The basics of leasing industrial space in Mexico
Most maquladora manufacturers are leasing industrial space in Mexico.
Most industrial use buildings occupied in Mexico are rented by the manufacturers that occupy them. Although with some degree of frequency larger multinationals buy land for big projects, and build their own buildings in order to execute greenfield developments, smaller and mid-sized firms will serve their best interests by acquiring a basic knowledge of the basics of leasing industrial space in Mexico for their use.
From a legal perspective, Mexican Civil Codes are applicable to leasing industrial space in Mexico. It is important be aware of the fact that each of Mexico’s thirty-one states has its own Code that is related to the leasing of industrial space. Manufacturers should be familiar how the particular state that they plan to manufacture in defines the rights and responsibilities of both the lessor and the lessee that are party to leasing industrial space in Mexico under its particular set of rules.
From a general perspective, it can be said that the laws that govern the rental of commercial and industrial real-estate in Mexico are essentially pro-tenant. The only legal requirement for leasing industrial space in Mexico is that the agreement be clearly set forth in writing. The Codes of each state do, in most instances, however, set the maximum term for which an agreement can govern the leasing of industrial space in Mexico. For buildings utilized for manufacturing purposes, most Mexican state Codes typically allow for the negotiation of industrial building leases of up to a period of twenty years. These agreements, upon termination, are renewable by a process set forth by the agreement, should both parties agree to continue the lessee/lessor relationship.
Landlords that are leasing industrial space in Mexico generally require that tenant companies commit to making payment of the monthly lease amount in a timely manner, as established by the terms of the agreement that both parties have entered into. Often tenants provide landlords assurance that this will occur by obtaing a surety bond from a third party. This third party can be an outside entity, which specializes in making such guarantees, or can come from the parent company of the manufacturer that will lease the industrial space in Mexico.
When leasing industrial space in Mexico it is important to know that companies are charged a sixteen percent value-added tax on the lease price of the building. A refund for the payment of VAT tax paid on industrial rent, however, can obtained if the manufacturer occupying the building has been certified as an IMMEX company, as per the criteria set forth for such certification under legislation that has been put in place through Mexico’s recent tax reform measures. It is also important to remember that most landlords that are involved in leasing industrial space in Mexico include escalation clause provisions in the rental agreement to protect themselves from inflation that may occur during the period for which the lease agreement is in effect. Most landlords use the Mexican Central Bank’s, or the Banco de Mexico’s, Consumer Price Index (CPI) as a means by which to determine the amount(s) of any adjustment to industrial lease rates that may be justifiably imposed during the term of the agreement.
Should companies that have executed a lease for industrial space in Mexico wish to sublet all, or part, of a building that they are renting to a third, or related, party, written permission to do so must be obtained from the building’s landlord. Another important detail to keep in mind for companies that are leasing industrial space in Mexico is that it is the responsibility of the landlord to keep the building properly maintained, repaired and to make sure that the structure is insured. Conversely, damages that are incurred to the industrial property as a result of the operations of the manufacturer that is occupying the space are the responsibility of the renter to repair. The firm occupying the building for manufacturing purposes also carries the responsibility of insuring the equipment, machinery, raw materials and other property that it keeps and utilizes in the industrial space.
Those landlords that are leasing industrial space in Mexico can terminate such agreements based on cause in a number of instances. Among the reasons for which lessors may cancel a lease with a manufacturers are:
- Non-payment of rent as per terms of the lease agreement;
- Use of property by the manufacturer for purposes that are outside of the parameters of the agreement that has been signed by the two parties;
- Damages caused by tenant through negligence, and changes made to the property without prior consent and approval by its owner.
Under certain circumstances, tenants that are leasing industrial space in Mexico may also end agreements prior to the term specified by signed contract. Lessees have the right to exit an agreement with a Mexican landlord when:
- The landlord does not make the property accessible to the tenant for the agreed upon use;
- The tenant is evicted by the landlord.
This article has meant to serve the purpose of providing a basic understanding of the particulars related to leasing industrial space in Mexico. Those that have detailed questions on the subject are invited to contact the Tecma Group of Companies.
Photo credit: Aleksandar Cocek
Tecma Talks Mexican industrial real-estate and investment with Rafael McCadden of Colliers International