dynamics of local communities. When Indigenous communities are affected, a prior consultation needs to be carried out. It is a terrible mistake to neglect community relations. In rural lands, acquiring land rights is only the first step. Without social license, it becomes increasingly difficult to operate. Risks, costs, and challenges are nonlinear.

In short, enough time must be spent to acquire in-depth knowledge of the legal, social and geographical situation of the land and communities that will be impacted by the project, and to map all requirements to avoid unexpected negotiations and claims. Each negotiation becomes more complex. Expectations and vested interests make agreements ever more burdensome. The good news is that most issues can be resolved with a good diagnosis, sensible negotiations and before serious money is invested.

Q: How can the legal framework in Mexico become more reliable?

A: On land matters, there are many actions that could be done to promote a better and more trustworthy rule of law.

In the case of agrarian property, the government has done a great job to clearly define the lands owned by each ejido and resolve agrarian conflicts. Today, more than 98 percent of the ejidos and agrarian communities are certified, which means that most of their lands have maps with UTM coordinates that precisely identify their location. In most cases, the RAN has registered the names of the people recognized as ejidatarios or comuneros, and the rights each one has. The main challenge is to keep ejidos and communities functioning, and to have them respect and recognize their own agreements and rights. Since the pandemic, many have lost their representatives (elected for three-year terms) and have yet to democratically elect new ones.

Regarding private property, there is much to be done. Cadasters and Public Registries could be unified, so that the cartographic information maps match property titles. It is necessary to develop records at a state level that remain over time, since many municipal cadasters do not have the infrastructure or capacity to carry them. It is common for records to disappear or be altered when there is a change in government, which takes place every three years, as some states have already done. It is necessary to get in place processes and connect information systems, to solve inconsistencies and mitigate the risk of after-closing surprises. In the end, it is about having in place the rules, systems and processes required for the development of a transparent, reliable, and efficient property market.

MORE BY THE AUTHOR