Table of Contents

• Part I Topics Studied Before
• 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

Part I Topics Studied Before

As I already started studying the Lease Contract Agreement in Mexico in the entry Everything You Need to Know About the Lease Contract Agreement in Mexico Part I where I talked about the following topics: I.- Concept II.- Limit on its duration III.- Content IV.- TaxesV.- 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.

Now it’s time to finish what I started in. Without further ado, let’s start.

XVII.- Right to Extend the Term of the Contract

In the case of real estate lease contracts for a specific period of time, the lessee who is up to date with the payment of rent shall have the right to have the period extended if he/she requests it before the expiration of the period stipulated in the lease contract^[1] for the same term or up to 1 year. In that case, the lessor may increase the previous rent by up to 10 percent as long as it has not been increased in the last 3 months.

The above means that if, for example, the lease contract term is 6 months, the extension shall operate for those 6 months, even if the limit is one year. The opposite is when, for example, the normal term of the contract is 5 years, and once it expires, when requesting the extension, it cannot be extended for another 5 years but 1 year as this is the limit established by law. The following judicial criterion is illustrative: LEASE, CONTRACT AGREEMENT. ITS EXTENSION SHOULD NOT EXCEED THE TERM OF ITS DURATION^[2].

The lessors are exempt from the obligation to extend the lease contract if the owners of the property want to inhabit the house or cultivate the property given for lease, who, in which case, must notify the lessee in that regard, either judicially before a notary public 60 days prior to the expiration of the contract.

On the other hand, in the opinion of beLegal Abogados S.C, these provisions are unconstitutional because they limit the owner’s right to rent his property. For example, if he finds a better lessee, he risks not doing so because the current lessee requested the extension, and perhaps the only increase as owner he would have is 10% of the rent. This violates the lessor’s fundamental right to private property.

The above is reinforced if the Civil Code of the State of Chihuahua, in its article 2384^[3], only states properties for a specific period without specifying, for example, that the obligation to grant extensions only applies to residential houses, which could cause that the right to decent housing of the governed and the right to property of the owners would come into collision, with which such a draconian measure could at least be defended. The last, pursuant to the following judicial criteria: PRIVATE PROPERTY. THE RELATIVE RIGHT IS LIMITED BY THEIR SOCIAL FUNCTION^[4] and HUMAN RIGHT TO A DECENT AND DECOROUS HOUSING. ITS ACCESS IS NOT FREE^[5].

Finally, although many lessors try to circumvent the said extension by stipulating a supposed renunciation of such right by the lessee, this waiver is only applicable in the case of commercial and industrial leases but not for residential homes. This is in accordance with articles 5 and 7 of the Civil Code of the State of Chihuahua^[6] and the public order regulations that govern the leasing contract in this modality, which are aimed at defending the right of lessees to decent housing.

The following judicial criteria illustrate the conclusion reached: LEASING OF URBAN PROPERTIES INTENDED FOR COMMERCIAL ACTIVITIES. WAIVER OF THE RIGHT TO EXTENSION OF THE CONTRACT^[7] and LEASE AGREEMENT. THE EXTENSION IN THE AGREEMENT IS NON-NEGOTIABLE BECAUSE IT CONSTITUTES A BENEFIT ESTABLISHED BY LAW IN FAVOR OF THE LESSEE^[8].

XVIII.- Tacit Redirection

On the other hand, if the lease or extension was concluded after the end of the period, if applicable, the lessee continues without opposition in the use and enjoyment of the leased property, and if it’s rustic, the lease shall continue for one more year. Continuation of both the doctrine and the courts is known as tacit redirection.

Regarding the previous hypothesis, but if the property is urban (generally for a residential home), the lease contract shall continue for an indefinite period, and the corresponding rent must be paid for the time in which what is expressly agreed in the contract is exceeded, up to both parties give notice of their desire to terminate the lease.

All of the above applies even if the lessee is not up to date with the rent payment, as the Mexican Supreme Court of Justice recognized in the following jurisprudential criterion: TACIT RECONDUCT. FOR IT TO OPERATE, IT IS UNNECESSARY FOR THE LESSEE TO BE CURRENT IN THE RENT PAYMENT^[9].

XIX.- Increase of the Rent

Another myth  I want to clarify is that it’s false that the lessor is limited to raising the amount of the rent by a certain percentage, which is generally said to be 10%. This is because, as we saw in previous sections, this percentage is mandatory in the case of the extension but not when it is not in that case.

This is why, for example, if the lessee does not use the right of extension and still wants the lease contract to continue in force for a longer term than the original, only the market laws will determine the rent increases. In other words, the increase will be at the sole discretion of the lessor without the lessee having any defense or options against this increase.

XX.- Rescission of the Lease Contract Agreement

Contractual rescission is understood, in plain terms, as the early termination of the contract for reasons attributable to some of the parties, causes that may emanate from the law or be stipulated by the contracting parties.

Regarding the causes established in the law for the lease contract, there are the following:

1.- For non-payment of rent in the terms provided by law.

2.- For the misuse that the lessee makes of the property or for the damage that use may cause.

3.- For subletting the property if that was not permitted.

4.- Because the lessee changes the shape of the leased property without the express consent of the lessor.

5.- When the lessor does not make the necessary repairs for the use to which the leased property is dedicated.

6.- When the lessor is defeated in court by a third party and part of the leased property is lost, in which case the lessee may terminate the contract or claim a reduction in the rent.

7.- When the leased item has defects or imperfections the lessee was unaware of.

8.- Due to a fortuitous event or force majeure, the lessee is prevented from using the leased property for more than two months.

9.- When resulting from repairs, the lessee loses total or partial use of the leased property.

10.- When, without reason, the lessor opposes the sublease that the lessee intends to enter into, as long as the sublease has been agreed in the lease contract.

As you may see, very few causes of termination are stated in the law, so when the lease contract is drafted, great care must be taken in preparing the causes of contractual termination. Among the most common are those aimed at the security of the lease object, such as contracting insurance, paying private security fees, not introducing animals, etc.

XXI.- Preemption Rights

The preemption right is considered the preference that a person has with respect to third parties for the execution of a contract, which, in this case, includes both the execution of a new lease contract and the sale and purchase of the leased property. Let me explain.

When the owner of the leased property intends to rent it to a third party or, where appropriate, sell it, the latter must give it preference for the execution of both contracts under the same conditions that were offered to third parties under the following conditions:

For the lease contract, the lessee must have rented the property for more than 3 years and be up to date with the rent payment. Similarly, for the purchase and sale contract, the lease must have lasted at least 5 years and the tenant must also be up to date with the rent payment.

This right is important because the law itself states that if the owner does not respect the property’s right, the sale of the property and the lease shall not have effects.

It’s for this reason that the Civil Code of the State of Chihuahua obliges the owner of the property to notify the lessee, either before a notary public or judicially, of the conditions under which he intends to carry out the new lease or the sale, if applicable, of the property. Once the above is done, the lessee shall have a period of 8 business days to state whether he or she will make use of this right of payment and, therefore, enter into either the lease or purchase contract under those same conditions.

XXII.- Exemption From Payment Rent

Few exceptions to the law exempt the lessee from paying rent exist. One is related to fortuitous cases or force majeure, where punctual compliance with the payment obligation is prevented by an act of nature or authority.

I recently experienced an example of the above when the health authority prohibited certain commercial activities from operating. As a result, the lessee could not use the property that he rented for his commercial business, which, although not by the lessor’s will, did not grant the use of the house for the purpose for which it was contracted.

Another case contemplated in the law occurs when the lessor, when carrying out repairs, prevents the partial or total use of the leased property, where the lessee shall have the right not to pay rent and, or where appropriate, the power to terminate the lease contract.

XXIII.- Legal Actions for The Breach of This Contract

Talking about the lease contract could not be complete without mentioning what legal actions the lessor and lessee have. And even though I will not address them in detail because they require a lengthy explanation, at least I will tell you their names and what they imply. However, keep in mind that these legal actions originate only in the event of non-compliance with the lease contract, as there are others that, although common, do not fall within that category (such as actions for absolute or relative nullity, reduction of rent, proforma, civil injury, etc.)

The civil actions used for breach of the lease contract are mainly three: 1) forced compliance with the contract, 2) rescission of the contract, and 3) special eviction trial. It’s pertinent to clarify that the first two actions must be litigated before an ordinary civil trial. If you want to know more about this topic, I recommend the entry titled Basics of the Ordinary Civil Trial in Chihuahua, Mexico Part I and its related content.

The first two actions can be used by both parties, that is, the lessor and lessee, while the latter can only be used by the lessor. Also, the first two admit the figure of counterclaim so that the defendant, in addition to defending himself, can claim benefits from the plaintiff; while in the last action, counterclaiming is prohibited. Finally, on average, the first two have a duration of two and a half years (if they are litigated until reaching the amparo trial). However, the last action has a total average duration of one and a half years.

A) Force Compliance with the Contract

Regarding the forced fulfillment of the contract, this is processed through an Ordinary Oral Civil Trial before the Superior Court of Justice of the State of Chihuahua, specifically, an Oral Civil Court. The action implies, broadly speaking, that the judge forces the opposing party to comply with a contractual obligation indicated in the contract and, in turn, ensure the validity of the contract until it reaches its natural termination established in it. Therefore, the party claiming this action not only wants the other party to comply with its obligations, but also for the contract to continue to have effects for both parties.

With this civil action, the parties can force, for example, the payment of the amount of rent that is due or about to expire (when it’s for a mandatory and determined period), return amounts pending payment in favor of the lessee (such as that of the deposit) force repairs, among others. As you can see, the nature of this civil action depends on all the obligations that exist for the parties in the lease contract.

The fact that both the lessor and lessee have to sue in court for forced compliance with the contract entails incurring expenses. Well, in parallel with demanding forced compliance, as a secondary action, there is the payment of damages that, in any case, can be replaced by a penalty clause—which I will study later. The foregoing, regardless of the payment of expenses and costs (cost of the trial) that the defaulting party would pay if this civil action succeeds in trial.

Furthermore, if after having demanded the forced performance of the contract and, even if you win the trial, the opposing party does not comply, then you can demand the rescission of the contract as the last alternative so that you, as a party that does comply with the contract, can get rid of the contract of your contractual obligations formally.

B) Rescission of the Contract

Regarding the rescission or termination action in Mexico, I already stated in previous paragraphs that it’s nothing more than the early termination of the validity of the lease contract due to the fault of one of the contracting parties that, in essence, frees them from continuing with the fulfillment of their contractual obligations.

The difference with the previous action is that the party fulfilling the contract has suffered an affectation that it considers to be of such magnitude that it does not want to continue with that contractual relationship anymore. Therefore, in court, it shall demonstrate that the opposing party has breached the contract and, therefore, wants to end it.

This action is also exercised in an Ordinary Oral Civil Trial and can be used by both the lessor and the lessee. However, as the lease contract shall end, a logical consequence of the action is the lessee’s vacancy of the leased property. Hence, I insist that this action is used when the parties no longer intend to continue with the validity of the contract.

Similarly, failure to comply with the contract of the defendant that motivates the termination can generate damages to the plaintiff, which must be invoked in the civil’s complaint (demanda) or sued independently later in another case. This is so because the termination of the contract does not engender, by itself, the obligation to pay damages as the Mexican Supreme Court of Justice has historically recognized in its precedents, such as DAMAGES AND LOSSES IN CASES OF TERMINATION OF CONTRACTS^[10].

Finally, the obligation to pay expenses and costs also depends on each case, but generally, if the defendant loses, the courts shall order him to make the respective payment, and, in this way, everything invested in court may be recovered.

C) Special Eviction Trial

A special action that is only in favor of the lessor is eviction which, in essence, implies that if the lessee fails to pay two or more monthly payments, he or she is evicted more quickly from the leased property.

In response to this action, the court that files the eviction claim shall require payment from the lesssee or, where appropriate, justify the reason for non-payment (such as the order of a different authority to withhold the rent) with the payment receipt or order corresponding judicial.

If the lessee does not justify the non-payment or pay the debt, what is known as attachment shall be carried out. This is simply a precautionary attachment to guarantee payment of the debt.

In addition to all of the above, the lessee shall be warned to vacate the property within 30 days (if the property is for residential use), 60 days (if it is intended for commercial or industrial purposes), or 90 days (rural use) domicile under the warning that if the lessee fails to do so, the eviction shall be carried out by means of coercion (forced).

On the other hand, the lessee as a defendant has few defenses for this type of lawsuit, the most important being the payment exception (plea) where he demonstrates that he has already made the payment, even if, for example, he does not have the corresponding payment receipt and in which case the attorney must prove why.

Finally, if the lessee shows the payment amount or pays the debt within the period granted to vacate the indicated property, the judge shall terminate the special eviction trial and the validity of the lease contract shall continue until its natural termination.

As you can see, the purpose of this last civil action is to ensure the payment of the rent without necessarily seeking the termination of the lease contract. Therefore, at the time, you will have to decide if you prefer to play it safe when terminating the contract, that is, exercise the rescission action, or give the lessee a ‘second chance’ and demand eviction, which, in theory, has the advantage of being a faster way to recover your property.

XXIV.- Security Deposit

An obligation that has been ingrained in the lease contract by custom is the requirement of a security deposit, generally the same amount as the monthly rent. This is to guarantee any future damage or debt generated as a result of the contract.

The Civil Code of the State of Chihuahua is sparing in regulating this institution, and this is due to the fact that in the preparation of any contract, it is the parties who, through their will, give it the scope that best suits their interests. However, article 2321^[11] of said code is the basis for, in the absence of a detailed stipulation regarding the security deposit for the lease contract agreement, the lessee to request its return. Of course, such a return must be made under the protection of the action for the forced compliance of the contract.

Finally, I want to let you know that to make obtaining the deposit amount more attractive, it’s increased by the legal interest, which is 9% per year, but not unduly by a penalty clause—which we will study later and which seems unconstitutional to our law firm—so that in the event that the lessor does not return the deposit amount in a timely manner, he shall suffer a financial penalty greater than the expenses in court.

This is because many times, the lessor, being aware of all the expenses that would be implied for a lessee to obtain the deposit amount, generally looks for excuses not to make such a return. The above has a greater impact on rentals for residential homes.

Thus, amounts that for lawyers may not seem attractive in themselves (10,000, 15,000, 20,000, or even less pesos) as a security deposit will often mean that you will have to invest more than what you would get in order to recover the deposit or simply ‘leave it alone’. This is so because, generally, an oral trial regarding leasing is around 40,000 to 80,000 pesos when they are not properties for commercial or industrial use with considerable rents.

And yes, although it’s true that in civil matters, the judge may order the lessor to pay you the costs of the trial (expenses and costs), such a judgment often cannot be executed or simply takes a long time to obtain.

XXV.- Consignment Payment

Among the many problems that may arise with a lease contract is also that related to the lessor’s failure to receive payment of the rent. The reasons can be many, but it generally happens when the lessor, in bad faith, wants to make the lessee fall into default and, therefore, have a way to justify—supposedly—his breach of contract. This is either because he wants to recover possession of the property for himself or to give it to a third party who can pay you more, and for that, he certainly needs a reason to end the current lease contract.

When this happens, the lessee can judicially deposit the rent through a legal institution called preliminary consignment, which is regulated by articles 209 to 218 of the Code of Civil Procedures of the State of Chihuahua.

With the preliminary consignment procedure, the lessor shall be summoned to receive payment of the rent, and thus, you, as a lessee, will have evidence proving that you paid the rent properly. But the procedure does not end there. In accordance with article 1986^[12] of the Civil Code of the State of Chihuahua, the judge, during the procedure, shall analyze whether the consignment is legitimate and, if so, shall order that the lessor pay all the expenses incurred by the lessee to make the consignment.

XXVI.- Payment of Future Rents

With the lease contract, the lessor hopes to obtain a profit by granting the use of his property, but the case may occur in which, for example, the lessee vacates the property without having notified the lessor. In this case, even if the leased property is no longer in the possession of the lessee, does the lessee have the obligation to pay the rent? The general answer is yes.

The above, in accordance with the provisions of article 2363^[13] of the Civil Code of the State of Chihuahua and various judicial criteria that illustrate the forced compliance with the payment of the rents established in the lease contract, such as: LEASING. THE OBLIGATION TO PAY THE RENT THEREIN IS NOT CONDITIONED TO THE OCCUPATION OF THE PROPERTY BY THE LESSEE^[14] and LEASING. CLAIM FOR FUTURE INCOME, FROM THE, IN A SINGLE CLAIM^[15].

In any case, there is no obstacle for the parties to stipulate a contrary provision in the lease contract, but if (as generally happens) they fail to detail this hypothesis, the lessee must comply with the obligation to pay the rent even if do not use the leased property. This is because there has not been a termination agreed upon by the parties^[16], nor has the termination of the lease contract occurred.

XXVII.- Early Return of the Leased Property

There are cases in which the lessee wants to hand over the leased property, either because the term in the contract has expired and he does not wish to extend the contract or because he wants to rescind the lease contract. This is when questions arise for the lessee as to when he has to continue paying rent and what he must do to return possession of the leased property to the lessor.

In the first case, it must be done through the figure of consignment in payment^[17] of which we already spoke briefly, where through a civil judge, the lessee in this case consigns the keys and argues that he does so in compliance with the contract. The above is also in accordance with the following binding precedent issued by the Mexican Supreme Court of Justice: LEASING. IN ORDER FOR THE DELIVERY OF THE KEYS OF THE LEASED PROPERTY TO THE COURT TO RELEASE THE LESSEE FROM PAYMENT OF RENTS, PRIOR NOTIFICATION OF THE CONSIGNMENT TO THE LESSOR IS REQUIRED AND FOR THE JUDGE TO APPROVE IT^[18].

In the second case, when the lessee seeks to rescind the lease contract and, therefore, get rid of his contractual obligations, the most important question regarding the payment of the rent arises: since when must it stop? Since the lessee files the claim? Until the judge issues a final ruling?

To answer this question, the ideal is for the lease contract agreement to have mechanisms that regulate this assumption, especially to guarantee the security of the property and, to a certain extent, to clarify who is responsible for the damage caused. Think, for example, of a fire, where it’s necessary to decide who is responsible for ensuring the safety of the property.

Unfortunately, in the absence of an agreed procedure, the law is very sparing in this case since it only applies when the keys have to be deposited to fulfill the obligation to return the property, but not when the lessee wants to rescind the contract early due to a rescission action and, therefore, wants to stop complying with its main obligation in the contract: paying the rent.

However, in the opinion of beLegal Abogados S.C, the obligation to pay the rent for the lessee ceases when the lessor is served with the termination claim, so from the initial civil complaint (demanda), when the lessee files the rescission action, he must to attach the keys and express their intention to return the property to the lessor so that at the time of the service of summons or after it, the lessor takes possession of the property. This is in accordance with article 247, section IV of the Code of Civil Procedures of the State of Chihuahua^[19].

All this so that the human presumption does not arise that while the ordinary civil trial where the rescission action was demanded lasted, the lessee, by continuing to possess the property, obtained a benefit from it and, therefore, must pay the rents for that temporality, even if his intention has always been to return possession of the property before the expiration of the contractual period. The above, in accordance with this correct judicial criterion: RENT. SITUATION IN WHICH IT MUST BE PAID, DESPITE THE TERMINATION OF THE CONTRACT DUE TO A CAUSE ATTRITABLE TO THE LESSOR^[20].

In any case, we have to warn you that if, as a lessee, you lose the lawsuit and, therefore, the judge declares that there was no reason to terminate the lease contract, even if you have timely vacated the property to sue, the judge must declare that the non-payment of rent was unjustified. With that declaration, either in that same trial (only if the lessor counterclaimed or counterclaimed the payment of the rents due and to be due) or in another new trial, they would condemn you to pay those unpaid rents.

On the other hand, not returning the property in this way would be nonsense since, on the one hand, as a lessee, you intend to get rid of your obligations in the lease contract and, on the other hand, you would continue occupying it until the final judgment is issued (which may take up to two years) In any case, we insist, the ideal is for the Chihuahua lawmakers to regulate this assumption clearly because, on the other hand, the courts have shed little light on this issue.

XXVIII.- Sublease

Subletting implies that the lessee, in turn, leases all or part of the thing that he received as a lease. Of course, for it to be legal, the express authorization of the lessor is needed, not only for the protection and legal security of the lessor but also of any sublessees. Also, the sublease must be granted with the same formalities as the lease, that is, in writing.

On the other hand, if the lessor does not authorize subleasing, the latter may demand the termination of the lease and sublease contract. In addition, he will be empowered to demand payment jointly of damages and losses from both the tenant and the subtenants.

Now, the authorization that the lessor can give for subletting is in two forms: 1) general or 2) special. The first, as its name indicates, authorizes the lessee to indiscriminately sublet the leased property, whether in its entirety or just a part. While the special authorization implies that the sublease is made only to a specific person and for the fraction or entirety of the leased property.

The above is important since, in the general authorization, the responsibility of the lessee towards the lessor is total. That is, if the sublessees cause damage to the property, the lessee is still responsible. On the other hand, with special authorization, the lessor shall only have an action against the sublessee but not with the lessee.

XXIX.- Rents Withholding

There are at least two cases in which the law in the state of Chihuahua allows the lessee to withhold rent that is: 1) by court order and 2) when the lessor refuses to issue the corresponding payment receipt. However, retention is certainly not indefinite.

The first hypothesis is based—in part— on article 1960 of the Civil Code of the State of Chihuahua^[21], since in the case of precautionary measures (provisional attachment), administrative or criminal orders, or seizures; the jurisdictional authorities may issue payment withholding orders to the lessees since they are debtors to the lessors so that, subsequently, these payments can be sent to a specific fund, file or place.

Therefore, in the period in which the remittance order is specified, the lessee is entitled to withhold payment of the rent. Obviously, this does not imply that you are exempt from paying the rent because you will eventually have to show or remit the amount withheld, and if you have not done so and have claimed to be doing so, you will incur various property crimes such as procedural fraud.

The other case occurs when the lessor, as the creditor in the payment of rent, refuses to issue a payment receipt. Given this hypothesis, article 1971 of the Civil Code of the State of Chihuahua^[22] is clear in the sense that the lessee can withhold payments. However, the difference here is that you must subsequently undertake a consignment in payment in the terms that we have already discussed previously unless there are other sanctions or a special procedure designed by the parties in the lease contract.

XXX.- Penalty Clause

In the unfortunate event that any of the parties to the lease contract do not comply with their obligations in the agreed manner, as you already know, both parties have legal actions to request forced compliance with the contract or terminate it early. However, failure to comply with obligations entails an inconvenience for the performing party, as well as possible damages to their assets. Given these inconveniences, the figure of the penalty clause in lease contracts becomes of capital importance.

The penalty clause is nothing more than the economic punishment that the non-compliant party (or that did not comply as stipulated) must endure for its contractual breach and, at the same time, a deterrent means to avoid it. This penalty clause replaces the damages and losses suffered in the lease contract^[23], so it may or may not be incorporated into the contract. In any case, if for some reason its inclusion was omitted, the party who performed in the contract is not defenseless because he would still have a civil action for damages against the party who did not perform^[24]. Action that deserves a special study in this blog.

On the other hand, the penalty clause as such is not unique. On the contrary, the lease contract may include various penalties depending on the obligation intended to punish or deter non-compliance. For example, the most common are lack of timely payment, damage to the leased property, failure to make repairs, submit notices, failure to pay at a specific payment location, etc. It’s because of this flexibility that we always recommend incorporating penalty clauses.

Another important fact is that it must be designed by a competent lawyer to detail its scope and, more importantly, indicate the obligation covered by the penalty clause. This is so because this clause has a legal limit, that is, its penalty cannot exceed the value or amount of the main obligation by express provision of article 1737 of the Civil Code of the State of Chihuahua and respective judicial criteria, such as the following: LEASING CONTRACT. PENALTY CLAUSE SHOULD NOT EXCEED THE PRIMARY OBLIGATION^[25].

The above implies, for example, that if the monthly amount of 10,000 pesos was agreed upon for the rent of a property, you will not be able to stipulate as late payment for each day of delay the amount of 366.66 pesos since multiplied monthly, it exceeds the principal obligation (the amount of the rent) Much less stipulate that in the case of late payment of the rent an equal daily amount shall be paid as a penalty, that is, another ten thousand pesos or 6 months, as we have observed in contracts.

However, you could stipulate a default of 333.33 pesos in that case because although multiplied by 30 gives the total amount of the monthly income (main obligation), that sanction does not exceed said main obligation, which is allowed by the law.

Therefore, to determine whether the main obligation is exceeded, one must first look at what obligation the penalty clause protects, such as the timely payment of rent, not making repairs, etc.; then calculate its temporality if it is an annual obligation, monthly, etc.; and finally, verify if the penalty exceeds the main obligation.

In any case, if the penalty exceeds the main obligation, it does not mean that it in itself is null, but rather that the judge who decides the controversy shall have to equitably reduce it. But why risk it? Better design them as the law of the matter dictates.

On the other hand, one of the advantages of penalty clauses is that whoever suffers a breach of the obligation does not have to prove that he has suffered a loss (the deprivation of any lawful gain) to request payment. For example, as a lessor, the fact that the lessee did not pay the rent on time caused him to lose the opportunity to pay suppliers in a diverse business and, therefore, hindered the closing of a commercial contract.

The previous advantage that we do not find when having to sue the action for damages where the plaintiff must prove in detail how he suffered damage or losses to be repaired in accordance with the following binding precedent: DAMAGES AND LOSSES. THE RIGHT TO THEM MUST BE DEMONSTRATED AUTONOMOUSLY BY NON-COMPLIANCE OF THE OBLIGATION ON WHICH THEY ARE BASED, AS LONG AS THE LATTER DOES NOT IMPLY THAT THEY ARE NECESSARILY AND INDEFECTIBLY CAUSED^[26].

Finally, in our Civil Code of the State of Chihuahua, we have another limitation in article 1740^[27], which, in our opinion, is clearly unconstitutional. The limitation is that only in certain cases can forced compliance with the contract be requested and, in turn, payment of the penalty. These cases are only cases of delay in the payment of rent or when the obligation is not provided in the manner agreed in the contract.

These limitations leave out, for example, the fatal cases in which the lessor does not want to return the deposit to the lessee, so the latter is forced to demand the fulfillment of said obligation without being able to demand a penalty for such non-compliance.

Given the previous scenario, the ideal is for the Congress of the State of Chihuahua to add this legal hypothesis—and others—as an exception. However, since this may never happen, through litigation the unconstitutionality of the aforementioned article could be invoked and, thereby, make valid a penalty clause in that case. This is because, as we already said, the penalty clause also seeks to be a deterrent means to prevent the parties from failing to comply with their contractual obligations.

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] Which is normally done in the terms set forth in the contract, such as by certified mail or, if something of that nature was not stipulated, it is common through a notary public, which may be expensive.

^[2] Thesis: II.2o.C.383 C. SECOND COLLEGIATE COURT OF CIVIL MATTERS OF THE SECOND CIRCUIT. Ninth Judicial Epoch. Not Binding Precedent. Digital Registration: 185446.

^[3] ARTICLE 2384.- In the lease of real estate for a specific period, the lessee who is up to date with the payment of rent shall have the right to have the lease extended for up to a period if he/she requests it before the expiration of the stipulated perio equal to that of the contract, without the extension exceeding one year. In this case, the lessor may increase the previous rent by up to ten percent, as long as it has not increased in the last three months.

Owners who want to live in the house or cultivate the property whose lease has expired are exempt from the obligation to extend the lease contract.

^[4] Thesis: P./J. 37/2006. Plenary session of the Mexican Supreme Court of Justice. Ninth Judicial Epoch. Binding Precedent. Digital Registration: 175498.

^[5] Thesis: I.2o.C.4 C (10a.) SECOND COLLEGIATE COURT OF CIVIL MATTERS OF THE FIRST CIRCUIT. Tenth Judicial Epoch. Not Binding Precedent. Digital Registration: 2001627.

^[6] Article 5.- The will of the parties in a legal act cannot exempt the law from observance, nor alter or modify it. Only rights of private interest can be waived, but not those that affect the public interest, as long as the waiver does not affect the rights of third parties.

Article 7.- Acts entered into by the parties against prohibitive laws or public order laws shall be absolutely void, unless the law itself provides otherwise. Those who violate laws of other types shall be subject to the provisions of this Code in the respective Chapter.

^[7] Thesis: VII.3o.C.49 C. THIRD COLLEGIATE COURT OF CIVIL MATTERS OF THE SEVENTH CIRCUIT. Ninth Judicial Epoch. Not Binding Precedent. Digital Registration: 179666.

^[8] Thesis: II.2o.C.105 C. SECOND COLLEGIATE COURT OF CIVIL MATTERS OF THE SECOND CIRCUIT. Ninth Judicial Epoch. Not Binding Precedent. Digital Registrarion: 195843.

^[9] Thesis: 1a./J. 59/2005. First Chamber of the Mexican Supreme Court of Justice. Ninth Judicial Epoch. Binding Precedent. Digital Registration: 177428.

^[10] Former Third Chamber of the Mexican Supreme Court of Justice. Fith Judicial Epoch. Not Binding Precedent. Digital Registration: 343530.

^[11] ARTICLE 2321.- If at the end of the lease there is any balance in favor of the lessee, the lessor must return it immediately, unless he or she has any right to exercise against the lessee; in this case, the aforementioned balance shall be judicially deposited.

The provisions of the previous paragraph, regarding the lessor, shall apply to the lessee where appropriate.

^[12] ARTICLE 1986.- If the offer and consignment have been made legally, all expenses shall be borne by the creditor.

^[13] ARTICLE 2363.- The lessee is obliged to pay the entire price, when the lease was made for a fixed period and the periods were only set as deadlines for payment.

^[14] SIXTH COLLEGIATE COURT OF CIVIL MATTERS OF THE FIRST CIRCUIT. Eigth Judicial Epoch. Non Binding Precedent. Digital Registration: 216581.

^[15] Thesis: I.3o.C. 758 C. THIRD COLLEGIATE COURT OF CIVIL MATTERS OF THE FIRST CIRCUIT. Eitgh Judicial Epoch. Non Binding Precedent. Digital Registration: 209431.

^[16] Since the early termination of a lease contract must be done by judicial declaration or by mutual consent of the parties, but not unilaterally in accordance with the provisions of article 1689 of the Civil Code of the State of Chihuahua, which indicates: Article 1689.- The validity and compliance of contracts cannot be left to the discretion of one of the contracting parties.

^[17] Considering that the term payment is legally equivalent to compliance as stated in article 1945 of the Civil Code of the State of Chihuahua. Therefore, returning the keys to the property with the intention of returning possession of the property to the lessor is complying with the obligation to vacate said property in a timely manner.

Article 1945.- Payment or fulfillment is the delivery of the thing or amount owed, or the provision of the service that has been promised.

^[18] Thesis: 1a./J. 106/2012 (10a.) First Chamber of the Mexican Supreme Court of Justice. Tenth Judicial Epoch. Binding Precedent. Digital Registration: 2002456.

^[19] Article 247.- The effects of the service of summons are: […]

IV. Produce all the consequences of the judicial interpellation, if by other means the obligated person has not already become in default […].

^[20] Thesis: I.4o.C.246 C. FOURTH COLLEGIATE COURT IN CIVIL MATTERS OF THE FIRST CIRCUIT. Ninth Judicial Epoch. Not Binding Precedent. Digital Registration: 165414.

^[21] ARTICLE 1960.- The payment made to the creditor by the debtor after having been judicially ordered to withhold the debt shall not be valid.

^[22] ARTICLE 1971.- The debtor who pays has the right to demand the document that proves the payment and may stop it until it is delivered.

^[23] In accordance with article 1734 of the Civil Code of the State of Chihuahua:

Article 1734.- The contracting parties may stipulate a certain benefit as a penalty in the event that the obligation is not fulfilled or is not fulfilled in the agreed manner. If such a stipulation is made, damages cannot also be claimed.

^[24] Which has its main basis in article 1987 of the Civil Code of the State of Chihuahua, which literally indicates:

Article 1987.- Whoever is obliged to provide an event and stops providing it or does not provide it in accordance with the agreement, shall be responsible for damages and losses, in the following terms:

I. If the obligation is for a term, the liability shall begin from the expiration of the term;

II. If the obligation does not depend on a certain period, the provisions of the final part of article 1963 shall be observed.

Whoever contravenes an obligation not to act shall pay damages for the mere fact of the contravention.

^[25] Thesis: I.3o.C. J/23. THIRD COLLEGIATE COURT OF CIVIL MATTERS OF THE FIRST CIRCUIT. Eight Judicial Epoch. Binding Precedent. Digital Registration: 220949.

^[26] Thesis: I.7o.C. J/9. SEVENTH COLLEGIATE COURT OF CIVIL MATTERS OF THE FIRST CIRCUIT. Ninth Judicial Epoch. Binding Precedent. Digital Registration: 184165.

^[27] Article 1740.-  The creditor may demand compliance with the obligation or payment of the penalty, but not both; unless the penalty appears to have been stipulated for simple delay in fulfilling the obligation, or because it is not provided in the agreed manner.