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Breach of Contract in Mexican Real Estate Transactions: Preparing for Litigation

Real estate in Mexico’s tourist areas is a popular investment option for foreigners. Demand for investment properties has been met with a significant increase in new development. However, there are several risks to consider when investing in a property that is still under construction.

Impact of COVID-19 on Real Estate Contracts

The COVID-19 pandemic significantly impacted the real estate industry and their ability to deliver new construction on time. Additionally, many buyers found it difficult to meet their financial obligations due to their own financial challenges caused by the global pandemic. The impact to both parties generated an increase in breach of contract disputes.

While the law provides for unforeseen circumstances (force majeure), the challenge has been that  one party may arbitrarily invoke  an external agent (such as COVID-19) in the category that suits them best, thus allowing them to obtain a financial advantage. It should be noted however that the construction industry was classified as an essential activity in Mexico during the pandemic, so construction was only affected for a few months by government decree.  However, several construction companies and real estate developers took advantage of the pandemic to slow down work on their projects to have more time to follow up on their legal requirements required to transfer units to buyers.

What Can Be Done?

Construction Progress & Contract Review

First, verify the progress of the construction with the developer and review the contract with a lawyer to determine how unforeseen circumstances are addressed. Unsurprisingly, some companies are beginning to consider pandemics in their contracts so as not to be caught off-guard in the future.

Remember, both parties must be in compliance with the contract. If construction delays are not within the dates of compliance, the buyer must nevertheless be up to date with their contractual obligations (payments, requested documentation, permits including the bank trust, government permits, and notary offices). One party cannot be held in breach if the other party has not met their obligations.

Breach of Contract – Seller

If the seller is in breach of their obligations, the ideal resolution would be to reach an out-of-court agreement designed by a lawyer, one in which both parties benefit and avoid damaging their professional relationship. For example, the defaulting party could offer a bonus or discount, to compensate for its default, and continue maintaining a healthy relationship. Remember, this agreement must be in writing to be legally enforceable.

If an agreement cannot be reached, and the seller refuses to acknowledge its breach of contract, a lawsuit can be filed to enforce or terminate the contract.

Documents Required for Litigation

To prepare for litigation, you will need to provide your lawyer with the original contract of sale or promise of trust, and payment receipts and/or proof of transfers made to the seller’s account.  You should also provide a Power of Attorney to your lawyer allowing them to file your lawsuit and collect other documents they consider as valuable evidence for the case.

MexLaw’s legal team has the experience to ensure your contract is executed as agreed. In fact, demand for our services on this subject has inspired us to create a team of lawyers focusing exclusive on these matters. Please contact us for a no-obligation consultation and immediate assistance with any real estate transactions, including breach of contract.