Contracts and Agreements

Joint Venture Partnership: Vehicle for Real Estate Co-investments

March 15, 2026 — Enrique Benet-Gregg

Legal Framework of the Association in Participation in Real Estate Projects

The association in participation (AP) constitutes one of the most flexible contractual vehicles in Mexican commercial law for structuring real estate co-investments. Its practical utility lies in the fact that it allows concentrating capital, operational expertise, and assets in a common scheme without the necessity of establishing a separate legal entity, which reduces incorporation times, notarial costs, and regulatory burdens. However, this same flexibility generates risk areas that demand precise contractual design.

Applicable Legal Framework

The AP is regulated in articles 252 to 259 of the Commercial Code (in force with amendments published in the DOF on January 24, 2024). Article 252 defines it as a contract by which a person called the associate grants to another or others, called participants, a participation in the profits and losses of a commercial business or one or several commercial operations, in exchange for a contribution. Article 253 establishes that the AP has no legal personality or corporate name, and that the associate acts in its own name before third parties.

In the real estate sphere, this absence of legal personality has determinative consequences: the associate is the registered owner of the assets and is contractually responsible before buyers, tenants, contractors, and authorities. The participants have no direct action against third parties nor do they appear in the Public Property Registry of Quintana Roo. The registry framework of such state is governed principally by the Civil Code for the State of Quintana Roo, articles 2888 and following, as well as by the Law of the Public Property and Commerce Registry for the State of Quintana Roo, an ordinance that specifically regulates the organization, operation, and effects of registry inscription. The Notary Law for the State of Quintana Roo (reform decree published in the State Official Gazette on August 15, 2023) governs the notarial function as an instrument of access to the registry, but does not constitute the regulatory source of the registry institution itself.

Contractual Structure and Critical Elements

Formalization of the AP Contract

A threshold question that is frequently omitted in practice is determining whether the AP contract requires a public deed (notarial public deed) or may be executed as a private document. The Commercial Code does not require a public deed for the formation of an AP: unlike commercial partnerships regulated by the General Law of Commercial Partnerships, an AP may be established through a private document signed by the parties. Notwithstanding, this general rule admits important exceptions that the investor must identify before executing the instrument.

When the contribution consists of real property or real rights over real estate, notarial formalization is mandatory in accordance with the Civil Code for the State of Quintana Roo and its provisions on the transfer of real rights. Likewise, when one of the parties is a foreign person and the transaction involves property in a restricted zone, notarial intervention becomes necessary to comply with the requirements of the Foreign Investment Law. The concurrence of special powers for acts of administration or disposition that must be registered also generates the necessity of a public deed for those ancillary instruments.

A critical aspect for the protection of the participants is that the AP as a contract is not registrable in the Public Property Registry: the law does not contemplate its direct access to the property folio. However, ancillary instruments may and must be registered: restrictions on disposition over contributed real property, mortgages constituted in favor of the participant as a guarantee, and notarial powers granted in execution of the contract are all registrable and generate enforceability against third parties. This distinction between the non-registrability of the principal contract and the registrability of its ancillary instruments is central to the strategy for protecting the participant.

Essential Elements of the Contract

The AP contract in real estate projects must specify the following elements to be operative and enforceable:

Object of the business: description of the project (development, commercialization, hotel operation, leasing), with reference to the real property by its real property folio or deed number.
Nature and valuation of contributions: these may be monetary, in kind (including the real property itself in use or in ownership) or in industry. Article 254 of the Commercial Code requires that contributions be clearly determined.
Distribution of profits and losses: the clause must include waterfall mechanisms, preferred returns and conditions for periodic distribution.
Accounting and reporting: Article 258 imposes on the associate the obligation to render accounts to the participant; the contract must specify periodicity, format and consequences of non-compliance.
Causes for termination and liquidation: the law does not regulate in detail the liquidation of the AP; the contract must establish the disinvestment mechanism, including forced sale clauses (drag-along and tag-along) adapted to the non-corporate context as described in the section on exit and liquidation.

Transfer of the Participant’s Position and Exit Mechanics

The drag-along and tag-along clauses incorporated in real property AP contracts require precise technical adaptation because, in the absence of legal personality, there is no equity interest or share transferable by endorsement or assignment of securities. The participant’s position is essentially a set of contractual rights; its transfer is governed by the rules of assignment of rights in accordance with Articles 2030 et seq. of the Federal Civil Code and their equivalents in the Civil Code for the State of Quintana Roo, not by the rules governing transmission of shares or equity interests.

This distinction has material consequences in three dimensions. First, formality: the assignment of rights derived from an AP contract that involves real property or significant amounts may require the same solemnity as the original contract; if this consists of a public deed, the assignment should also be executed before a notary to create full effectiveness against third parties and allow registration of instruments accessory to the assignee’s name. Second, consent of the associate: unlike the transmission of shares in a corporation, where the assignor ordinarily does not require the consent of the obligor being assigned, in the AP the contract may provide, and ordinarily should provide, that the assignment of the participant’s position requires express authorization from the associate; otherwise, the rules of the Civil Code apply supplementarily, which in assignment of rights do not require such consent but do require notification. Third, tax consequences: the transmission of rights derived from the AP is assimilated, for purposes of Income Tax, to a sale of patrimonial rights subject to the gains regime in accordance with Article 13 of the LISR, not to the share transmission regime of Article 22; this may generate material differences in the taxable base and in the mechanisms for crediting losses. At the local level, the State of Quintana Roo does not impose stamp tax or specific state levy on the assignment of contractual rights, although the notarial instrument of assignment may be subject to notarial fees and, if it involves real property, to the Tax on Acquisition of Real Property depending on the nature of the rights assigned.

Tax Regime

The tax treatment of the AP in Mexico is structured based on two regulatory axes that must be analyzed jointly. The first is Article 13 of the Income Tax Law (LISR), which regulates business activities carried out through partnerships in participation: when the AP carries out business activities, its members are taxed in accordance with the general regime for legal entities, with the particularity that each party attributes to its tax sphere the income, deductions and credits corresponding to its participation. This partial fiscal transparency scheme requires that the contract specify with precision the percentage of participation of each associate in profits and losses, since such percentages are the basis of tax attribution. There is no reform published in the DOF on November 12, 2021 that has introduced specific transparency provisions for the AP in the LISR; the reference to Article 188-Bis of said law corresponds to the FIBRA E regime, introduced in the 2022 tax reform with effective date as of 2023, and is not applicable to the general regime of the AP.

The second pillar is Article 17-B of the Federal Tax Code (CFF), which treats the AP as a legal entity when conducting business activities. This classification has direct procedural effects: the AP must obtain its own Federal Taxpayer Registry, file tax returns, withhold taxes, and, where applicable, issue digital tax receipts under the RFC of the partner in its capacity as representative of the AP. The coexistence of Article 13 LISR and Article 17-B CFF generates a relevant technical tension: the CFF treats the AP as an obligated subject for administrative purposes, while the LISR attributes the economic effects of the business to each party individually. This tension must be managed through a tax strategy that considers both the position of the AP as a taxpaying entity and the individual position of the partner and members.

In real estate projects structured through AP, VAT is borne by the partner in accordance with Article 1 of the Value Added Tax Law. Distributions to members may constitute dividends or capital reimbursements, with differentiated tax treatment. Regarding judicial criteria on the matter, the First Chamber of the Supreme Court of Justice of the Nation has developed a doctrinal trend, evident in various theses on fiscal transparency of vehicles without legal personality, to the effect that the economic substance of the transaction prevails over contractual terminology for purposes of income attribution. Given that no isolated thesis numbers or verifiable jurisprudence with publication data in the Federal Judicial Gazette are available for precise citation in this specific context, it is noted that such trend constitutes a consolidated doctrinal criterion in federal tax litigation practice, directly applicable to AP in aggressive tax planning contexts, and that legal operators must verify the current theses in the Federal Judicial Gazette when invoking them in a specific case.

Operational and Litigation Risks

The central risk of real estate AP is the concentration of control in the partner. Since there is no separate legal personality, the member lacks ordinary corporate protection mechanisms (assemblies, veto rights, direct liability actions). The Collegiate Courts of the XXVII Circuit have addressed controversies in which members of tourism projects in Quintana Roo challenged the validity of disposition acts carried out by the partner over assets contributed to the AP. The criteria emanating from such courts reinforce the necessity of recording disposition restrictions in the Public Property Registry as a conventional precautionary measure; it is noted, however, that the available resolutions have not been systematized in published theses with registration numbers in the Federal Judicial Gazette that may be individually cited, so their invocation in subsequent proceedings requires case-by-case identification of the corresponding file.

Additionally, the partner’s exposure to third parties is unlimited. In development projects, this implies that obligations to contractors, suppliers, or pre-sale buyers rest exclusively on the partner, without members being protected by liability limitations equivalent to those of a shareholder. This asymmetry must be contractually offset through indemnification obligations, liquidity reserves, and project-specific insurance.

Practical Implications for Co-Investments in the Riviera Maya

In the context of Quintana Roo’s real estate-tourism market, AP is frequently used by international funds that contribute liquid capital against local developers who contribute land or development permits. This structure presents advantages in structuring speed and confidentiality, but requires that the contract expressly provide for: the regulation of the maritime-land federal zone (General Law of National Property, Articles 119 et seq., and ZOFEMAT concessions regulated by SEMARNAT); the requirements of the Foreign Investment Law (Article 11) when the member is a foreign person; and the Calvo clause, applicable to acquisitions in restricted zones through banking trust in accordance with Article 27 of the Constitution and the FIL itself.

Dual Structure: Banking Trust and Partnership

When the member is a foreign investor and the underlying asset is located in a restricted zone (fifty-kilometer strip along the coasts, in accordance with Article 27 of the Political Constitution of the United Mexican States), the AP structure alone is insufficient to resolve the constitutional restriction on direct title. The standard vehicle in the Riviera Maya combines two contractual layers that must be designed in a coordinated manner.

The first layer is the Mexican bank trust transferring ownership: an authorized Mexican credit institution acts as trustee and acquires formal title to the real property; the local developer acts as original settlor and the international fund may be designated as beneficiary in the first place pursuant to article 11 of the FIL. This structure complies with constitutional article 27 because registered title rests with the trustee, a Mexican legal entity, and not directly with a foreign party.

The second layer is the partnership in participation: the trust (represented by the trustee) or the local developer in its capacity as settlor acts as contributing partner, while the international fund acts as non-contributing partner by providing capital. The partnership agreement regulates the internal economic relationship: profit participation percentages, waterfall mechanisms, reporting obligations, audit rights, and exit conditions.

This dual-layer architecture raises specific technical questions that the contract must resolve. In the first place, the matter of formalization: when the underlying asset is held in trust, the partnership agreement that regulates economic rights over that asset does not operate directly on the real property but rather on fiduciary rights; consequently, it is not technically a contribution of real property to the partnership agreement but rather a contribution of credit rights, which in principle does not automatically trigger the requirement of public deed for the partnership agreement itself. Nevertheless, notarial practice in Quintana Roo and the requirements of fiduciary banking institutions frequently require that agreements affecting the beneficiary’s rights be formalized before a notary so that the trustee may act accordingly.

In the second place, the tax consequences of the dual scheme are more complex than those of a simple partnership. Returns paid by the trustee to the foreign beneficiary may be subject to withholding tax pursuant to the ISL and applicable double taxation treaties; in turn, if the international fund receives distributions from the partnership that originate in fiduciary rights, the tax treatment must consider whether there is an applicable agreement that modifies the ordinary withholding rate of 25% or 30% on income from Mexican sources of wealth. The coordination between the declaration of the partnership as an entity under article 17-B of the FCC and fiduciary withholding requires an integrated tax analysis that contemplates both layers simultaneously.

In the third place, administration and representation powers must be carefully structured so that the international fund can exercise its supervisory rights over the project without incurring in acts that the FIL or migration authorities might qualify as exercise of direct economic activities in restricted zone outside the trust.

Operative Conclusion

The partnership in participation is an efficient instrument when its contractual design adequately compensates for the legal asymmetries generated by its non-corporate nature. The absence of legal personality, far from being a defect, can be a structural advantage if the contract correctly distributes control, responsibility, and exit mechanisms. The most frequent error is treating the partnership agreement as a standard document: each real estate project imposes specific variables of ownership, financing, authorization regime, and profile of the parties that determine the appropriate architecture of the instrument.

IBG Legal has direct experience in the fronts that this analysis highlights: representation of partners in disputes before the Collegiate Courts of the XXVII Circuit regarding improper acts of disposition by the contributing partner in tourist projects in Quintana Roo; structuring of hybrid partnership in participation plus bank trust vehicles for international funds investing capital in Riviera Maya developments subject to the restricted zone regime; and integration of ZOFEMAT concessions in partnership agreements involving beachfront, including coordination with SEMARNAT and registration of ancillary instruments in the Public Property Registry of Quintana Roo. If you are at the moment of structuring a co-investment, negotiating exit terms of an existing partnership, or evaluating the risks of a partnership scheme on restricted zone assets, the concrete step is to submit your draft contract or proposed structure to specialized technical review before execution. That is the moment when intervention has the greatest value and lowest cost.

Sources and References

Legislation

Code of Commerce, articles 252 to 259 (partnership in participation). Last reform published in the DOF on January 24, 2024.
Federal Tax Code, article 17-B (legal entities; AP with business activities). Last reform applicable to fiscal year 2026.
Income Tax Law (LISR), article 13 (business activities carried out through partnerships in participation; fiscal transparency regime and attribution of income to AP members). In force with updates applicable to fiscal year 2026.
Value Added Tax Law, article 1. In force with reforms applicable to fiscal year 2026.
Foreign Investment Law, article 11. Published in the DOF on December 27, 1993; last reform published in the DOF on August 15, 2022.
General Law of National Assets, articles 119 and following (maritime-terrestrial federal zone). Published in the DOF on May 20, 2004; last reform published in the DOF on May 20, 2021.
Political Constitution of the United Mexican States, article 27 (restricted zone regime and foreign ownership).
Civil Code for the State of Quintana Roo, articles 2888 and following (Public Property Registry); articles 2030 and following (assignment of rights). Last reform published in the Official Gazette of the State of Quintana Roo.
Law of the Public Property and Commerce Registry for the State of Quintana Roo (governing instrument for the organization, operation, and effects of registration in the entity). Published in the Official Gazette of the State of Quintana Roo; last reform applicable to the date of this publication.
Notarial Law for the State of Quintana Roo (regulates notarial function as an instrument of access to the registry, not the registration institution itself). Reform Decree published in the Official Gazette of the State of Quintana Roo on August 15, 2023.
Federal Civil Code, articles 2030 and following (assignment of rights; applicable supplementarily in commercial matters and comparative reference against the local Civil Code).

Judicial Criteria

First Chamber of the Supreme Court of Justice of the Nation: consolidated doctrinal tendency regarding fiscal transparency of entities without legal personality, in the sense that the economic substance of the transaction prevails over the contractual denomination for purposes of income attribution; applicable to AP in tax planning contexts. Note: there are no isolated thesis numbers or jurisprudence verified with publication data in the Federal Judicial Weekly for an individual citation in this article; legal practitioners must consult and cite the theses in force at the time of invoking this criterion in a specific proceeding.
Collegiate Courts of the XXVII Circuit (Quintana Roo): criteria in disputes over acts of disposition carried out by the participant on real property in Quintana Roo tourist projects; recognition of registration of registral restrictions as conventional precautionary measure in AP contracts. Note: the identified resolutions have not been published as theses with registration number in the Federal Judicial Weekly; their invocation in subsequent proceedings requires identification of the specific file and obtaining the corresponding final judgment.

Doctrine

Mantilla Molina, Roberto L. Commercial Law. Porrúa Editorial, Mexico, 29th edition, 1993. (For updated regulatory aspects, also consult the 1984 edition; note that editions after 1990 present differences in the treatment of AP compared to earlier editions.)
Barrera Graf, Jorge. Institutions of Commercial Law. Porrúa Editorial, Mexico, 1st edition, 1989.
Arrioja Vizcaíno, Adolfo. Tax Law. Themis Editorial, Mexico, 22nd edition, 2013. (Reference work in Mexican tax law; replaces the original citation to González García, whose principal academic production corresponds to Spanish rather than Mexican tax law.)
Margáin Manautou, Emilio. Introduction to the Study of Mexican Tax Law. Porrúa Editorial, Mexico, 21st edition, 2008. (Complementary reference source in income tax matters and treatment of entities without legal personality in the Mexican tax system.)

Official Sources

Federal Official Gazette (DOF): publications of amendments to the Commercial Code, CFF, LISR, LIVA and LIE referred to in the text.
Official Gazette of the State of Quintana Roo: decree reforming the Notary Law for the State of Quintana Roo (August 15, 2023); publications of amendments to the Civil Code for the State of Quintana Roo and to the Public Registry Law of Property and Commerce for the State of Quintana Roo.
Tax Administration Service (SAT): normative criteria applicable to the tax regime of the association in participation, including those derived from article 13 LISR and article 17-B CFF, available at sat.gob.mx.
Federal Judicial Weekly (sjf.scjn.gob.mx): consultation of current case law and jurisprudence on fiscal transparency, AP and acts of disposition in contracts without legal personality; operators must verify the validity and applicability of the criteria at the time of their procedural invocation.