Category Archives: Investors

The Mexican Fideicomiso

When Mexico found itself through rough times back in 1917, the government decided to make it harder for other countries to take advantage of their lands by delimiting a “Restricted Zone”. This zone meant that nobody other than Mexican nationals were allowed to invest in lands located within 100km of any Mexican border, or 50km from any Mexican coastline. However, as time passed, and in order to allow foreign investment in these areas, the government then decided to start issuing something called a “Fideicomiso”.

In the early 1970s, Mexico’s government realized that allowing foreigners to purchase coastal property would greatly benefit Mexico’s economy. Therefore, the government needed tei find a way to balance Mexico’s competing needs of maintaining secure borders while encouraging foreign investment. The solution was to allow foreign persons to purchase the beneficial interests in a jideicomiso under which legal title to the restricted-zone property is held in the name of a Mexican bank.; Under this arrangement, the foreigner has unrestricted use of the property as if he owned the property outright, but the Mexican bank’s legal ownership ofthe property technically satisfies the prohibitions in the Mexican federal constitution against foreign ownership ofrestricted-zone property.

But while fideicomiso is Spanish for “trust,” a fideicomiso is purely a creation of Mexico’s statutory civil law. Mexican counsel has told us that fideicomisos are classified, primarily, as contractual arrangements I (not relationships, as in the common-law trust con- I text), under which the trustee and the beneficiary are I both bound by the terms of the fideicomiso document jl and the applicable Mexican statutes. Although fideicomisos are civil-law trusts, they ! have the three essential elements of common-law I trusts:

  1.  a trustee
  2. property titled in the name of the trustee, and
  3. a beneficiary for whom the property is held. But this is where the similarities between a fideicomiso and a common-law trust end

The beneficiary of a fideicomiso (a civil-law trust) enjoys all of the rights of fee simple ownership of the property, and may sell, gift, lease, improve or encumber his beneficial rights in the property. The trustee of a fideicomiso has no involvement with the management or use of the property and is not required to ensure that the property is a good investment for the beneficiaries. In fact, the contract governing the fideicomiso relationship typically will prohibit the trustee from taking any action with respect to the property without the beneficiary’s prior instruction. In many cases, the trustee’s involvement is so minimal that the beneficiary never interacts with the trustee or even cares to remember who the trustee is. The beneficiary of a fideicomiso is responsible for all expenses and taxes attributable to the property. Clearly, the trustee’s ownership of the restricted zone property is simply a legal sidestep.