March 14, 2014

The Payment of Rent in Foreign Currency

By Jorge Ojeda

Clients often ask their attorneys whether it is possible to agree that the rent to be paid for real property located in Mexico may be paid in foreign currency (most often U.S. Dollars). At first the answer seems easy, that yes it is possible; however, there are various aspects to consider. Foreign currency does not constitute legal tender in Mexico and, for such reason, Mexico’s Monetary Law and Provisions of the Mexican Central Bank that authorize the debtor to pay in foreign currency, when payment is to be made within Mexico,  consider that payment is properly made when the agreed amount is delivered in foreign currency or its equivalent in pesos, in accordance with the official exchange rate published by the Bank of Mexico in the Official Journal of the Federation on the banking day immediately prior to the date of payment.  This general rule has an interesting twist because Mexico has an open financial sector. Therefore, it is possible to open bank accounts in various countries, for example in the United States of America, facilitating international wire transfers of rent. Further, it is possible to establish in a lease agreement that  the payment of rent, a deposit and other funds due under the lease agreement should be made to the account of the lessor in a financial institution located abroad, in which case the debtor should, in principle, comply with its payment obligation in the agreed upon foreign currency. It is important to mention, however, that even when a payment of rent is made to a bank account located abroad, the rental income continues to be subject to reporting requirements in Mexico, and, the corresponding taxes should be paid in Mexico.  Additionally, the payment of rent abroad is not an absolute solution, given that, in the event of a dispute, which, for some reason, ends up with a demand by a lessor to a lessee for payment in Mexico, which is entirely possible, given that the real property is located in Mexico, the lessee will be authorized to pay the rent in pesos using the applicable exchange rate described above and in force at the time the payment is made.