The Civil Code for the Federal District is amended to prevent rent increases for residential properties from exceeding the inflation rate reported by the Bank of Mexico.
On August 28, 2024, the Official Gazette of Mexico City published a decree amending Articles 2448 D and 2448 F of the Civil Code for the Federal District. This reform proposes imposing limits on rent increases for residential properties (houses and apartments) in Mexico City.
Previously, the second paragraph of Article 2448 D stipulated that the monthly rent increase could not exceed 10% of the agreed rent. The paragraph has now been amended to state that “the rent increase shall never be greater than the inflation rate reported by the Bank of Mexico for the previous year, relative to the agreed monthly rent amount.”
Additionally, a third and fourth paragraph were added to Article 2448 F to establish a digital registry for lease agreements. This registry will be “immediately authorized and managed by the Government of Mexico City.” The same article imposes an obligation on landlords to register lease agreements within 30 days of their execution.
It is important to note that the Government of Mexico City will establish, within 30 days of the decree’s effective date, the mechanisms to regulate the digital registry of lease agreements.
Furthermore, landlords are required to register ongoing lease agreements within 90 days of the decree’s effective date.
Mexico City’s head of government, Martí Batres, mentioned how in previous years, “rents increased eight times more than inflation. For these reasons, this is one of the most significant reforms we have achieved, and it has a very positive, direct, and immediate social impact.”
This reform will not only affect tenants but will also impact developers, Real Estate Investment Trusts (FIBRAs), and other companies in the residential real estate sector in Mexico City.
Risks
Registration of lease agreements in a rental property registry aims to balance the rights of tenants and landlords. The rental market in Mexico City is informal, and with a large number of lease agreements, it is difficult for authorities to have a clear understanding of how many rented homes exist, who has a lease agreement, the amounts of these agreements, among other relevant aspects.
The operability of the registry is questionable, and the incentives for property owners to register their agreements are unclear. Therefore, it is difficult for parties in an informal market to agree to participate in such a registry.
Preventive actions
To avoid potential sanctions imposed by the competent authority, it is recommended to register all lease agreements for residential properties in Mexico City in the digital registry of lease agreements within the aforementioned deadlines.
Additionally, it is crucial to comply with the newly established limits on rent increases to meet the objective of narrowing the gap between inflation and rental costs and to prevent any penalties from either tenants or authorities.
