Table of Contents

• Introduction
• I.- Concept
• II.- Limit on its duration
• III.- Content
• IV.- Taxes
• V.- Rent
• VI.- Legal Standing
• VII.- Form Requirement
• VIII.- Contract Modification
• IX.- Lessor’s Obligations
• X.- Lesse’s Obligations
• XI.- Place of Payment of the Rent
• XII.- Payment Time
• XIII.- Repairs
• XIV.- Termination of the Contract
• XV.- Lessee’s Death
• XVI.- Lease Contract Agreement for a Fixed and Indefinite Duration
• Part II

Introduction

One of the most used contracts for doing business in Mexico, without a doubt, is the lease agreement. More if you consider that due to the phenomenon of nearshoring, more and more foreign companies have relocated their businesses in our country. This is more common in border cities, such as Ciudad Juárez, where beLegal abogados S.C has its headquarters.

With all the hype mentioned above, the construction industry is booming. This is due to the need to lease industrial buildings to foreign companies known as ‘maquiladoras’. Still, few words have been said about the nature of those lease agreements in Mexico, which, in some cases, are signed even though the building has not been built yet.

This topic is so important to ensure the whole company’s operation in Mexico and avoid wasting money and time in court litigation if pitfalls are committed. For this reason, to end this uncertainty in this new and another entry, I will cover the ‘ABC’ of lease agreement contracts in Mexico, but according to the legislation of Chihuahua and a few precedents of the Mexican higher courts, to make you realize what to expect with this contract.

Before starting, you must consider that Mexico is a federal country, which means it’s composed of different sovereign or, better said, autonomous states whose regulations differ from one to another. Those differences can be petty in some cases, but still, they change how higher courts construe them and solve lawsuits. Therefore, if you have business experience in other parts of Mexico, don’t be confident that your contractual understanding will be the same as in Ciudad Juárez, Chihuahua.

Lastly, in Chihuahua, attorneys can tailor a special agreement that is not expressly regulated in the statutes and receive the name of an unnamed contract. In some cases, according to the client’s needs, we craft agreements similar to leasings. However, in two blog entries, I will address the contract expressly regulated in the Civil Code of Chihuahua State from Article 2296 to Article 2444, known as a lease contract agreement, but that basically is the same throughout Mexico. Without further ado, let’s begin.

I.- Concept

The lease contract is one through which a person called the lessor grants the temporary use or enjoyment of a thing—which can be movable, such as a car, or real estate, such as a warehouse or a house—to another person called a lessee against the payment of a certain and determined price.

II.- Limit on its duration

If the object of the lease contract is a residential house, the contract may not exceed 10 years, and if the object is a property intended for commerce or industry, it may last 20 years.

III.- Content

The lease agreement contract must contain at least the following stipulations:

1.- Names of the parties (although it may seem silly, it’s important that abbreviations and acronyms are not used and that the names are complete to avoid problems in the event of litigation)

2.- The location of the property, if applicable.

3.- Detailed description of the property that is the subject of the lease contract and the condition of its facilities and accessories.

4.- The amount of the rent.

5.- The guaranty that must be granted, if so stipulated.

6.- The express mention of the purpose of the leased property (commercial, residential, etc.)

7.- Duration of the contract.

In general, all those obligations that the parties consider relevant to the execution of the contract, such as contracting insurance, paying for private security, etc.

Finally, I want to point out that it’s a widespread mistake to download free formats on the Internet about this contract that are insufficient to cover the will of the parties accurately. Of course, signing these types of contracts seems to be no problem. However, remember that a contract exists not to avoid problems (because that depends on the parties) but to solve those in a legal dispute. So, if the contract is a mess, even if you are right, you have a great risk of losing the litigation. Hence, you should let an expert lawyer draft your contract.

IV.- Taxes

The lease contract agreement in Chihuahua mainly requires three taxes to be paid: two federal taxes and one local tax that only individuals pay. The taxes are 1) Value-Added Tax, 2) Income Tax, and 3) Schedular Tax.

Regarding Income Tax for legal entities, they pay 30% as tax on the taxable base resulting from the lease, while individuals, depending on their tax bracket and regime, would pay from 1.92% to 35% or from 1.00% to 2.50%.

Similarly, the value-added tax has a rate of 16% that both legal entities and individuals must ‘pay’, considering that this is an indirect tax. Therefore, the burden of this contribution is charged to the consumer or, in this case, the lessee.

Lastly, only individuals pay the Schedular Tax, which is 5% applied to rental income and must be paid quarterly.

V.- Rent

The law contemplates that the rent can consist of a sum of money or any other equivalent thing as long as it is certain and determined (it must be a fungible and corporeal asset since it cannot be paid with services)

On the other hand, the rent may also be set in foreign currency. Still, the provisions of the United Mexican States Monetary Law, specifically article 8 of said law^[1], must be respected.

VI.- Legal Standing

As a general rule, the power to lease goods is carried out by the owner of the thing. However, those authorized by him—such as an attorney— with a domain powers of attorney to dispose of the thing—or permitted by law—such as an executor of the Estate complying with the requirements of the law and which we discuss in the entry The Inheritance and Successions in Chihuahua, Mexico can also do it.

However, if you are the lessee and you are unsure if the landlord has the authority and standing to enter into the lease agreement contract, request that the authority or document proving ownership be attached to the contract and that a copy be given to you. This way, you will be able to know the capacity of the lessor to lease the property. Otherwise, you will be defenseless before the legitimate owner of the leased property.

VII.- Form Requirement

In the case of civil contracts, certain contracts, in order for them to be effective and, therefore, to be enforced or terminated before the courts, require that elements known as validity be satisfied. One of these elements is known simply as ‘form,’ which consists of determining how the consent was expressed by the parties, which can be: A) that it is done in writing, B) that it is celebrated in writing before two people, C) that it is celebrated in public deed, etc.

Also, if the element of form is not satisfied in a contract, based on the provisions of articles 1689, 1690, and 1727 of the Civil Code of the State of Chihuahua^[2], the judges shall consider inadmissible either the action of rescission or forced compliance of the aforementioned contract.

In the state of Chihuahua, the lease contract must be in writing. So, if you enter into a verbal agreement, either as a lessor or lessee, you will first have to prove it through a preparatory procedure or an ordinary civil trial under pro form action to be able to subsequently take the legal action that you wanted with the lease contract.

Finally, in the case of rural real estate, if the annual rent exceeds 4000 times the daily value of the Unit of Measurement and Update (which for November 2023 has a value of 103.74 pesos per day), that is 414,960 pesos (FOUR HUNDRED AND FOURTEEN THOUSAND NINE HUNDRED AND SIXTY 00/100 MEXICAN PESOS), the contract must be executed in a public deed to be valid.

VIII.- Contract Modification

The parties often verbally modify the lease contract’s clauses, but when problems arise and compliance is demanded, the problem starts. This is because verbal modifications are, on the one hand, difficult to prove and, on the other hand, do not satisfy the element of form that I discussed in the previous point.

Although it’s true that you are not defenseless against a verbal modification, the ideal is that whenever the contract is modified, it should be done in writing, and it’s only stipulated that this or that part is amended and that this modification shall form an integral part of the lease contract. Basically, attorneys draft a modification agreement.

In any case, if for any reason parties did not modify the contract and you need it to take legal action, you can try to sue by attaching the original contract. Still, you must narrate in detail in the lawsuit’s background how it was modified and offer suitable evidence to prove it in court (generally text messages and witnesses are easy to object, so they are weak evidence and I don’t recommend basing your case with such evidence). The above because if you prove that the contract was modified and the modified obligation was fulfilled, the defects in its form element are corrected. This follows articles 2114 and 2117^[3] of the Civil Code of the State of Chihuahua.

IX.- Lessor’s Obligations

In the lease contract, beyond those stipulated by the parties, the lessor has the following obligations stemming from the law:

1.- To grant temporary use or enjoyment of the leased property.

2.- When the lease object is a property, deliver it to the lesse in hygienic and safe conditions.

3.- To keep the leased property in the same condition, making all the necessary repairs for this purpose.

4.- Not to impede the use of the leased property or modify its structure, except for urgent and essential repairs.

5.- To guarantee the peaceful use of the leased property.

6.- To be responsible to the lessee for any damages suffered due to defects or vices of the leased property.

X.- Lesse’s Obligations

Similarly, the law contemplates obligations towards the lesse without this being an obstacle for the parties to agree on others in exercising their contractual freedom. The obligations stipulated in the law are the following:

1.- To pay the rent in the agreed manner and time until the day the leased property is returned according to the contract.

2.- To be responsible for the damages the leased property suffers due to their fault or negligence, relatives, servants, or sublessees.

3.- To use the thing only for the agreed use in accordance with its nature and destination.

4.- To inform the lessor, as soon as possible, of the need for repairs on the leased object.

5.- To inform the lessor of any usurpation or damage to the leased property.

XI.- Place of Payment of the Rent

As a general rule, the rent shall be paid where both parties agree and, failing this, in the lessee’s house, room, or office.

Although this topic may seem harmless, it actually transcends when it comes to litigating the lease contract. The above is because the lawmakers in Chihuahua stipulated that if a place where the rent must be paid had not been established, it would be paid at one of the lessee’s homes. Yes, from the lessee himself when the logical thing should be from the landlord.

Also, due to the parties’ carelessness, they often only put the street or neighborhood without specifying the address number, including its exterior and interior numbers, if applicable. On some occasions, the lessee wants to be clever and, out of apparent ignorance, pretends not to know where he or she should pay the rent.

So the obvious question is, does it matter to the lessor that the place of payment has not been specified? Yes, because the lessee can assert in court that he never knew where to pay the rent and, in turn, that the lessor never went to any of his homes, such as the leased property itself, in order to collect the rent.

Yes, I know that it may sound illogical. Still, it’s a common defense (plea) that the judge cannot ignore since he is not sure that the lessor has fulfilled his duty to collect the rent since this is the crux of determining whether the lessee defaulted on payment, he shall have to acquit the lawsuit filed against him because he did not have the opportunity to make a payment in a certain place.

From this conclusion, multiple binding criteria illustrate that, in the absence of a place to pay the rent, it is up to the lessor to prove that he did go to one of the lessee’s homes to collect the rent and refused to pay. If you do not prove this, your claim would be inadmissible because the lessee would be defenseless. As an example, see:

LEASE AGREEMENT CONTACT. WHEN THE TERMINATION OF THE RELATIVE CONTRACT IS CLAIMED DUE TO NON-PAYMENT OF THE DUE RENT AND NO PLACE TO PAY IT WAS AGREED, THE INTERPELATION CARRIED OUT THROUGH THE SERVICE OF SUMMONS IS NOT SUITABLE TO PROVIDE THE DELAY INCURRED BY THE LESSEE (LEGISLATION OF THE STATE OF NUEVO LEÓN )^[4]

ACTION TO TERMINATE THE LEASE AGREEMENT DUE TO LACK OF TIMELY PAYMENT OF THE RENT. CONSTITUTIVE FACTS THAT THE PLAINTIFF MUST PROVE WHEN NO PLACE IS INDICATED FOR THE FULFILLMENT OF THE OBLIGATION^[5].

Finally, my advice is not to complicate things for both parties. For your greater security, I always recommend stipulating a bank account as a ‘place of payment’ since with it and considering the exceptions to the banking secrecy stipulated in article 142 of the Credit Institutions Law^[6], it can always be clarified in the judicial process whether or not it was paid on time the rent. For this purpose, the following judicial criterion is illustrative: RESCISSION ACTION. WHEN THE PAYMENT OF THE RENT OF A HOUSE IS AGREED USING DEPOSIT OR BANK TRANSFERS, THE OMISSION TO INDICATE A PHYSICAL ADDRESS AND THE PRIOR REQUIREMENT AS AN ELEMENT OF IT IS INSIGNIFICANT^[7].

XII.- Payment Time

Another common mistake you must avoid is failing to indicate precisely the payment time. By precision, I mean the first day, Monday of each month, or a specific day. If the precise day is omitted or the bases are not established to determine the timing of the rent to be paid, the lessee may use it to their advantage to not pay the rent until you make a payment request.

A requirement that must comply with the provisions of article 1963 Civil Code of the State of Chihuahua^[8], that is, compliance with the payment of rent cannot be required until after the following 30 natural days from when you, as lessor, questioned the lessee about the payment judicially before a public notary (whose fees for this type of procedure range from 8,000 to 20,000 pesos) or before two witnesses (in which case they can later be objected and, therefore, almost no many attorneys recommend)

Finally, it has been a legal criterion supported by the highest Mexican courts that judicial requirement does not occur when the lessee is notified, for example, of the lawsuit—which is known as service of summons and if you want to know more, check the entry Basics of the Ordinary Civil Trial in Chihuahua, Mexico. Part I—. Therefore, if the payment time is missing in the lease agreement contract, and then you file a claim alleging the lessee didn’t pay the rent to force compliance or termination of the contract, you must first file a judicial requirement and wait 30 days for the payment to be made^[9]. After that period has passed without payment, you must file the ‘main’ claim along with the document proving the requirement I mentioned.

XIII.- Repairs

During the lease contract term, of course, the leased item wears out, and, therefore, it must be clarified who is responsible for carrying out the repairs. For this, the ideal is that when drawing up the lease contract, it should be as clear and thorough as possible to not give rise to the matter reaching the courts due to this issue. In any case, if the parties omit a clause that addresses this issue, the Civil Code of the State of Chihuahua sheds some light on the matter.

In this sense, the legislative power is very clear that only repairs arising from minor deterioration of the leased property, generally caused by the people who use it, correspond to the lessee. This is why those damages caused by time but not by the intervention of the lessee, such as the roof, pipes, painting, etc., would correspond to the lessor.

Finally, I just want to emphasize that the law is not very clear in clarifying what repairs arise from deterioration, so it’s at the mercy of the interpreter to decide what they could be. A more compelling reason to, on the one hand, make a description of how possession of the leased property was granted and, on the other, what the repairs would eventually correspond to the parties would be.

XIV.- Termination of the Contract

The lease contract agreement in the state of Chihuahua ends with the following hypotheses:

1.- Because the term set in the lease contract has expired.

2.- By express agreement.

3.- Due to the nullity of the lease contract.

4.- Due to loss or total destruction of the leased property.

5.- For expropriation or eminent domain of the leased property.

6.- Due to eviction (loss of the right of possession by a larger third party right and generally before the conclusion of the lease contract) of the thing leased.

XV.- Lessee’s Death

Regarding the lease for the house does not end upon the lessee’s death but only for the reasons established by law. In such a way, the lessee’s spouse, common-law partner, children, or parents shall be subrogated to all their rights and obligations contemplated in the lease contract.

XVI.- Lease Contract Agreement for a Fixed and Indefinite Duration

The lease contract agreement for a fixed period concludes on the day established in the contract, regardless of whether a clause has been agreed upon where the contract can be extended. In that case, the requirements set forth therein shall have to be satisfied (such as notifying by writing with some advance notice, accepting that the rent increases, etc.)

Regarding the lease contract agreement for an indefinite period, it shall be concluded by the will of any of the parties with prior notice (either through a notary public or a court’s procedure) 2 months in advance when an urban property and a year if it’s rustic.

Finally, I want to debunk an old myth. If the lease is for an indefinite period and the lessor wishes to rent it to someone else and, therefore, end its contractual relationship with the lessee, the lessor must provide at least two months’ notice to vacate the property. However, during this period, it’s believed that the lessee has no obligation to pay the rent. This is not the case because there is no legal basis in that sense unless the parties have expressly agreed to do so.

It’s for this reason that the fact that the lessor formally requests his property back, and as I said, you have up to 2 more months to look for a new home, that doesn’t mean you are exempt from paying the rent during such a searching period. There is no basis in the law to assert it.

Part II

If you want to finish reading everything about this topic, check the entry Everything You Need to Know About the Lease Contract Agreement in Mexico Part II where I talked about the following topics: XVII.- Right to Extend the Term of the Contract XVIII.- Tacit Redirection XIX.- Increase of the Rent XX.- Rescission of the Lease Contract Agreement XXI.- Preemption Rights XXII.- Exemption From Payment Rent XXIII.- Legal Actions for The Breach of This Contract A) Force Compliance with the Contract B) Rescission of the Contract C) Special Eviction Trial XXIV.- Security Deposit XXV.- Consignment Payment XXVI.- Payment of Future Rents XXVII.- Early Return of the Leased Property XXVIII.- Sublease XXIX.- Rents Withholding XXX.- Penalty Clause

By Omar Gómez

Partner at beLegal abogados S.C

Abogados en Ciudad Juárez, Chihuahua, México

Check my personal website, https://ogomezabogado.com/

Contact the firm at (656) 774-75-73 for English assistance or (656) 271-41-43 for Spanish.

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^[1] Article 8.- Foreign currency shall not have legal tender in the Republic, except in cases where the Law expressly determines otherwise. Payment obligations in foreign currency contracted inside or outside the Republic to be fulfilled therein, shall be settled by delivering the equivalent in national currency, at the exchange rate that governs the place and date in which the payment is made. […].

^[2]   Article 1689.- The validity and compliance of contracts cannot be left to the discretion of one of the contracting parties.

Article 1690.- The power to terminate obligations is understood to be implicit in reciprocal obligations, in the event that one of the obligated parties does not comply with what is incumbent upon him. Only obligations that are valid in themselves can be terminated.

Article 1727.- When the law requires a certain form for a contract, as long as it does not take that form it shall not be valid, unless otherwise provided; but if the will of the parties to celebrate it is clearly established, any of them may demand that the contract be given legal form.

^[3] ARTICLE 2114.- The action and exception of nullity due to lack of form can only be invoked by those directly interested. The act is confirmed if the omitted form is given, or it is validated if the parties have voluntarily complied.

Article 2117.- Voluntary compliance through payment, novation, or by any other legal means, is considered tacit ratification and extinguishes the action of nullity.

^[4] Thesis: 1a./J. 106/2008. First Chamber of the Mexican Supreme Court of Justice. Ninth Judicial Epoch. Civil Biding Precedent. Digital Registration: 168214.

^[5] Thesis: 3a./J. 41/93. Formerly Third Chamber of the Mexican Supreme Court of Justice. Eighth Judicial Epoch. Civil Binding Precedent. Digital Registration: 206672.

^[6] Article 142.- The information and documentation related to the operations and services referred to in article 46 of this Law shall be confidential, so credit institutions, in protection of the right to privacy of their clients and users that this article establishes, in no case may they give news or information about deposits, operations or services, including those provided for in section XV of the aforementioned article 46, but to the depositor, debtor, owner, beneficiary, settlor, trustee, principal, or principal, to their legal representatives or to those who have been granted power to dispose of the account or to intervene in the operation or service.

As an exception to the provisions of the previous paragraph, credit institutions shall be obliged to provide the news or information referred to in said paragraph, when requested by the judicial authority by virtue of an order issued in a trial in which the owner or, in some cases, the settlor, trustee, fiduciary, principal, commission agent, principal or agent is a party or defendant. For the purposes of this paragraph, the judicial authority may make its request directly to the credit institution, or through the National Banking and Securities Commission. […]

^[7] Thesis: I.3o.C.419 C (10a.) Third Collegiate Court in Civil Matters of the First Circuit. Tenth Judicial Epoch. Not Binding Precedent. Digital Registration: 2021555.

^[8] Article 1963.- If the time in which the payment must be made has not been set and it involves obligations to give, the creditor shall not be able to demand it, but after thirty days following the interpellation that is made, either judicially or in extrajudicial, before a Notary or before two witnesses. In the case of obligations to do, payment must be made when the creditor demands it, provided that the time necessary to fulfill the obligation has elapsed.

^[9] See as an example the following binding criterion issued by the Mexican Supreme Court of Justice: LEASING AGREEMENT CONTRACT. WHEN THE TERMINATION OF THE RESPECTIVE CONTRACT IS CLAIMED DUE TO LACK OF PAYMENT OF THE RENT, THE PROOF OF THE DEFAULT IS A CONSTITUTIVE ELEMENT OF THE ACTION THAT MUST BE STUDY EX OFFICIALLY BY THE JUDGE (MODIFICATION OF JURISPRUDENCE 1a./J. 37/2003)