Many U.S. buyers find condominiums in Baja California very attractive, particularly for condos located close to the Mexican beaches. Prospective U.S. buyers like the combination of Mexican ambience, quick access to the oceanfront, common facilities and a price considerably lower than what they would have to pay in the United States for a comparable property.
However, it is very important for the U.S. buyer -- and hence any developer focusing on the U.S. buyer -- to pay close attention to how the homeowners' association for a Mexican condominium project is organized, and how it will work in practice. More than anything else, whether or not the homeowners association for a given condo project works effectively will have a huge impact on the quality of life in the project, and the long-term value of the property.
Role of the homeowners association
As in the United States, the homeowners association will have long-term responsibility for management and upkeep of the common facilities in the condo project, and supervision of what we in the United States know as "covenants, conditions and restrictions" or CC&Rs, as well as other condominium rules. The homeowners' association will also have the heavy responsibility of deciding upon and collecting periodic homeowners association "dues" and special assessments as needed.
But Mexico involves a whole different legal environment than in the United States, and homeowners associations are governed by a different set of rules than what U.S. condo owners are accustomed to.
Potential U.S. buyers should be mindful of how homeowners associations are regulated in Mexico, and should ask questions on how the association will operate and how it will carry out its management responsibilities. Developers should view a well-functioning homeowners association as a strong selling point for the condo project, since it will lead to a well-maintained, attractive and livable environment.
Perhaps the most effective structure for a homeowners association under Baja California law is a "condominium regime" in accordance with the laws of Baja California together with a Mexican "civil association," which is a Mexican form of nonprofit legal entity.
The condominium regime
A condominium regime is a form of property ownership where each property owner becomes a co-owner with individual ownership rights over his/her condominium unit, and tenancy in common-type ownership rights over the common areas and assets.
In Baja California the condominium regime is governed by the Condominium Regime Law for the State of Baja California (Ley sobre el Regimen de Propiedad en Condominio para el Estado de Baja California, referred to herein as the "Condominium Law"). An earlier version of the law was enacted in 1973 but was inadequate to effectively manage and regulate all the condominium ownership issues. In 2004, a new amended and revised law was enacted. This new Condominium Law seems to cover more management issues and to provide the necessary legal framework to enforce lack of compliance by the co-owners.
The Condominium Law states that its purpose is to establish, amend, organize, manage and terminate the condominium regime for real estate ownership, i.e., the collective of owners and the legal arrangements that govern the collective. The Condominium Law also regulates the relationship between the co-owners, and between the co-owners and the management, establishing the basis to resolve controversies that may arise.
In general terms, an owner of real property in Baja California may establish a condominium regime on its property by subdividing the property into different units, plus a common area, for purposes of (i) selling different units to third parties, or (ii) maintaining ownership of the units and giving each of them a different or private use. The condominium regime must be formalized in a public deed before a notary public, and may have a residential, commercial, services, industrial or mixed purpose. The public deed must contain the condominium regulations, which constitute the CC&Rs for the project, together with the rules that the condominium requires for its administration.
Once formalized, the public deed will be recorded in the Public Registry of Property, thereby giving it effect against all owners of units in the property, as well as third parties. In effect, the CC&Rs, the condominium rules and the accompanying obligations "run with the land." Among other things, those obligations include payment of homeowners' dues and special assessments, as established in the regulations or as approved by the homeowners. Those who don't pay can be subject to a civil suit or ultimately a sale of the condominium unit to pay defaulted fees and assessments.
The civil association
These elements of the condominium regime work well. However, the Condominium Law as amended still has some deficiencies. Among other things, the Condominium Law defines a condominium as a form of property ownership, not as a legal entity. As such, a condominium cannot enter into agreements with third parties on its own behalf (as a separate entity), but rather on behalf of all of its co-owners. Therefore, the co-owners within the condominium regime would generally be individually liable for any actions, or failures to act, of the representative bodies of the condominium.
To deal with the shortcomings of the Condominium Law, an effective solution is to include an additional layer to the legal structure by establishing a Mexican civil association, (Asociación Civil or "A.C.") as the vehicle through which the homeowners will act. The co-owners will be obligated to become members of the A.C. by the condominium regulations. In such case, the regulations and the bylaws of the A.C. will include any obligation of the members not provided by law or in the public deed. Furthermore, the A.C., as mentioned above, has legal existence and can therefore enter into agreements with service providers including an administrator, if necessary, in connection with the maintenance and management of the condominium property.
The A.C. can also provide additional benefits in terms of homeowner liability. Since the Condominium Law contemplates that a condominium is a form of collective ownership rather than a legal entity, all of the homeowners can potentially be held liable for what occurs in the common areas. However, to deal with the liability issues, the A.C., by the terms of its bylaws, can be obligated to purchase insurance for the benefit of the homeowners, which will provide liability coverage and a legal defense both in the U.S. and in Mexico, should that become necessary.
With a properly structured homeowners association -- based on the Condominium Law of Baja California and a civil association -- together with well-designed condominium regulations, the homeowners will have an effective tool to assure a well-managed, well-maintained facility and a good quality of life. A homeowners association that works is a key component for a livable condominium project that maintains its value over the long term.
McNeece is a partner at Luce Forward and head of the firm's Mexico Practice. Flores is a Luce Forward associate and member of the Mexico Practice. She is licensed in Mexico, California and New York.