In the U.S., there are various federal and state laws that, subject to certain limited exceptions, prohibit the granting of value (for example, money, gifts, etc.) in exchange for the opportunity to provide goods or services to healthcare recipients or healthcare providers.  These laws include the federal Anti-Kickback Statute, the self-referral prohibition (i.e., Stark Law), the Civil Monetary Penalty (CMP) laws, and any state law equivalents (in Texas, we have the Texas Patient Solicitation Act).  To avoid violations of this complex web of laws, Mexican and other foreign businesses seeking to sell medical-related goods and services in the U.S. should review their marketing plans and proposed contractual arrangements with a U.S.-licensed attorney with healthcare expertise before embarking on any such plans or arrangements.

Mexico also has certain laws prohibiting the granting of value in exchange for the opportunity to provide goods and services to healthcare recipients or healthcare providers.  The Mexican laws are less complex than their U.S. counterparts and are limited to the government sector. 

In general, these Mexican laws prohibit the granting of any payment, gift, or other consideration by bidders or prospective contracting parties on projects involving the supply of equipment or services to public-health related government (or other governmental) entities in Mexico, whether at the federal or state level.  Such entities include, without limitation, Mexico’s Social Security Institute (IMSS) and Institute for Social Security and Services for State Workers (ISSSTE).  There are also Mexican laws that prohibit government officials from receiving such payments, gifts, or other consideration.  Note that even if a payment is permitted under Mexican law, the payment may be prohibited under the U.S. Foreign Corrupt Practices Act (for more on the FCPA, check out The FCPA Blog).

For private bids and contracts in Mexico, including private bid contests organized by private hospitals or doctor groups that are not affiliated with government entities, there are generallyno prohibitions or restrictions on payments, gifts, or other consideration given to such hospitals or doctors.  However, the officers of the hospitals or the doctors may be subject to ethical rules that prohibit or restrict the receipt or acceptance of these benefits.

“Presumed Guilty“, a recent documentary film by Mexican lawyers Roberto Hernandez and Layda Negrete, catalogues the nightmare of passage through the Mexican criminal justice system through the eyes of Antonio Zuñiga, who, at 26, was charged and sentenced to 20 years in prison for a murder he did not commit.

An article by David Luhnow in the October 17-18, 2009, edition of The Wall Street Journal puts the film in context:

Mr. Zuñiga’s case is not unusual in Mexico.  Crooked cops regularly solve cases by grabbing the first person they find, along with a cooked-up story from someone claiming to be an eyewitness.  Prosecutors and judges play along, eager to calm a growing public outcry over high crime rates and rising violatence from Mexico’s war on illicit drug gangs.  In practice, suspects are often presumed guilty.  More than 85% of those charged with a crime are sentenced, according to Mexico’s top think tank, the Center for Investigation and Development, or CIDE.

* * *

Unlike the U.S., Mexico’s legal system has no jury trials.  In the majority of cases, there are also no oral arguments, meaning lawyer’s don’t stand in front of a judge to plead their client’s case.  Judges usually never meet the accused.  Everything is done via paperwork.  Judges are subject to a Napoleonic code of justice, meaning laws are strictly codified, leaving them little room for judgment.

Thanks to the diligent efforts of Rafael Heredia, Mr. Zuñiga’s Mexican defense attorney, and the filmakers, who ran a film of Mr. Zuñiga’s farcical trial before an appeals court judge, Mr. Zuñiga won the appeal and was freed. 

Although “Presumed Guilty” is focused on Mexico’s criminal justice system, the film is illustrative for companies doing business in Mexico because the civil judicial system in Mexico shares many of the criminal system’s features, including its reliance on paperwork and, in some situations, its insidious corruption.  The civil judicial process is also, with some exceptions, notoriously slow and inefficient.  Since Mexico is a civil law country, jury trials do not exist.  Nor does the legal principle of stare decisis as it is used in the U.S. (although under certain limited circumstances Mexican courts recognize the persuasive importance of previous court decisons).  As in Mexican criminal trials, Mexican civil procedure laws require that most evidence in civil lawsuits be presented in writing.  

We once helped a Mexican client retain a former Delaware Supreme Court Justice to provide an expert opinion for use in Mexican litigation.  The opinion, which consisted of dozens of written questions and answers, was prepared in an effort to convince the Mexican court to invoke the Delaware legal theory of piercing the corporate veil to impose liability in Mexico on the Delaware parent corporation of the Mexican litigant.  Incredibly, I too, served as an “expert” in the lawsuit, notwithstanding that my law firm represented the client and that I had received my bar card just two years prior.  My expert opinion answered questions about whether the Delaware parent corporation owned all of the stock of the Mexican litigant, whether the parent had filed its Form 10-K annual reports with the U.S. Securities and Exchange Commission, etc.  To prove our expert qualifications, the former Justice and I had our law degrees and bar certifications notarized and apostilled for delivery to the Mexican judge.  Neither of us were orally deposed or cross-examined nor required to appear in court.  Binders of  documents with counter opinions were presented by opposing counsel.  The case endured for years. 

The moral of the story is that foreign businesses should do their best to avoid litigation in Mexico at all costs.  Here are a few tips:

Know Your Partner.  Perhaps the easiest way to avoid litigation is to be sure to contract with an honest and reliable Mexican business partner.   Before entering into any contractual arrangement, foreign businesses should request references from prospective partners and consider performing a background check on the principals of the prospective partner.  Audited financial statements may be helpful, but only if the audit is performed by a reputable independent accounting firm.  Early and extensive due diligence on prospective business partners, including multiple face-to-face meetings, is essential.  

Seek Guaranties.  Where possible and particularly when there is any doubt about a Mexican company’s capability to satisfy its contractual obligations, foreign businesses should seek to have the obligations guaranteed and secured by the assets of its U.S. or other foreign affiliate companies -provided they exist and have sufficient assets and insurance - and/or its U.S. or other foreign individual affiliates (also with sufficient assets).  

If the guarantors are U.S. persons or entities, the guaranty and security agreements should be governed by and enforceable under laws in the U.S., so that a judgment may be obtained in the U.S. without the need for subsequent enforcement of the judgment in Mexico.   

If the guarantors are non-U.S. persons or entities, counsel to the foreign business should review and determine the enforceability of the guarantees in the foreign jurisdiction. 

If the contract involves the installation, transport or manufacture of goods in Mexico or other significant assets or potential liabilities, the Mexican company should be asked to post a bond and to acquire extensive insurance coverage, preferably payable in the U.S.  for losses arising in Mexico. 

If the contract requires the Mexican company to pay for goods or services, an irrevocable standby letter of credit or other payment guaranty should be requested.  

Choose U.S. Law and Venue or Arbitration in the U.S.  In many cases, contracts between U.S. and Mexican business can be governed by U.S. federal and state law and provide for dispute settlement in U.S. federal and/or state court or by arbitration.  Although resolving disputes in the U.S. is always preferable, if the Mexican counterparty does not have a U.S. subsidiary or other U.S. assets (see “Seek Guaranties” above), then the U.S.  judgment would require enforcement in Mexican courts.

I regularly review contracts involving the sale of goods between the U.S. and Mexico or other Latin American countries.  One of the most common drafting errors in these contracts is the failure of the contracting parties to specifically exclude the United Nations Convention on Contracts for the International Sale of Goods (CISG) when they intend to do so.

The CISG is an international treaty signed by 74 countries, including the U.S. and Mexico.   In the U.S., the CISG is regarded as a self-executing treaty, meaning that it operates without any implementing legislation.  The CISG is therefore federal law in the U.S., which preempts any conflicting state law provisions, including the Uniform Commercial Code (UCC) as it may be incorporated into state law. 

As such, the CISG is the default gap-filling law in the U.S. applicable to all contracts for the sale of goods between U.S. companies and foreign companies whose places of business are in countries that are party to the CISG.  Since both the U.S. and Mexico are party to the CISG, any contract for the sale of goods between a U.S. company and a Mexican company will be governed by the CISG unless the parties expressly exclude its application.

An example illustrates how the CISG comes into play.  I am reviewing a contract this morning on behalf of a Mexican company that seeks to be the exclusive distributor in Mexico for a technology product manufactured by a Texas company.  The governing law clause, drafted by the Texas company’s U.S. counsel, provides: “This Agreement shall be governed, interpreted and construed in accordance with the laws of the state of Texas.” 

The laws of the state of Texas that govern the international sale of goods are: (1) The Texas Business & Commerce Code (TBCC), which is the UCC incorporated into Texas law; and (2) the CISG.  Accordingly, if there is a dispute under an international sales contract governed by “the laws of the state of Texas”, the court or arbitrator should apply the CISG to fill any gaps in the contract because the CISG is a self-executing treaty, which is U.S. federal law, which preempts Texas law. 

The problem is that the lawyer for the Texas manufacturer probably never intended for the CISG to govern.  In addition, since the CISG and the UCC often contain different gap-filling terms for the same set of factual circumstances (e.g., remedies in the event of breach, contract formation through the exchange of forms), the outcome of a dispute under the contract may significantly vary depending on which body of law is applied.

Fortunately, Article 6 of the CISG allows contracting parties to exclude the CISG, vary its effect, or derogate from any of its provisions.  I often use the following language to exclude the CISG from international sales contracts:

 This Agreement shall be governed by and construed under the laws of the state of _______, U.S.A. (including the Uniform Commercial Code as incorporated into the laws of the state of _______, U.S.A.), without regard to its conflict of laws provisions and without regard to the United Nations Convention on Contracts for the International Sale of Goods (CISG).

Sometimes U.S. banks and businesses that lend or advance money to Mexican borrowers, for practical or business reasons, seek to have the Mexican borrower sign a Mexican promissory note (pagaré) with an effective date that is either before  or after the actual date of signature of the pagaré. 

For example, an effective date on a pagaré that is before the actual date of signature might be used to enable the lender to evidence a debt of the Mexican borrower that arose because of money advanced before the actual signature date of the pagaré.  Similarly, an effective date on a pagaré that is after the actual date of signature may be used to enable the lender to evidence a future debt of the borrower that will arise if some event does not incur in the future (e.g., the Mexican borrower does not pay the lender’s invoices).

Article 170 of Mexico’s General Law of Negotiable Instruments (Ley General de Títulos y Operaciones de Crédito), which lists the elements required to create a valid pagaré, provides that, among other elements, a pagaré must include the date on and place at which the pagaré was signed by the borrower.

Accordingly, to avoid any possible argument by the Mexican borrower in a collection lawsuit on the pagaré by the lender that the pagaré is defective because it is not dated the actual date of signature or that the lender altered the pagaré post-signature, the most prudent course of action for the lender is to have the debtor sign the pagaré on the actual date that appears on the pagaré, whether the date is (a) pre-printed on the pagaré by the lender or (b) handwritten on the pagaré by the borrower or the lender.

If the lender must date the pagaré before or after the actual date of signature, one alternative for the lender would be to pre-print the date the lender wishes to include on the pagaré, whether such date is before or after the actual date of signature, BEFORE the pagaré is signed by the borrower.  However, it is conceivable that this alternative could give rise to an argument by the borrower in a collection lawsuit by the lender that the pagaré is defective because it is not dated the actual date of signature contrary to Article 170.  In other words, there is some risk to the lender associated with this alternative.

A much less favorable alternative if the lender must date the pagaré before or after the actual date of signature is to leave the date of the pagaré blank and fill-in the desired date, whether such date is before or after the actual date of signature, AFTER the pagaré is signed by the borrower.  This alternative, which is not recommended, is far more likely than the previous alternative to give rise to an argument by the borrower in a collection lawsuit by the lender that the pagaré is defective because it is not dated the actual date of signature or because the lender altered the on the pagaré post-signature violation of Article 170.

Las empresas con planes de distribuir sus productos en los Estados Unidos cuentan con varias opciones.  En un extremo del espectro existe la alternativa de abrir un establecimiento de venta al menudeo para la venta directa a clientes.  Esta opción contempla una fuerte inversión de capital para constituir una sociedad en los EE.UU., establecer la oficina de ventas, una base de inventario y la contratación de personal.  En el extremo opuesto se puede considerar el e-comercio, ventas a través de la red.  Ésta última implica un mínimo de inversión, o ninguna, en los EE.UU., por lo que resulta ser la alternativa menos costosa. Entre estas dos alternativas extremas se cuenta con una tercera opción que consiste en contratar a un representante de ventas o distribuidor.  Ésta tercera opción, “canal de distribución”, es la más utilizada por empresas nuevas al mercado de los EE.UU.

Los acuerdos de representación de ventas y distribución son populares debido a que generalmente no requieren gran inversión de capital ni llevan el riesgo fiscal de establecer un local permanente en los EE.UU.  Sin embargo, existen importantes diferencias entre representantes de venta y distribuidores.  Estas diferencias se basan en la relación contractual que cada uno asume con la parte con la que ha contratado (usualmente un fabricante, vendedor al por mayor u otro proveedor).  Por ejemplo, el contrato de representante de ventas y el contrato de distribución contienen términos fundamentalmente diferentes con respecto a: (i) la manera en que el representante de ventas o distribuidor es compensado por el proveedor de los productos, (ii) el procedimiento en el cual los bienes del proveedor son vendidos por el representante de ventas o el distribuidor, (iii) la autoridad del representante de ventas o del distribuidor para actuar en nombre del proveedor y (iv) el grado de control ejercitado sobre el representante de ventas o el distribuidor por parte del proveedor.

Dos diferencias importantes entre el representante de ventas y el distribuidor son la forma en que son económicamente remunerados y el procedimiento utilizado para vender los productos.  El representante de ventas normalmente no adquiere el título de propiedad de los productos sino que obtiene órdenes de compra de los clientes en nombre y representación del proveedor, de tal manera que el proveedor puede abastecer las órdenes directamente.  El contrato de compra de bienes en el caso del representante de ventas es directo entre el proveedor y el cliente.  El proveedor y el representante de ventas celebran un contrato por separado, el cual estipula que el representante recibe una comisión, misma que generalmente se basa en la porción de los ingresos de las ventas del proveedor derivadas de los clientes localizados en el territorio del representante de ventas. 

A diferencia de los representantes de ventas, el distribuidor adquiere el título de propiedad de los artículos del proveedor.  En un acuerdo típico de distribución, el distribuidor somete sus propias órdenes de compra al proveedor, compra los productos de éste y los revende directamente a sus propios clientes. El margen de utilidades del distribuidor se encuentra en la reventa de productos.

Una tercera disimilitud clave entre el representante de ventas y el distribuidor es que el representante de ventas en muchos casos cuenta con amplia autorización para actuar en nombre y representación del proveedor en el territorio designado.  Los distribuidores, por otro lado, típicamente cuentan con menos autoridad para actuar en nombre del proveedor y tal autoridad está claramente definida en los términos del contrato de distribución entre el proveedor y el distribuidor.

Un cuarto factor que distingue a los representantes de ventas de los distribuidores es que el proveedor tiene más control sobre el representante de ventas que sobre el distribuidor.  En el acuerdo del representante de ventas, el proveedor estipula el precio de venta al cliente y puede aceptar o rechazar cualquier cliente propuesto por el representante.  Sin embargo, en un acuerdo de distribución, el distribuidor compra los bienes del proveedor y puede definir sus precios para la reventa de productos a terceros.  Por ende el proveedor suele tener mínimo control sobre las ventas subsecuentes del distribuidor.  

El tema del control es importante por varias razones.  Por ejemplo, bajo la ley de Texas, entre más control una persona ejerza sobre otra, es más probable que los actos u omisiones de la persona controlada sean imputados a la persona controladora.  Debido a que el proveedor generalmente ejerce más control sobre el representante de ventas que sobre el distribuidor, es más probable que el proveedor pueda tener responsabilidad por los actos u omisiones de un representante de ventas que por los mismos de un distribuidor.  No obstante, un contrato de distribución en el cual el proveedor ejerce un nivel de control sobre el distribuidor similar al que típicamente se encuentra en los contratos de representante de ventas pudiera incrementar la posibilidad de que al proveedor le sea atribuida la responsabilidad de los actos u omisiones del distribuidor.  Como consecuencia, el proveedor, con la asistencia de un consejero legal, debe determinar y claramente establecer en el contrato los derechos y obligaciones de las partes.

Bajo todas las circunstancias, los contratos entre proveedores de bienes y representantes de ventas o distribuidores deben ser por escrito. (Cito la Cláusula 54 del Código de Negocios y Comercio del Estado de Texas, la cual requiere que los contratos entre el proveedor y un distribuidor que solicite órdenes de venta al por mayor dentro del estado, se hagan por escrito o por medio computarizado.)  Como mínimo, el contrato debe indicar los productos a ser vendidos o comercializados por el representante de ventas o distribuidor, el área geográfica en la cual dicho representante o distribuidor está autorizado a desempeñar sus obligaciones y si esta relación es de carácter exclusivo o no.  El contrato también debe definir las garantías y claramente establecer los límites de autoridad del representante o del distribuidor para actuar en nombre y representación del proveedor.  Otras cláusulas importantes incluyen los términos de pago y entrega de productos, acuerdo de no competencia, obligaciones de confidencialidad, requerimientos de pólizas de seguros, del suministro de información y designación de tribunal competente y ley aplicable (expresamente incluyendo o excluyendo la Convención de Naciones Unidas sobre los Contratos de Compraventa Internacional de Mercaderias - CISG) en caso de presentarse un conflicto legal.

El contrato con un representante de ventas debe también incluir previsiones pertinentes (procedimientos y políticas) con respecto a la solicitud de órdenes de compra por parte del representante y sobre el pago de las comisiones.  El contrato con un distribuidor debe incorporar los términos de embarque y entrega (riesgo de pérdida) de los productos (incluso INCOTERMS), y puede obligar al representante a someter formularios de órdenes de compra que no contradigan los términos establecidos en el contrato de distribución.  Las disposiciones adicionales deben ser estipuladas según la industria y los productos específicos del proveedor.

Los proveedores de mercancías deben considerar cuidadosamente la gama de opciones disponibles para distribuir sus productos en los EE.UU. de la manera más eficiente y efectiva.  Una asesoría legal competente puede ser de gran utilidad para un proveedor en el logro de dichos objetivos.

Operating a Mexican company is more labor-intensive than operating a U.S. company, mainly because of the monthly and annual tax filings that must be prepared and filed for income tax, value added tax, labor tax, and withholding tax.  

Businesses considering forming a Mexican company should budget for these operational costs of before forming the company.  Since the cost to outsource tax and bookkeeping management can range from US$2,000-$4,000 per month, it can be more economical in some cases for the compamy to employ an accountant to handle routine tax filings and bookeeping functions.

Below is a list of the main ongoing operational requirements for a Mexican company.

1. Prepare monthly and annual value added tax reports and deliver them to the Mexican Tax Administration Service (SAT).
2. Prepare monthly and annual income tax returns and pay taxes to SAT.
3. Prepare withholding tax reports and deliver them to SAT.
4. Pay labor taxes and contributions to SAT.
5. Prepare annual report for the National Registry of Foreign Investments (RNIE) (for companies owned by non-Mexicans).
6. Prepare quarterly informational reports to be filed with the RNIE indicating the company’s income and expenses if: (i) the shareholders make contributions to or withdraws from the company’s variable capital that do not affect the company’s fixed capital; or (ii) the company has retained profits during any preceding fiscal year and it disposes of such retained profits or any accumulated profits; or (iii) the company makes a loan to any related third party.  Even if one or more of the foregoing circumstances have occurred, no report must be filed unless the total income or expenses of the company during a given quarter exceeds three thousand times the General Minimum Wage (daily) in force in the Federal District (if the company is formed in the Federal District), which is approximately MX$50).
7. Prepare and formalize annual shareholder meeting minutes (which, among other requirements, must inform the shareholders of the company that the company has complied with all tax obligations).
8. Obtain/renew (annually) FM-3 visas for non-Mexican nationals who manage or are employed by the company in Mexico.
9. Deliver (annually) a list of all shareholders, including address, country of tax residence and taxpayer identification number to the Federal Taxpayers’ Registry.
10. Prepare and file annual registration with the Mexican Business Information System (SIEM).

Opening a bank account for a new company in Mexico is more time consuming and requires more documentation than in the U.S.  The following is a list of the actions generally required to open a bank account in Mexico for a new company.  The requirements of each bank are often different so readers should check with their banks before relying on this list.

1. Original or copy of document issuing the tax identification number (Registro Federal de Contribuyentes – RFC) to the company.
2. Original of the registered public deed and bylaws (escritura constitutiva y estatutos sociales) of the company.  If the public deed is pending registration with the Public Registry of Commerce in the state of organization (e.g., the Federal District), then a letter from the notary public explaining this fact is generally accepted in lieu thereof.
3. Original of the registered public deed showing the powers of attorney (poderes) granted to the person opening the bank account on behalf of the company (this person is called the company’s representante legal or legal representative).  This legal representative must appear at the bank in person to open the bank account.  To the extent possible, the attorneys for the company should plan ahead when forming the company to make sure the powers of attorney for bank account management are granted to the appropriate people in the bylaws of the company upon its formation to avoid having to prepare separate powers of attorney after formation, which will add expense and time to the process.  The powers of attorney for bank account management can be drafted creatively to limit the legal representative’s authority to act on behalf of the company (e.g., to open and close bank accounts and to grant, sign, and negotiate credit instruments on behalf of the company up to the value of MX$100,000 acting alone or in unlimited amount if acting with Juan Valdez).
4. Original of the proof of the company’s tax domicile (domicilio fiscal).  Often this is a lease agreement or a utility bill issued to the company showing the tax domicile.
5. Original official identification of the legal representative.  If the legal representative is a foreign national, then he/she must have a valid FM-3 visa that shows the name of the company on behalf of which the bank account will been opened and that the foreign national is authorized to act on behalf of such company. 
6. Document proving place of residence of the legal representative.
7. Initial deposit to open the account (generally MX$5,000-MX$10,000).
8. List of the individuals who will be authorized to perform transactions under the account (i.e., additional legal representatives).  Each such individual must provide an original official identification and must meet the FM-3 visa requirements set forth in #5 above if they are foreign nationals.
9. Once all of the information above (and any additional information required by a particular bank) has been supplied, the bank will generally take three-five business days to open the account.

The legal representative should make at least one copy of all of the documents referenced above in case they are requested by the bank.

The U.S. Commercial Service’s Mexico offices released the following new reports on Mexico in June and July, 2009.  Copies are available at the links below:

• IT Cluster Development in Monterrey;
• Mining Equipment Market;
• Airport Opportunities and Trends in the National Infrastructure Program;
• Business & Regulation Insights in the Pay-TV Market; and
• Mexico’s Retail Sector: “Selling Inside the Box”.

I continue the Mexican Real Estate 101 series with a list below of some of the essential due diligence actions that should be performed before entering into a Mexican real estate transaction.   

Investors in Mexican real estate should always consult with a licensed Mexican real estate attorney before buying any property in Mexico.

1. Title Review.  The buyer’s Mexican counsel must review the chain of title by analyzing certified copies of the title deeds obtained from Public Registry of Property located in jurisdiction of the real estate.  Any liens and encumbrances on the property will appear in the property records obtained from the Public Registry.  The property records are kept in different books, which are page numbered and organized in volumes.  If possible, a recognized title insurance company in Mexico (such as Stewart Title, First American Title Insurance, Chicago Title, etc.) should perform a supplemental title review in addition to the review performed by local counsel.  If the title review indicates that the chain of title is unclear or interrupted, further research should be performed to determine if there is a serious title defect.  If the title defect involves corrections to the metes and bounds property description, the problem is generally solved by requesting that corrections be made at the Public Registry, provided that the modifications have been agreed to in writing by the owner of the adjacent land.  If such agreement cannot be obtained, judicial action may be necessary, which could be costly and protracted and the buyer may instead decide to terminate the transaction.
2. Title Insurance.  If possible, the buyer should obtain a commitment for title insurance from a recognized title insurance company in Mexico.  Stewart Title and First American offer owner and mortgagee policies adapted from the American Land Title Association (ALTA) policy forms.  Policies can be issued in either U.S. Dollars or Pesos and can be written to insure any recognized land interest in Mexico, including direct ownership, leasehold, trust, or beneficial ownership.  Among the risks insured are mortgages, mechanic’s and tax liens, easements, contractual obligations restricting the use of the property, and adverse possession.  Approximate cost for title insurance is .0065% of the total transaction amount.
3. Availability of Utilities. Buyer’s counsel should review and analyze availability of water, sewer, gas, electric and telephone services to the property provided by the applicable local authorities.  Water utilities are particularly important if the target property is located in a dry region and the proposed development includes a golf course or other feature that requires irrigation or significant water use.  Local counsel should review the arrangement between the property and the local water utility provider, which should have a National Water Commission (Comisión Nacional del Agua) concession.  Water provided under a water supply agreement with the local water utility company must derive from a federal NWC concession.  Buyer’s lawyer should confirm that the water supply agreements are in full force and effect and that they provide certainty to the buyer, both in terms of amounts of water required and for the time periods required.  If water is unavailable, other options (e.g., a well or desalination plant) should be considered.
4. Zoning/Use Restrictions; Condominium Regulations. Buyer’s counsel should confirm that the current and intended uses of the property do not violate zoning, development, and land use (uso de suelo) laws and regulations.  Each Mexican municipality of regional importance will have an urban development plan.  Buyer’s counsel should determine whether there are any limitations on construction of the target property.  Most urban development plans contain density limitations.  If an existing condominium is to be purchased, local counsel must review the condominium regulations regarding design and architectural restrictions and any review process required.
5. Survey/Legal Description of Property. Although surveys are not obtained in all real estate transactions in Mexico, it is strongly recommended that buyer obtain a real estate survey prepared by a qualified Mexican surveyor showing the boundaries and measurements of the property.  Surveyors in Mexico are now making use of GPS to create detailed surveys.  
6. Certificate of Encumbrances. Buyer’s counsel should request a certificate of encumbrances (Certificado de Gravámenes) from the Public Registry of Property.  This certificate will enable the Mexican Notary Public to assess whether the property has any liens, encumbrances or claims attached.  At a minimum, this document must contain the following information: (i) the time period covered by the certificate; (ii) the surface area of the property; (iii) a metes and bounds description of the property; (iv) the name of the property owner; (v) the classification the property (urban or rural); (vi) a legal description of the ownership of the property (e.g., whether held in trust, owned by several individuals, etc.); and (vii) the name and signature of the Public Registrar and the official seal of the Public Registry of Property.
7. Tax Certificate. Obtain a tax certificate from the Municipal Treasury Office showing that all property taxes are paid in full.  At a minimum, this certificate should contain the following information: (i) the property tax identification number (clave catastral); (ii) the tax appraisal value; (iii) the name of the owner; and (iii) the signature of the department head and seal of the Municipal Treasury Office.  It is not uncommon in Mexico for property owners to fail to pay taxes for several consecutive years.  In order to register the public deed in the Public Registry of Property after the sale has closed, the taxes must be paid in full.  In the State of Baja California and certain other Mexican states, the tax certificate must also state that there are no pending debts with local authorities such as the State Water Services Board.
8. Environmental Laws. Buyer should confirm that the property is in compliance with all environmental laws, preferably using well-qualified Mexican environmental auditors (of which there are few; Buyer should check background and experience before hiring).  If the real estate is acquired to develop a tourist or industrial activity, an environmental impact authorization may be required from the applicable environmental authorities.  Other specific studies may be necessary depending on type of development (e.g., geological studies if buildings are to be constructed on a hillside).
9. Appraisal. Obtain an appraisal (Avalúo) of the property from a certified appraiser.  An appraisal of the property is required in connection with any sale by Mexican real estate law.  A Mexican Notary Public will generally obtain the appraisal on behalf of the parties.
10. Federal Maritime Zone.  Beachfront property is likely to be located in the Federal Maritime Zone, which is the area located along the full length of the Mexican coast and twenty meters inland from the mean high tide line.  Land in the Federal Maritime Zone is public property, but the Mexican Government often grants 15-year concessions to landowners for exclusive use of the property.  Buyers of coastal property should confirm (1) that the payment of dues on the concession, if any, is current, (2) if the concession is soon to expire, whether it may be renewed, and (3) whether third parties may seek or maintain rights to the concession.
11. Labor Issues.  If the buyer seeks to acquire an existing hotel/resort development, factory, etc. that has employees, buyer’s Mexican labor and employment counsel should review all existing collective bargaining and individual labor agreements with unionized and other employees to confirm that the transaction will not violate the terms of those agreements and determine any obligations of seller or buyer in connection with the transaction (severance obligations, etc.).  A purchase of the assets of a Mexican entity invokes the concept of “employer substitution” under Mexican labor law, which renders the buyer liable jointly with the seller for all of the labor compensation and other labor obligations of the seller for six months from the date the employees or union are notified of the substitution.  After six months, only the new employer (buyer) is liable.  The buyer and the seller may agree in writing to limit such liability.

According to NAFTA Works, a website published by Mexico’s Ministry of the Economy’s NAFTA office, Mexico will reduce the time to “open a new business” from 30 days to 2 hours under its new Fast Opening Business System (FOBS).  A June 22, 2009 NAFTA Works press release claims that the FOBS program will, in connection with such time reduction, reduce the number of new business regulatory requirements from 16 to 3.

Other than the limited information provided above, the press release did not discuss the specific ways in which FOBS would achieve its ambitious objectives; accordingly, I remain skeptical, but hopeful, that FOBS will function as advertised.

One of the most significant problems in finalizing the formation of a new business entity in Mexico is the lengthy time period required for the Public Registry of Commerce in the jurisdiction of formation to issue the registered copy of the formation deed, which can take up to 2 months or longer.  Although a certification from a Mexican Notary Public that the deed is in the process of registration in the Public Registry is generally sufficient evidence for third parties and other governmental agencies that the entity has been formed, upgrade of the information management systems at the Public Registries that would expedite the formation deed registration process is a much-needed reform.