The recipe to avoid legal conflicts in Mexican infrastructure projects

The development of mega infrastructure projects in Mexico could encounter several legal obstacles in the acquisition of land, given the complex legal environment. BNamericas talks to Vicente Grau, Ivan Szymanski and Claudia Rodríguez, lawyers at the Santamarina + Steta law firm, about formulas to avoid disputes with landowners, which could delay projects for months or years.

Note: The interview was conducted by email and responses are attributed to the three attorneys.

BNamericas: Last time we talked about the process for public institutions to acquire land destined for infrastructure projects. Is it the same process that private entities must follow?

Santamarina + Steta: In principle yes.

BNamericas: What steps should they follow?

Santamarina + Steta: The steps are the following:

– Make a due diligence of the legal situation of the properties in which, as a first step, the type of property is identified and it is confirmed that it is negotiating with the owner.

– Carry out a physical and factual review of the buildings and their surroundings, including aspects such as availability of services, land use, ecological planning, existing flora and fauna, absence of contamination, access to the buildings and authorizations necessary for the development of the draft.

– Analyze the financial viability of the project.

– Consider the impacts that the project will have on the environment and the community in which it will be located (both positive and negative). It is very important to have an approach with the community and know their expectations and needs.

– Negotiate the terms of the operation.

– Document everything in writing by signing contracts.

BNamericas: Does the value of the property depend on the agreement between both parties?

Santamarina + Steta: In general, yes. In any case, it will be necessary to carry out an appraisal, which must be considered, among other things, to calculate the taxes for the operation.

BNamericas: What would happen if it is not paid on time?

Santamarina + Steta: It depends on what the parties agree to in the contract.

It is important to clearly establish the terms for the transfer of ownership, the payment of the price and the consequences in case of non-compliance.

Regarding the price, different forms of payment can be agreed, for example, in installments, over a certain period, subject to conditions, with or without external financing and, where appropriate, the granting of guarantees.

In case of non-compliance, a termination of the contract and the payment of penalties or damages could proceed. If guarantees had been granted, their execution would proceed.

BNamericas: What law governs this issue?

Santamarina + Steta: In general, real estate operations are governed by the laws of the state where they are located and the corresponding civil code is applied, as well as the laws on urban development and the environment, among others.

In the case of ejidal real estate or with ejidal antecedents [terrenos comunitarios]The Agrarian Law also applies.

In addition, operations on real estate may cause local taxes (such as transfer of ownership or real estate acquisition tax) and federal taxes (such as ISR and VAT).

BNamericas: Do you have any advice for developers to avoid conflicts with ejidatarios or landowners?

Santamarina + Steta: In our experience, the first steps would be to carry out a due diligence in depth, in which the characteristics and the legal and factual situation of the properties and the possible risks for the operation are identified. Also, have approaches with the community.

We have seen that when community needs are identified and considered in the project, the risks of opposition are greatly reduced. The idea is that the project is beneficial for both the investors and the community, that is, it is a win-win.

Another fundamental aspect is to document all agreements in writing, complying with the requirements of the law in clear terms for all parties.

Likewise, to mitigate risks, having the advice of experts is always recommended. For example, in agrarian matters, there are very specific requirements and formalities that must be met for property transfers to be valid.

BNamericas: What legal resources would the ejidatarios or owners have within their reach?

Santamarina + Steta: As we mentioned before, it is very important to comply with the requirements and formalities established by law for the validity of the operations. Otherwise, the operations could be declared void by the competent courts or terminated in the event of non-compliance.

BNamericas: How soon could they be resolved?

Santamarina + Steta: It could vary, depending on the complexity of the matter, the court before which the trial is processed and the different instances for obtaining a final sentence.