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Contracts and Agreements

Real Estate Joint Venture Agreements: Structure, Risks and Exit

March 15, 2026 — Enrique Benet-Gregg

Real Estate Joint Venture Agreements: Structure, Risks, and Exit

Co-investments in the development or acquisition of real property in Mexico operate in a nominative void: Mexican legislation does not recognize the joint venture as an autonomous legal figure. What the markets refer to as such is implemented through a combination of corporate vehicles, shareholders’ agreements and co-investment agreements that must be constructed with systematic coherence among instruments based on the Federal Civil Code, the General Law on Commercial Corporations, and in Quintana Roo, the State Civil Code. The absence of a specific framework does not constitute a gap in protection, but rather generates an applicable law problem: given the non-existence of a lex specialis on joint ventures in the Mexican legal system, the interpreter must integrate rules of different hierarchy and source, with the risk that concurrent instruments produce contradictory solutions that none of the parties anticipated when contracting.

Structuring Vehicles

The choice of vehicle defines tax exposure, governance, and the enforceability of exit mechanisms. The most widely used structures in real estate projects in the Riviera Maya are three.

Investment Promotion Anonymous Corporation (SAPI)

The Securities Market Law enables, under its SAPI regime, agreements that would be void in an ordinary corporation. With greater technical precision: restrictions on share transfer are founded on article 16 LMV; drag-along rights and tag-along rights are specifically authorized in article 16, sections II and III, respectively; and mechanisms for partner exclusion and forced acquisition of participations are regulated in article 17 LMV. For projects with foreign capital, the SAPI is the standard vehicle because it integrates these contractual protections directly into the bylaws, endowing them with enforceability against third parties registered with the Public Commerce Registry.

An aspect that is frequently omitted in the structuring of SAPIs with majority foreign participation is the interaction between the corporate vehicle and constitutional restrictions on property ownership in restricted zones. A SAPI with a majority of foreign capital cannot, by itself, be the direct owner of real property located within the fifty-kilometer strip along coastlines or in the hundred-kilometer zone at borders, pursuant to article 27 of the Constitution. Consequently, the holding of the real estate asset must be channeled through a real estate trust whose trustee institution is an authorized credit institution, with the SAPI as beneficiary. The Ministry of Economy must issue the corresponding permit for the establishment of the trust, in accordance with the Regulations of the Foreign Investment Law and the National Registry of Foreign Investments.

Additionally, the establishment of a SAPI with active foreign participation activates the obligation to register with the National Registry of Foreign Investments (RNIE). Pursuant to the Regulations of the Foreign Investment Law, registration must be completed within forty business days following the establishment of the corporation or the acquisition of participation by the foreign investor. Non-compliance with this obligation generates administrative sanctions and may compromise the investor’s position before the Ministry of Economy in subsequent proceedings, including the renewal of the real estate trust. The recommended practice is to manage simultaneously the registration with the RNIE and the application for the trust permit, given that both proceedings are handled by the same agency and share base documentation.

Investment Trust

The Credit Institutions Law, in its articles 46, section XV, and 79 through 85, and the General Law on Negotiable Instruments and Credit Operations, articles 381 through 407, regulate the trust as an alternative vehicle. Its principal utility in co-investments lies in the patrimonial separation of the real property from the parties, the possibility of establishing simultaneous guarantee trusts and, for foreign buyers in restricted zones, to comply with the mandate of article 27 of the Constitution through a real estate trust, in accordance with the Regulations of the Foreign Investment Law and the National Registry of Foreign Investments. When the trust operates as the principal vehicle of the co-investment, the beneficial rights of each co-investor must be clearly defined in the trust agreement, including the conditions for assignment of such rights, which in practice replicate the functions of exit mechanisms inherent to corporate law.

Partnership in Participation

Regulated by articles 252 to 259 of the General Law of Mercantile Corporations, the partnership in participation lacks its own legal personality and is not registered in the Public Commercial Registry, making it unsuitable for medium or large-scale projects. Its use is limited to short-term co-investments or structures where initial opacity is deliberate, a circumstance that generates inherent risks regarding joint and several liability and accreditation of co-investment before fiscal authorities.

Critical Clauses of the Co-Investment Agreement

Regardless of the vehicle chosen, the co-investment agreement must address six matters with technical precision.

Governance and Decision-Making

The distribution of powers among corporate bodies, the definition of reserved matters, and special quorum requirements for acts of disposition over the real property must be consistent between the bylaws and the shareholders’ agreement. Discrepancies between these two instruments have generated frequent litigation: the Collegiate Courts of Circuit have repeatedly held that, in conflict between registered bylaws and an unregistered shareholders’ agreement, the bylaws prevail against third parties in good faith, without prejudice to actions among the parties arising from the agreement. This criterion sjf2.scjn.gob.mx corresponds to theses of Collegiate Courts whose value as precedent is conditioned on the reiteration of five final rulings in accordance with article 222 of the Amparo Law; insofar as they do not reach that threshold, they constitute guiding criteria without binding jurisprudential force.

Contributions and Capitalization

Contribution obligations must specify form, amount, schedule, and consequences of non-compliance. The General Law of Mercantile Corporations, article 89, section IV, requires that subscribed capital be paid in full when it consists of assets other than cash. For contributions in kind of real property, the appraised value must be ratified by the assembly in accordance with article 141 of the same law, and the transfer must be formalized before a notary public with payment of the corresponding Real Property Acquisition Tax (ISAI).

Regarding ISAI, it is advisable to clarify an important aspect for foreign investors: this tax was repealed at the federal level and is today exclusively a state and municipal tax. In the State of Quintana Roo, its regime is governed by the Tax Law of the State of Quintana Roo. The applicable rates and exemptions vary depending on the municipality where the real property is located; specifically, the municipalities of Benito Juárez (Cancún) and Solidaridad (Playa del Carmen) apply different rates and bases, with exemption regimes that must be verified on a case-by-case basis. This municipal differentiation is structurally relevant for the financial modeling of the contribution in kind, given that the tax cost of the transfer may differ significantly depending on the location of the asset within the same state.

Additional Capital and Dilution

One of the most frequent structural errors in real estate co-investments is the omission of provisions that regulate the injection of capital not originally foreseen and its consequences on each co-investor’s participation. An agreement that is silent on these matters converts any need for additional financing into an immediate source of conflict.

The capital call mechanism must establish: the authority that determines the need for additional capital (typically the board of directors or a qualified majority of the assembly); the period for each partner to exercise or decline their preemptive subscription right; and the consequences of non-compliance, which may include proportional dilution or, in more aggressive structures, punitive dilution at a reduced price. From the perspective of Mexican corporate law, an increase in subscribed capital requires a resolution of an extraordinary shareholders’ assembly, in accordance with article 182, section III, of the General Law of Mercantile Corporations, which implies that the co-investment agreement must provide for a realistic minimum schedule between the capital call decision and the formalization of the increase.

Regarding anti-dilution mechanisms, the two main schemes are the full ratchet adjustment, in which the conversion or subscription price of the protected investor is equated to the price of the new round regardless of its amount, and the weighted average adjustment (weighted average), which moderates the dilutive effect by taking into account the relative volume of the new issuance with respect to existing capital. For real estate projects with a single underlying asset, the weighted average is generally the most equitable mechanism and the one that generates the least friction in emergency capitalization rounds. The agreement must specify which of these methods applies, the calculation procedure, and the instrument by which each party’s participation is formally adjusted.

Distribution of Profits and Priorities

Sophisticated agreements establish waterfall structures: preferential return to the passive co-investor, recovery of invested capital, and proportional participation in the remainder. These precedences must be consistent with the provisions of the Income Tax Law applicable to the distribution of dividends and the determination of tax profit for the fiscal year.

Purchase Option and Right of First Refusal

The right of first refusal among shareholders, analogous to that provided in article 2303 of the Federal Civil Code for co-ownership, must be expressly agreed in the SAPI bylaws or in the shareholders’ agreement with a determined term. The omission of an exercise period has been a source of litigation: civil courts in Quintana Roo have interpreted that, in the absence of a conventional term, the general periods of prescription under the Civil Code of the State of Quintana Roo apply by analogy.

Exit Mechanisms

Exit is the moment where co-investment agreements most frequently fail. A well-designed exit mechanism anticipates three scenarios: agreed exit, forced exit, and exit due to breach.

Shotgun or Russian Roulette Mechanism

This clause allows either party to offer to purchase the other’s participation at a determined price, granting the recipient the symmetric option to buy or sell at that same price. Its validity in Mexico has not been subject to express pronouncement by the Supreme Court of Justice of the Nation, but the Collegiate Courts have recognized the validity of reciprocal option clauses in commercial contracts, provided that the price or the mechanism for its determination is certain or determinable in accordance with article 1825 of the Federal Civil Code, applicable supplementarily in commercial matters. The corresponding criteria, derived from isolated theses of Collegiate Courts of Circuit.

Tax Implications of Exit

The tax consequences of exit mechanisms are structurally determinative for the foreign investor and must not be relegated to a footnote. The disposition of shares by a resident abroad is governed by article 161 of the Income Tax Law, which establishes two alternative regimes: payment of 25% on the gross income obtained from the disposition, withheld by the acquirer, or payment of 35% on the net gain when the seller designates a legal representative in Mexico and has the transaction certified by a registered public accountant. The choice between both options depends on the documented cost basis of the investor and the magnitude of the realized gain.

When there is a tax treaty to avoid double taxation between Mexico and the country of residence of the investor, the treatment under article 161 ITSL may be substantially modified: several treaties executed by Mexico (including those concluded with the United States, Canada, and the principal countries of the European Union) assign the taxing power over capital gains on shares to the country of residence of the seller, except when more than 50% of the value of the shares derives from real property located in Mexico, an assumption frequently present in real estate projects. This real estate exception of the treaty override is an element that must be analyzed in the initial structuring, not at the moment of exit.

An additional specific risk of the shotgun mechanism is the possible recharacterization of the payment received by the exiting partner as presumed dividend, in the event that the tax authority challenges that the price paid exceeds the tax value of the shares and that the excess constitutes an undeclared distribution of profits. To mitigate this risk, the valuation methodology agreed in the shotgun clause must be referenced to a recognized market value standard (enterprise value determined by an independent third party or agreed multiple of objective indicators) and the transaction must be documented with a contemporary appraisal that supports the price against a possible SAT review. This consideration reinforces the importance of resolving, from the drafting of the co-investment agreement, the third most frequent structural error: the absence of agreed valuation methodology for exit mechanisms.

Forced Asset Liquidation

When the parties are unable to agree on a bilateral exit, the dissolution and liquidation of the company in accordance with articles 229 to 249 of the General Law of Commercial Corporations, with appointment of an independent liquidator, constitutes the residual mechanism. In real estate projects, this alternative is costly and destroys value: a correctly structured co-investment agreement should minimize the probability of reaching this point through mandatory prior mediation clauses and commercial arbitration.

Dispute Resolution

The arbitration clause is the standard in large-scale real estate co-investments. For projects in Quintana Roo with foreign parties, international arbitration under the rules of the International Chamber of Commerce (ICC), the International Center for Dispute Resolution of the American Arbitration Association (ICDR), or the Mexican Arbitration Center (CANACO) is the appropriate mechanism for resolving disputes between private parties. It must be emphasized that the International Centre for Settlement of Investment Disputes (ICSID) is not an available forum for disputes between a foreign investor and a Mexican private counterparty: ICSID jurisdiction requires the existence of an investment dispute between a State party and a national of another State party, under the terms of the Washington Convention. Investment protection arbitration, whether under Chapter 14 of the T-MEC or under an applicable bilateral investment treaty, is relevant only when the Mexican State is a direct counterparty or when the conduct of a Mexican authority constitutes a measure equivalent to expropriation or a violation of the minimum standard of treatment.

The International Commercial Arbitration Law, which incorporates the UNCITRAL Model Law, and the Code of Commerce, articles 1415 to 1463, in their current version, provide the framework for recognition and enforcement of arbitral awards in Mexico. Mexican courts have upheld the kompetenz-kompetenz principle as a limit to judicial intervention during arbitral proceedings, recognizing the primary competence of the arbitral tribunal to resolve its own jurisdiction, except in cases of manifest nullity of the arbitration clause. This criterion derives from resolutions of the First Chamber of the SCJN in indirect amparo proceedings related to articles 1424 and 1432 of the Code of Commerce; the corresponding theses are at sjf2.scjn.gob.mx. Since they correspond to isolated theses and not to jurisprudence by reiteration, they should be cited with the qualification of guiding criterion, not binding in the strict sense.

Practical Implications

Three structural errors are recurrent in real estate co-investments in Mexico. First, the separation between the shareholders’ agreement and the bylaws without consistency verification, which generates contradictory instruments whose regulatory hierarchy is not resolved in the agreement. Second, the omission of specific provisions on additional capital and dilution, a matter analyzed in the corresponding section of this article: an agreement that is silent on capital call and anti-dilution mechanisms converts any unforeseen financing need into a source of structural conflict. Third, the absence of agreed valuation or valuation methodology for exit mechanisms, a circumstance that paralyzes the execution of any forced sale clause and exposes the operation to the risk of tax recharacterization described in the section on tax implications of exit.

The contractual design of a real estate co-investment must anticipate litigation from the moment of drafting. An agreement that only regulates the collaborative scenario is, in practice, an incomplete agreement.

IBG Legal is a boutique firm specializing in litigation and transactional advice on contracts, structuring of co-investments and real estate development, with offices in Cancún and offices in Mexico City and Querétaro. Our practice in structuring real estate co-investments includes the design of agreements for projects in restricted zones that require simultaneous coordination between the real estate trust regime before the Ministry of Economy, compliance with obligations before the RNIE and the implementation of executable exit mechanisms before the federal courts of Quintana Roo or through international commercial arbitration. A dimension that distinguishes our practice is the management of procedures for recognition and enforcement of foreign arbitral awards before the district courts headquartered in Cancún, including procedural coordination between federal enforcement authorities and the Public Property Registry of the State of Quintana Roo when the underlying asset of the dispute is a real estate property. Inquiries about real estate co-investments may be directed to info@ibg.legal.

Sources and References

Legislation

  • Political Constitution of the United Mexican States, article 27. Latest amendment published in the DOF on November 18, 2022.
  • Federal Civil Code, articles 1825, 2303. Latest amendment published in the DOF on January 11, 2021.
  • Commercial Code, articles 1415 to 1463. Latest amendment published in the DOF on January 24, 2025.
  • General Law of Commercial Companies, articles 89, 141, 182 subsection III, 229 to 249, 252 to 259. Latest amendment published in the DOF on May 20, 2021.
  • Securities Market Law, articles 13 to 19, with particular reference to articles 16 (subsections II and III) and 17, relating to transmission restrictions, drag-along and tag-along rights, and mechanisms for partner exclusion. Latest amendment published in the DOF on January 9, 2024.
  • Law on Credit Institutions, articles 46 subsection XV, 79 to 85. Latest amendment published in the DOF on June 22, 2023.
  • General Law on Securities and Credit Operations, articles 381 to 407. Latest amendment published in the DOF on January 21, 2021.
  • International Commercial Arbitration Law (incorporated in the Commercial Code, articles 1415 to 1463). In effect in its current text.
  • Foreign Investment Law and its Regulation of the National Registry of Foreign Investments. Latest amendment to the Regulation published in the DOF on May 31, 2018. See in particular the provisions relating to registration periods before the RNFI and requirements for permission from the Ministry of Economy for trusts in restricted areas.
  • Income Tax Law, article 161 (disposition of shares by non-residents) and applicable provisions regarding distribution of dividends and tax profit. Latest amendment published in the DOF on November 12, 2021.
  • Civil Code of the State of Quintana Roo. Latest amendment published in the Official Gazette of the State of Quintana Roo on June 14, 2024.
  • Tax Law of the State of Quintana Roo. Applicable to the Tax on Acquisition of Real Property (ISAI) as a state tax; rates and exemptions vary by municipality, including the municipalities of Benito Juárez and Solidaridad.
  • Treaties to Avoid Double Taxation executed by Mexico, in particular with the United States, Canada, and member states of the European Union, with respect to the real property exception clause on capital gains from shares.
  • T-MEC (Treaty between Mexico, the United States and Canada), Chapter 14, relating to protection of investments and investor-state arbitration. In effect since July 1, 2020.

Jurisprudential Criteria

  • Principle of kompetenz-kompetenz in commercial arbitration: The First Chamber of the Supreme Court of Justice of the Nation has held that judicial courts must refrain from deciding the merits of a dispute submitted to an arbitration clause, recognizing the primary competence of the arbitral tribunal to determine its own jurisdiction, except in cases of manifest nullity of the clause. Criterion derived from indirect amparo proceedings relating to articles 1424 and 1432 of the Commercial Code. The corresponding theses are available at sjf2.scjn.gob.mx under the thematic headings of commercial arbitration. As long as these are isolated theses and not jurisprudence by iteration of five final judgments as provided in article 222 of the Amparo Law, their precedential value is advisory, not binding.
  • Prevalence of registered bylaws over unregistered parasocial agreements: Collegiate Appellate Courts have established that parasocial agreements not registered in the Public Commercial Registry are not enforceable against third parties in good faith, with the bylaws being the governing instrument over them, without prejudice to actions for damages among the signatory parties to the agreement. The criteria are available at sjf2.scjn.gob.mx. Their status as isolated theses or binding jurisprudence must be verified in each case through the thesis identifiers available at sjf2.scjn.gob.mx.
  • Validity of reciprocal option clauses in commercial contracts: Collegiate Appellate Courts have recognized the validity of reciprocal purchase and sale options in commercial contracts when the price is determined or determinable through an objective mechanism, in accordance with article 1825 of the Federal Civil Code applicable by supplementary provision. Criterion derived from isolated theses; its precedential scope must be qualified in accordance with the iteration threshold of article 222 of the Amparo Law.
  • Mantilla Molina, Roberto L. Commercial Law. Porrúa, Mexico, current edition.
  • Barrera Graf, Jorge. Institutions of Commercial Law. Porrúa, Mexico.
  • Vásquez del Mercado, Oscar. Assemblies, Merger, Transformation and Liquidation of Commercial Companies. Porrúa, Mexico, current edition.
  • González de Cossío, Francisco. Arbitration. Porrúa, Mexico, 3rd edition.

Official Sources

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