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To Lease or not to Lease?

During Prohibition, when Mexico drew the attention of rich and famous visitors from the north, sandy beach
front property was offered as leased land in campos.  Surfers and weekenders came down with tents, but
wanted more than just the beach, maybe showers and BBQ facilities, “Let’s stay at a Campo (campground)!!”
In time, tents became trailers, some even got tired of dragging those trailers back and forth, so why not just
leave them here?  Next the skirting, porches and rooftop decks. Some even built freestanding structures from
scratch, after all, why does the place need wheels if we’re just gonna leave it here anyway?  Over the years
dirt roads have transformed into paved streets and mobile homes have morphed into permanent homes.
Landowners found that collecting rent money was profitable. Lessees, or those who rented space, enjoyed
the ocean, weather, and Mexican freedom. It was a win-win relationship, and still is for a many.  In fact, there
are now folks building half million dollar and up homes….on leased land! there must be a reason?  
Maybe it’s location? Price?

By law, leases for terms of in excess of ten years are neither legal, nor valid in any Mexican court. Some
leases are month-to-month; others are ten years or less. If someone tries to lease a parcel of land for more
than 10-years, keep in mind that the owner will have the right to end it when the 10-years is expired. The right
to renew is his, of course, and if he doesn’t choose to renew, you would be out of luck.

Does this mean that you should avoid purchasing a home on leased land? No, it just means you must do your
homework. You need to be an informed buyer who is aware of the pitfalls and risks (legal realities?). Leased
land has its place as a viable option to ownership in Mexico. It allows those who can’t afford bank trust
property or those who don’t wish to make the often sizeable land investment in Mexico an opportunity to enjoy
a vacation or retirement home on beachfront property. Those who have the rights to a structure on leased
land should not price their homes too high*. For some buyers, the risk factor is worth the exchange for a
reasonable price.

*According to one acquaintance  “What a seller must understand when pricing their home on lease land is
that they are really only transferring the replacement value of the structure and its accompanying
improvements, as well as possibly the current, and otherwise not available, location itself.  In most cases, they
are not transferring the lease, nor any of its terms, as those are usually left to be negotiated between the
landowner and the new tenant.  Put simply, there is always lease land available without any structure, or a
much lesser structure, perhaps a tear down, and any prospective purchaser could easily just lease elsewhere
and provide their own structure, perhaps at considerably lower cost.  In much the same sense, purchasers of
trust property consider the same principles. What is the replacement value of this piece of land, and also
what is the replacement cost of all built upon it?”  Many prospective buyers will also weigh the difference of
the real cost of the liabilities of escalating rents for lease land in ensuing years, as opposed to the likely
increased value of their investment should they acquire trust property instead.  The difference can be
significant over the years the property is held, and the seller of a holding on lease land is well-advised to
consider this as well, as most purchasers can be expected to do before parting with their money.

I recently met a young couple who purchased an oceanfront home on leased land. “We’re excited about our
new beach house,” they said. “Our children will have wonderful memories of our vacations in Mexico.” They
know they have to rent land because they can’t afford bank trust property, but the life-style is worth it to them.

Bill Sager, a retired month-to-month lessee, says, “I’ve got the best spot in the Park with the ocean outside
my door. I watch the water all day long. This is where I want to be and where I will be for years.” He purchased
his converted manufactured home seven years ago, pays monthly rent for the land and enjoys his home. He’
s a happy man who lives in a community that has been in existence as leased land for at least 30 years.
Many renters like him are counting on the fact that it’s registered in Mexico City as a mobile home park and
that it will stay that way. This community has two beach coves, a swimming pool and clubhouse. People who
live there are happy. Is their security in jeopardy? Perhaps, but they know the owner is making a fortune each
month. Let’s say there are one hundred houses in a community and each home pays $300 per month. Do the
math. That’s $30,000 per month, and the land is likely going to keep increasing in value, as most campos are
oceanfront. Would the family who owns the land sell the goose that lays the golden egg?  Not easily perhaps,
and not possible in some cases either.

For example, if a Mexican family, through a will, bestows a parcel of leased land to their children with the
stipulation that it is never to be sold, then that parcel of land is a better bet as leased land than one that
offers no such promise.  (There is little chance that a major developer would entertain thoughts of building a
hotel or resort, when his rights by law are limited to the 10 year maximum lease term allowed)

When considering a lease, it may be prudent to envision a worst-case scenario. Perhaps the government will
seize the land in a drug bust or the family will lose a lawsuit that involves losing their land. Where would that
leave you?  Every penny of your initial investment could be gone. Could you live with that fact? Many have
said, “yes” to that question. They can live with the worst-case scenario or they’re willing to take the chance it
will never happen. These people are watching colorful sunsets over the ocean as they sip their margaritas in
a lounge chair. They’re enjoying beach community life. They’re happy with their decision to live on leased
land. There are far more successful lessees than there are those who meet with disaster as reported in the

If you’re considering a home to purchase on leased land, I suggest you do the following:
•        Talk to the neighbors, especially the Home Owner's Association president if one exists.
You can learn a lot about what’s going on in the community.
•        Ask to read the current minutes of the Home Owner Association.
•        How many years has the community been in existence?
•        How long has the current owner been in place?
•        What length lease term is available, and what are the terms for transferring it?*
•        * Note some campos are only offering shorter than ten year leases, but this is not necessarily a red
flag, as would be the case for a campo only offering 5 year leases. In this case, instead of waiting until yours
has expired, and being concerned, it may be wise to be aware of your neighbors’ leases as they are
renewed.  For example, if yours has less than 2 years to go, but the campo just renewed your neighbor for 5
more, its quite likely nothing adverse is about to happen for the next 5 years?  Be a good neighbor!
•        How often and how much has the rent increased?
•        Does the landowner have a good track record? Does he do repairs to the roads?
Does he pay his property taxes each year? Is he fair with the lessees?
•        What are the rules of the community? Are telephones available? Pets? Water Source?
For Sale Signs? Parked cars?
•        What happens to a person who doesn’t obey the rules?
•        Read a sample of a current lease agreement in the campo you are considering. You may want a clause
in it that allows you to sublease in case you want to cover expenses while on a trip or in case of illness. Insist
that you sign a Spanish version of the rental agreement with a certified English translation. Ask for the
original signed document for your file. Two originals, one for the landlord, and one for you should be signed
at the time of agreement. File it in a safe place. It will protect you in court.
•        Make certain you have a receipt for proof of payment each month. It’s a protection of your rights.
•        See a lawyer. Learn your rights. Is there a law that states that a landowner has to compensate you for
the market value of your home if he reclaims his land?  Roberta, lets talk about this eminent domain thing,
•        Find out what the lessees’ rights are. You may be surprised. Mexico has laws that protect renters.
What are they?

There’s much to learn and to consider when purchasing a home on leased land. It has earned a very strong
and reputable history and its own rightful place in Mexico. It may or may not be for you.  Do research in order
to make an informed decision in accordance with your personal needs and expectations. Due diligence allows
you to base your decisions on rational research, not emotion. Don’t let fear control you. Some people lose
opportunity when they’re overly cautious. Become informed and then make a decision. Most importantly, live
your life the way you desire.

The above comments are the opinions of Herb Kinsey, & Roberta Giesea, author of Baja 4 YOU
We hope they are of assistance to you.
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