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Real Estate M&AContributing editorsJoseph Lanzkron and Steven L Wilner

2019© Law Business Research 2018

Real Estate M&A 2019Contributing editors

Joseph Lanzkron and Steven L WilnerCleary Gottlieb Steen & Hamilton LLP

PublisherTom [email protected]

SubscriptionsJames [email protected]

Senior business development managers Adam [email protected]

Dan [email protected]

Published by Law Business Research Ltd87 Lancaster Road London, W11 1QQ, UKTel: +44 20 3780 4147Fax: +44 20 7229 6910

© Law Business Research Ltd 2018No photocopying without a CLA licence. First published 2017Second editionISBN 978–1-78915–063–6

The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. This information is not intended to create, nor does receipt of it constitute, a lawyer–client relationship. The publishers and authors accept no responsibility for any acts or omissions contained herein. The information provided was verified between September and October 2018. Be advised that this is a developing area.

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Reproduced with permission from Law Business Research Ltd This article was first published in November 2018

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© Law Business Research 2018

CONTENTS

2 Getting the Deal Through – Real Estate M&A 2019

Argentina 5Pedro Nicholson and Juan Francisco OriaBeccar Varela

Brazil 11Luanda Pinto Backheuser DDSA Advogados

Czech Republic 18Thu Nga Haškovcová, Petr Dušek and Karolína HanzlíkováHaškovcová&Co

France 24Frédérique Chaillou, Raphaël Chantelot, Florence Defradas, François-Régis Fabre-Falret, Sandra Fernandes, Silke Nadolni and Chloé ThiéblemontLPA-CGR Avocats

Germany 30Carsten Loll, Katharina Engels, Henriette Hosemann, Barbara Rybka, Isabelle-Carmen Weis and Alexander ZitzlLinklaters LLP

India 36Hardeep Sachdeva, Ravi Bhasin and Abhishek AwasthiAZB & Partners, Advocates & Solicitors

Italy 43Marco Gubitosi, Gabriele Capecchi, Giuseppe Abbruzzese and Giulia PonomarevLegance – Avvocati Associati

Japan 49Haruo Narimoto, Junji Shiraki, Takenobu Imaeda, Kensei Ikeda, Masaki Tsujioka and Hideaki KurauchiTMI Associates

Mexico 55Luis González, Juan Carlos Izaza, Carlos Ugalde and Eduardo MontenegroSolórzano, Carvajal, González y Pérez-Correa, SC (Solcargo)

Russia 61Maria Miroshnikova, Alexey Kozyakov, Dmitriy Stepanenko and Olga KudryavtsevaIvanyan & Partners

Spain 69Yásser-Harbi Mustafá and Iván AbadUría Menéndez

Sweden 75Johan Lindberg and Måns DerkAG Advokat KB

Switzerland 81Wolfgang Müller, Andrea Sieber and Denise LäubliMeyerlustenberger Lachenal AG

Turkey 87Serhan Koçaklı, Alp Erçetin, Büşra Özden and Gökçe İldiriKolcuoğlu Demirkan Koçaklı Attorneys at Law

United Kingdom 95David Manifould, Michelle Jones, Clive Garston, John Dunlop and Andrew BoultonDAC Beachcroft LLP

United States 108Steven L Wilner, Victor Lewkow, Jason R Factor, Daniel C Reynolds, Joseph Lanzkron and Everson LadsonCleary Gottlieb Steen & Hamilton LLP


www.gettingthedealthrough.com 3

PREFACE

Getting the Deal Through is delighted to publish the second edition of Real Estate M&A, which is available in print, as an e-book and online at www.gettingthedealthrough.com.

Getting the Deal Through provides international expert analysis in key areas of law, practice and regulation for corporate counsel, cross-border legal practitioners, and company directors and officers.

Throughout this edition, and following the unique Getting the Deal Through format, the same key questions are answered by leading practitioners in each of the jurisdictions featured. Our coverage this year includes chapters on Argentina, Italy and Japan.

Getting the Deal Through titles are published annually in print. Please ensure you are referring to the latest edition or to the online version at www.gettingthedealthrough.com.

Every effort has been made to cover all matters of concern to readers. However, specific legal advice should always be sought from experienced local advisers.

Getting the Deal Through gratefully acknowledges the efforts of all the contributors to this volume, who were chosen for their recognised expertise. We also extend special thanks to Joseph Lanzkron and Steven L Wilner of Cleary Gottlieb Steen & Hamilton LLP, the contributing editors, for his assistance in devising and editing this volume.

LondonOctober 2018

PrefaceReal Estate M&A 2019Second edition


Solórzano, Carvajal, González y Pérez-Correa, SC (Solcargo) MEXICO


MexicoLuis González, Juan Carlos Izaza, Carlos Ugalde and Eduardo MontenegroSolórzano, Carvajal, González y Pérez-Correa, SC (Solcargo)

1 What is the typical structure of a business combination involving a publicly traded real-estate owning entity?

Typical business structures and combinations used in Mexico include the following.

CKDsCertificates of Capital Development (CKDs) are securities issued by a trust listed on the Mexican Stock Exchange. These financial instru-ments are structured through Mexican trusts created to issue the CKDs to be placed and offered through a public offering on the Mexican Stock Exchange (BMV).

The business and legal rationale behind CKDs is the creation of sources of capital for Mexican companies to finance specific types of projects located in Mexico, including real estate, and, in turn, support economic growth.

FIBRAsMexican real-estate investment trusts (FIBRAs) are investment trusts vehicles incorporated under Mexican laws and dedicated to the acqui-sition and development of real-estate properties in Mexico.

FIBRAS are intended to lease or purchase the right to receive income from the lease of such properties. They issue real-estate trust securities that are placed and offered on BMV for the general public to invest in them.

The business and legal rationale behind these business structures is to enhance the real-estate sector, be a source of liquidity for real-estate developers and contribute in the diversification of investment portfolios, providing a new investing alternative in a regulated market.

FIBRAs grant certain tax benefits to real-estate developers that construct or purchase real estate.

SIBRAsReal-estate investment companies (SIBRAs) are business entities organised under Mexican laws with the purpose of constructing or leasing real-estate properties.

2 Are there are any significant differences if the transaction involves a privately held real-estate owning entity?

Privately held real-estate transactions are subject to civil and commer-cial law, dependent on the type of transaction. Acquisitions of privately owned entities are structured through the purchase and sale of shares representative of the legal entity that holds the legal title to the real-estate property; or through a purchase-and-sale agreement that will document the conveyance of the specific real estate.

The intervention of the National Banking and Securities Commission (CNBV) is not necessary for privately held real-estate transactions, nor for issuing securities to be placed on the Mexican Stock Market.

3 Describe the process by which public and private real-estate business combinations are typically initiated, negotiated and completed.

For private and public real-estate business combinations, the typical process generally involves the following:(i) the execution of:

• a letter of intent, memorandum of understanding, or a non-binding commercial offer;

• loan documents, a mortgage or a guarantee to secure pay-ment of outstanding obligations under the loan agreement (if necessary); and

• execution of a preliminary or a ‘promise agreement’ (see question 18) by which the parties agree to execute a definitive agreement regarding the transaction and a confidentiality or an exclusivity agreement;

(ii) after the agreements are executed, the due diligence period will commence, which must include:• a thorough review of public property registries;• a thorough review public commercial folios;• the obtaining of non-lien certificates, title insurance and

appraisals, (if necessary);• a review of compliance standards that apply depending on

each individual case;• a review of compliance with applicable regulatory and govern-

mental requirements; and• a review of the necessary corporate authorisations for

the transaction;(iii) the negotiation and preparation of an asset purchase-and-sale

agreement or a stock-purchase agreement with the corresponding formalities depending on the type of target company; and

(iv) the corresponding entries in the company’s corporate books (in case of a share deal).

In cases of asset deals (see (iii)), the agreement whereby the real estate is conveyed must be formalised before a notary public and recorded with the corresponding Public Registry of Property where the real estate is located, or the National Agrarian Registry, in case of agrarian or social property.

In the case of publicly traded companies (see (iv)), a change of control would require the purchaser to conduct a tender offer at which minority shareholders are permitted, but not required, to participate under the same economic conditions.

4 What are some of the primary laws and regulations governing or implicated in real-estate business combinations? Are there any specific regulations or laws governing transfers of real estate that would be material in a typical transaction?

The applicable laws and regulations that govern real-estate property depend on the location of the property, therefore, the civil laws that govern real-estate transactions and properties are local state laws. The following laws have to be taken into consideration while handling these types of transactions:• Mexico’s Constitution;• Federal and State Civil Codes;• the Foreign Investment Law;• the General Law of Business Entities;• the Commercial Code;• the Income Tax Law;• the Value Added Tax Law;• the Federal Antitrust Law; and• the Acquisition of Real Estate Tax Law.


MEXICO Solórzano, Carvajal, González y Pérez-Correa, SC (Solcargo)


The applicable laws and regulations may also vary depending on the type of transaction. For example, there are certain types of properties that may be subject to additional laws, such as agrarian or social prop-erties that are subject to the Mexican Agrarian Law.

5 Are there any specific material regulations or structuring considerations relating to cross-border real-estate business combinations or foreign investors acquiring an interest in a real-estate business entity?

The Mexican Constitution and its Foreign Investment Law impose cer-tain restrictions for foreign investors or buyers to acquire real estate. These laws establish that in order to acquire real-estate properties in Mexico’s restricted zone – that is, all land located within 100km of land borders and within 50km of the coastline – it is necessary for foreigners to obtain authorisation from the Ministry of Foreign Affairs.

Furthermore, if the business combination involves stock acquisi-tion, Foreign Investment Law establishes certain material limits for foreigners that depend on the type of the target company and its cor-responding corporate purpose or main activity.

6 What territory’s law typically governs the definitive agreements in the context of real-estate business combinations? Which courts typically have subject-matter jurisdiction over a real-estate-related business combination?

The applicable law and jurisdiction to real-estate properties is the local state law where the property is located (see question 4). However, if the business combination involves a stock acquisition, the transac-tion will be governed by the General Law of Business Entities and the Commercial Code.

The parties involved in the transaction may previously agree on a specific court of law and jurisdiction that they wish to govern the trans-action. This must be accompanied with the waver of any jurisdiction or law that may be their right because of their present or future domiciles, or the location of the property.

If the parties do not expressly agree on any specific court, the appli-cable court is the one with jurisdiction in the state where the property is located. If the business combination involves stock acquisitions, the parties may also choose a specific jurisdiction, or otherwise, the appli-cable courts would depend on the nature of the transaction.

7 What information must be publicly disclosed in a public-company real-estate business combination?

Public companies are obliged to disclose through BMV any informa-tion that may affect the price or value of the securities of such company. Specific requirements should be contemplated to determine if the event qualifies as a ‘material event’. Material events include business transactions, such as the takeover of new businesses or the acquisition of real-estate assets or stocks of entities.

Likewise, the following information must be disclosed:• reports related to corporate restructures;• corporate governance structure;• shareholders’ and board of director’s meetings, including the

corporate actions and resolutions taken by such bodies;• reports on the company’s policies and operations;• annual and quarterly reports;• the company’s annual audited financial statements;• notices to their shareholders involving relevant information of the

company; and• any other reports required by the National Banking and Securities

Commission.

8 Give an overview of the material duties, if any, of the directors and officers of a public company towards shareholders in connection with a real-estate business combination. Do controlling shareholders have any similar duties?

Board members, directors and officers of a company have fiduciary duties (diligence, disclosure, confidentiality and loyalty, among oth-ers) to the company and towards the shareholders, since they repre-sent the company before third parties and are also responsible for the administration and execution of the instructions established in any stockholders’ meeting. Such individuals must perform such duties

with the purpose of generating economic value to the company and the investors.

Since the applicable law to business entities in this matter is the General Law of Business Entities, these obligations do not vary with the applicable governing law of the proposed transaction or the target’s jurisdiction of incorporation of the target.

9 What rights do shareholders have in a public-company real-estate business combination? Can parties structure around shareholder dissent or rejection of a real-estate business combination, and what structures are available?

Shareholders’ rights always vary depending on the type of business entity of the target. Nonetheless, shareholders may have the following rights in a public-company real-estate business combination:• the right to request and be given relevant information regarding

any transaction;• the right to vote in any shareholders’ meeting, including deci-

sions related to real-estate transactions (unless the right to vote is restricted to a certain class or series of shares); and

• the right to object and oppose any authorisation resolved in a share-holders’ meeting.

Furthermore, shareholders’ may also have a right of first refusal to acquire any shares offered in sale, and be subject to drag-along and tag-along provisions.

10 Are termination fees typical in a real-estate business combination, and what is their typical size?

Termination fees are customary in real-estate business combinations. The size of the penalty agreed depends on the stage of the transaction, but it is normally limited to the costs incurred by the non-breaching party in the transaction. Please note that the amount to be paid as a con-tractual penalty cannot exceed the total value of the principal amount to be paid.

Furthermore, break-up fees should be carefully determined, since no further damages or expenses may be claimed by the non-breaching party other than the contractually agreed.

11 Are there any methods that targets in a real-estate business combination can employ to protect against an unsolicited acquisition? Are there any limitations on these methods?

Typically, a company may protect against an unsolicited acquisition by establishing specific stock acquisition requirements in its by-laws. Such mechanisms may include:• supermajority voting rights;• tag-along provisions;• limitations on stock transferring; and• rights of first refusal.

Limitations on these mechanisms will depend on the corporate form of the target. For example, limited liability companies (LLCs) may not include some of these limitations. Also, for public stock companies the provisions set forth in the by-laws to prevent acquisition of the compa-ny’s shares must not entirely forbid a takeover or a change of control of the company.

12 How much advance notice must a public target give its shareholders in connection with approving a real-estate business combination, and what factors inform this analysis? How is shareholder approval typically sought in this context?

Specific requirements would depend on the target’s by-laws or organi-sational documents, and the type of public target and security.

Assuming that the target is a public stock company, pursuant to the Mexican Securities Exchange Law, a business combination that involves more than 20 per cent of such companies assets must be previously approved by the shareholders’ meeting of the company. Therefore, after receiving the offer by acquirer, the board of directors of the company (or the applicable corporate body pursuant to the company’s by-laws) must call for a shareholders’ meeting through a 15-day prior notice published via the Electronic System of the Ministry of Economy. In such meetings all of the shareholders, including those with non-voting or restricted-vote shares may vote in favour or against the business combination.




Please note that the target company must also notify the National Securities Exchange Commission since it is deemed as a material event.

13 What are some of the typical tax issues involved in real-estate business combinations and to what extent do these typically drive structuring considerations? Are there certain considerations that stem from the tax status of a target?

Before developing a real-estate-related project, specific tax issues should be considered in the previous due diligence performed on the intended business structure. A critical issue corresponds to the pay-ment of the income tax involved in a business combination transaction, specifically when associated with the transfer of shares or equity. The transfer of shares or equity of a company is deemed as originating in Mexico when the securities transferred are issued by a Mexican entity and are therefore subject to Mexican tax law. An additional tax to be considered is the real-estate acquisition tax, which is normally taxed when acquiring real estate and varies from state to state.

In this regard, parties must thoroughly analyse from a tax stand-point whether to acquire the shares of the target or to only acquire the relevant assets.

14 What measures are normally taken to mitigate typical tax risks in a real-estate business combination?

To avoid tax risks acquirers often perform a full legal and accounting due diligence before the transaction, in which compliance with all tax obligations is ascertained. Additionally, the transaction documents often include representations and warranties (R&Ws) from sellers regarding compliance with tax obligations. Furthermore, depending on the findings of the due diligence, acquirers may request for indem-nities provisions in the transaction documents.

When evaluating structuring alternatives, certain special purpose vehicles (SPVs) granting tax benefits in Mexico should be considered (see question 15).

15 What form of acquisition vehicle is typically used in connection with a real-estate business combination,and does the form vary depending on structuring alternatives or structure of the target company?

Most used acquisition vehicles are investment promoting companies, corporations, LLCs and Mexican real-estate investment trusts (REITs). The optimal choice will depend on the structure of the target company, the value of the acquisition, the number and nationality of investors, and the tax scheme to be adopted, among other circumstances.

REITs are often chosen since, in most cases, they are pass-through entities pursuant to Mexican tax legislation. On the other hand, LLCs are commonly used by US investors since these entities allow the tax-payer to choose to be treated as a corporation or transparent entity for US tax purposes.

16 What issues typically face boards of real-estate public companies considering a take-private transaction? Do these considerations vary according to the structure of the target?

The main issues faced are:• cash flows of the private investors;• the collateral securities that private investors shall grant in order to

guarantee payment, typically such investors need to secure financ-ing from an investment bank or similar institution; and

• the strict regulation of the CNBV.

Boards must consider that this type of transactions must be made through a public tender offer in the corresponding stock exchange. Therefore, this type of transactions often triggers certain antitrust regulatory obligations that must be complied with.

17 How long do take-private transactions typically take in the context of a public real-estate business? What are the major milestones in this process? What factors could expedite or extend the process?

There is no established timetable nor time span for a take-private transaction, so the duration of each transaction may vary depending on specific circumstances. Nonetheless, there are several factors to be considered, such as the cancellation of securities before the National

Securities Registry, as well as other governmental and corporate requirements that have a specific term for their filing. Taking the above into consideration, the entire process usually takes two to three months or longer.

Regarding the milestones for a take-private transaction, if the securities involved include several types of shares, the following should be considered:• the request for cancellation of the securities must be previously

approved in a general shareholders’ meeting, with the approval of at least 95 per cent of the capital stock present in the meeting; and

• the request for the cancellation of the registry of the shares must be authorised by the CNBV, with a thorough explanation of the pur-pose of the cancellation; and

• most cases include a tender offer for the shares.

For any other securities, the following milestones for take-private transactions should be considered:• it has to be proven before the CNBV that all obligations and

requirements regarding the securities have been fulfilled and, if applicable, the request for cancellation must be previously approved in a certificate holders meeting, with a favourable vote of the certificate holders which represents at least 95 per cent of the outstanding securities;

• the request of cancellation of the inscription of the securities must be authorised by the CNBV; and the reasons for said cancellation explained; and

• some cases require a tender offer for the certificates to be launched.

18 Are non-binding preliminary agreements before the execution of a definitive agreement typical in real-estate- business combinations, and does this depend on the ownership structure of the target? Can such non-binding agreements be judicially enforced?

The exemplary preliminary agreement is the ‘promise agreement’ which entails a unilateral or bilateral obligation to execute a future, specific and definitive agreement between the parties. The usual mani-festation of this preliminary agreement is the ‘promise to purchase-and-sale agreement’, which is common in real estate-related business and frequently used in real-estate transactions.

The promise agreement may only be judicially enforced requiring the defaulting party to execute the definitive agreement, if the prom-ise agreement was entered into in writing, contains the characteristic features of the definitive agreement, and was limited to a certain time period. If the defaulting party refuses to execute the definitive agree-ment, the entrusted judge may execute the definitive agreement on its behalf.

Another option is to include a contractual penalty in the promise agreement, ao if one of the parties refuses to sign the definitive agree-ment, the judge may not execute the agreement on its behalf, but rather charge the penalty in favour of the party willing to execute the definitive agreement.

19 Describe some of the provisions contained in a purchase agreement that are specific to real-estate business combinations? Describe any standard provisions that are contained in such agreements.

Specific and standard provisions include the:• purchase price and form of payment;• R&Ws of the seller in connection with the legal title of the real

estate;• description and status of the real estate, including any applicable

authorisations, permits and licences;• closing date and closing conditions and deliverables;• contractual penalty clause;• indemnities; and• jurisdiction and applicable law.




20 Are there any limitations on a buyer’s ability to gradually acquire an interest in a public company in the context of a real-estate business combination? Are these limitations typically built into organisational documents or inherent in applicable state or regulatory related regimes?

A legal entity controlled by a public company may not directly or indi-rectly acquire shares representing the share capital of a public company to which they are connected or the securities representing such shares. Acquisitions made through investment companies are an exception to the previous provisions.

Public companies are allowed to include specific conditions in their by-laws in order to retain control on the acquisition of their shares. A common control provision would require that any transfer of shares resulting in ownership of shares standing for more than a certain per-centage, usually 5 per cent or more, of the outstanding shares of a pub-lic company to be authorised by the board of directors of the selling entity. The consequences of acquiring stock in violation of any of the aforementioned provisions are usually, among others, that the shares acquired will have no voting rights and they will be registered in the corresponding corporate book.

21 Describe some of the key issues that typically arise between a seller and a buyer when negotiating the purchase agreement for a real-estate business combination, with an emphasis on building in certainty of closing? How are these issues typically resolved?

When negotiating the purchase agreement, key issues include:• purchase price and the method and conditions of payment;• R&Ws;• penalty clauses;• limitation of liabilities;• preparation and disclosure of deliverables;• tax structures; and• the appropriate SPVs to enter into the transaction.

The above issues are typically resolved by negotiating the conditions to be fulfilled at closing (including closing deliverables), adding to the agreement some pre-closing covenants and an escrow of the purchase price to protect the buyer, etc.

22 Who typically bears responsibility for environmental remediation following the closing of a real-estate business combination? What contractual provisions regarding environmental liability do parties usually agree?

The general rule is that the entity who owns the real estate where the contamination occurs is the responsible for remediation and all penal-ties determined by environmental authorities; hence if the determina-tion of an environmental responsibility takes place post-closing, the buyer would be responsible for remediation. Therefore, it is typically agreed that seller shall bear all penalties and remediation determined post-closing but derived from pre-closing events and failures from the seller.

Environmental due diligence and Phase I and Phase II studies are commonly required in large scale projects, including American Land Title Association surveys of the real-estate properties.

23 What other liability issues are typically major points of negotiation in the context of a real-estate business combination?

Administrative and civil liabilities are usually discussed among the parties including:• authorisations or permits must be granted by the government in

order to exploit or operate the property, if applicable;• approval of a government authority for the transaction to occur, if

applicable;• whether the property is free from any litigation or administrative

procedure; and• if all of the real-estate taxes and the utilities bills have been paid by

the seller.

From the civil perspective, liabilities may include:

• if the property is free from any limitation or encumbrances, that had not been cancelled before the Public Registry of Property (including if the real estate was previously granted as a security to guarantee the payment of certain obligation);

• if the seller is the rightful owner of the property, duly registered before the Public Registry of Property; and

• if the real estate is currently under a lease agreement.

24 In the context of a real-estate business combination, what are the typical representations and covenants made by a seller regarding existing and new leases?

Typical representations in case of existing leases may include that sellers shall indicate their existence and status (term, economic con-siderations, escrows, etc) as in some local jurisdictions tenants may be entitled to a right of first refusal regarding the purchase of the property. In the case of new leases, typical representations may include that the property is not subject to any other lease, usufruct or to any other agree-ment that may grant rights to any third parties at the time of the sale.

Typical covenants usually consist in the obligation that no amend-ments to any existing leases shall be made and no new leases shall be entered into (unless authorised by purchaser), or to amend certain clauses of the existing leases in purchaser’s favour.

25 Describe the legal due diligence required in the context of a real-estate business combination and any due diligence specific to a real-estate business combination. What specialists are typically involved and at what point in the transaction are the various teams typically brought in?

Standard legal due diligence of a real-estate transaction includes:• corporate matters;• material agreements including actual leases, loans and other

agreements involving the property;• real estate matters;• tax matters;• environmental matters; and• disputes and litigation.

Such due diligence procedures usually involve corporate and merger and acquisition lawyers, tax specialists, financial advisers and environ-mental specialists. Such advisers are usually brought in the early stages of the negotiation when due diligence is conducted.

26 How are title, lien, bankruptcy, litigation and tax searches typically conducted? On what levels are these searches typically run? What protection from bad title is available to buyers and does this depend on the nature of the underlying asset?

Most of the information regarding lien, litigation and bankruptcy is publicly available with the corresponding authorities and public registries.

Regarding legal ownership and liens of a real-estate property to be acquired, the search is conducted at the Public Registry of Property and Commerce, which is managed by the local government authority and is in charge of the registry of the real-estate ownership, transfers of real estate, liens and encumbrances, and other relevant notes on the title of the property, among others.

Regarding bankruptcy, the search is also conducted at the Public Registry of Property and Commerce by obtaining the mercantile folio of the company; therein the judicial authorities order to register the companies that file bankruptcy procedures.

Regarding tax matters, it is advisable to require seller to provide a certificate of compliance of tax obligations, which shall determine if the company is in compliance with its tax obligations.

Protections of bad title are commonly included as default clauses within the corresponding agreements, establishing penalties for mis-representations of sellers. Depending on the amount and structure of the transaction it is also common for sellers to grant collateral securi-ties to guarantee that there will not be misrepresentations regarding liens and title of the real-estate property or the acquired company (such securities can be made through guarantee trusts, escrows, etc).




27 Do sellers of non-public real-estate businesses typically purchase representation and warranty insurance to cover post-closing liability?

Typical R&Ws to cover post-closing liability included that the seller agrees to be liable for:• hidden defects of the real estate that existed before the closing;• eviction, which implies that if the seller did not have the right to

sell or there was a third party with a better title to such property the seller shall indemnify from any loss or damaged suffered as a result of the eviction; and

• indemnities for false representations and information.

Less common are R&W insurance policies that are offered by some insurance companies to cover post-closing liabilities regarding to false information, inconsistencies in closing deliverables, false or incorrect representations, etc.

28 What are some of the primary agreements that the legal teams customarily review in the context of a real-estate business combination, and does the scope vary with the structure of the transaction?

Primary agreements to be reviewed are the ones that involve the use and disposition of the real estate (eg, commodatum, subleases, leases, brokerage agreements the purpose of which is to sell the property, etc).

The scope of review does vary depending on the structure of the transaction. If the transmission derives from an asset-purchase agree-ment, it is customary for buyer to terminate the leases to use the properties. If it derives from a stock-purchase agreement, buyer may decide to maintain the leases with tenants as they agreed with seller. Therefore, documentation to be reviewed and prepared in each case may vary.

29 What are the typical remedies for breach of a contract in the context of a real-estate business combination, and do they vary with the ownership of target or the structure of the transaction?

The most typical remedies involve:• termination of the agreement and claim losses and damages;• claim the mandatory execution of the terms of the agreement; or• the payment of a conventional penalty previously agreed therein.

While the first two are provided by law, the third one must be previously agreed by the parties, thus, it is common to include a non-compliance clause or a conventional penalty in the case of an event of default. Also, in the event that an escrow agreement was previously arranged, the non-default party may apply the amount in escrow as penalty for the breach.

30 How does a buyer typically finance real-estate business combinations?

The most common financing include loan facilities granted by a finan-cial institution (either bank or non-bank) or a commercial entity, secured with the purchased real estate (or other property if any) as col-lateral through a mortgage or in a security trust.

It shall depend on the nature of the lender (as pursuant to Mexican law some entities may not be entitled to act as trustee) and acquisitions involving certain agreements by which the property is not immediately transferred to the buyer until the full price is paid (ie, a purchase agree-ment with reservation of title, or a purchase agreement containing an usufruct creation).

31 What are the typical obligations of the seller in the financing?These depend on the structure of the financing. However, the seller will have the main obligation to deliver the property (unless it is stated otherwise), typical structures may include the seller to transfer the title of the property to the buyer when the financial institution or public entity pays the price, or to the trustee (in the event that the financing is secured by a trust).

32 What repayment guarantees do lenders typically require in the context of a property-level financing of a real-estate business combination? For what purposes are reserves usually required in the context of property-level indebtedness?

If the loan is secured by a mortgage or a security trust (see question 30), those securities also serve as repayment guarantees, as in the occur-rence of an event of default, in the case of a mortgage, the lender can request a judicial foreclosure procedure of the mortgaged property in order to be paid. On the other hand in the case of a security trust, the first beneficiary may request the trustee the sale of the collateral (the property) by means of an extra-judicial foreclosure procedure.

33 What covenants do lenders usually insist on in the context of a property-level financing of a real-estate business combination?

Most typical loan covenants are:• reporting requirements;• maintenance of existence in good standing;• compliance with all applicable laws;• performance, in a timely manner, all of material obligations

pursuant to all agreements to which the borrower is a party;• inspection of any of the properties, books and records of the

borrower;• borrowers shall obtain insurance coverage, if applicable;• to use proceeds for only the purposes established in the

corresponding clauses of the agreement; and• not to impose any lien in any property related to the loan or

its proceeds.

34 What equity financing provisions are common in a transaction involving a real-estate business that is being taken private? Does it depend on the structure of the buyer?

Equity may serve as security to the payment of a real-estate transac-tion, including shares, partnership interests, obligations, options, promissory notes and other negotiable instruments pursuant to bank-ing and securities regulations. If the buyer is a corporation, equity may serve as collateral for the price, or also may be used as compensation for the real estate.

35 Are real-estate investment trusts (REITs) that have tax-saving advantages available? Are there particular legal considerations that shape the formation and activities of REITs?

REITs must comply with the following:• the REIT shall be incorporated pursuant to Mexican law and

trustee shall be a credit institution resident in Mexico and author-ised by the corresponding institutions;

• the REIT’s main purpose shall be:• the acquisition or construction of real-estate properties to be

leased; and• grant financing to third parties for the acquisition or

construction of real-estate properties to be leased;• at least 70 per cent of the trust equity shall be invested in real-

estate properties;• the rest of the trust equity shall be invested in securities issued by

the federal government or in debt instruments issued by stock or investment companies;

• the real-estate properties built or acquired shall be leased and not transferred within a four-year period after its acquisition or construction;

• the trustee shall issue participation certificates that represent the trust equity and such certificates shall be offered on BMV (public REITS) or acquired by at least 10 private investors (private REITS) provided that they shall not be related parties either own individu-ally more than 20 per cent of the certificates;

• the trustee shall pay, at least once per year, to tenants of partici-pation certificates, at least 95 per cent of the tax utilities of the previous year; and

• the REIT shall be registered before the Registry of Real Estate Properties’ Acquisition or Construction Trusts of the Tax Administration Service.




36 Are there particular legal considerations that shape the formation and activities of real-estate-focused private equity funds? Does this vary depending on the target assets or investors?

Private equity funds that are focused on real estate may operate as other private equity funds; however, the choice for the SPV may depend on the real-estate business, and the target assets. Also, if the fund is operating with public resources, it may comply with the respective policies and public guidelines for the private placement memorandum, target assets, territory, investor profile, etc.

Luis González [email protected] Juan Carlos Izaza [email protected] Carlos Ugalde [email protected] Eduardo Montenegro [email protected]

Insurgentes Sur 1602Piso 11, Oficina 1102Col Crédito Constructor03940 Mexico CityMexico

Tel: +52 55 5062 0050www.solcargo.mx


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