Hotel Management & Transactions 2025 Comparisons

In Mexico, hotel transactions such as the purchase and sale of hotels, leases, partnerships or financing are regulated by various legal sources and areas.

Main Legal Sources

Political Constitution of the United Mexican States

Article 27 of the Political Constitution of the United Mexican States (the “Mexican Constitution”) governs land and water ownership, including limitations for foreigners in restricted zones (100 km from the border and 50 km from beaches).

Federal codes and laws

• The Federal Civil Code and local civil codes govern contracts such as purchase and sale, lease, usufruct, trusts, etc.
• The Code of Commerce applies if the operation is considered an act of commerce.
• The Foreign Investment Law governs foreign participation in hotel companies, including the use of trusts to acquire real estate in restricted zones.
• The General Law of Business Corporations governs the incorporation of companies that operate and own hotels.
• The Income Tax Law and the VAT Law contain tax aspects applicable to hotel ownership and operations.

Administrative and regulatory laws

• The General Law of National Assets applies in the case of concessions in beaches or federal zones.
• Environmental laws (the General Law of Ecological Equilibrium and Environmental Protection, and state laws) apply for licences and environmental impact statements.
• Local urban development and construction laws contain requirements for land use and construction licences.
• Some Mexican Official Standards or Norms (NOMs) apply to services, safety, health, etc.

Legal Areas

The following legal areas are relevant to hotel management and transactions:

• civil law;
• commercial law;
• administrative law;
• tax law;
• real estate law;
• environmental law; and
• notary and registration laws and norms.

In Mexico, the sale and purchase of hotels are divided into two main approaches: share deals and asset deals.

Share Deals

In a share deal, the buyer acquires the company that owns the hotel, including assets, liabilities, permits, employees and contracts. The legal personality and operation of the hotel are maintained, with minimal disruption.

The advantages of this structure are as follows:

• it is simpler from the operational point of view (no individual transfer of each asset);
• it avoids payment of Real Estate Acquisition Tax (ISAI) in most states; and
• any permits, concessions and existing contracts (eg, operating licences, hotel management contracts) can be retained by the purchaser.

The disadvantages are as follows:

• the buyer inherits any liabilities;
• it requires extensive due diligence; and
• there is increased complexity in negotiating post-transaction warranties or indemnities.

Asset Deals

In an asset deal, the buyer acquires the assets of the hotel directly, including real estate, furniture, licences, brands, selected contracts, etc. The operating company is not acquired, unless it is a total transfer of the “going concern”.

The advantages are as follows:

• the buyer can exclude unwanted liabilities;
• there is greater control over what is acquired; and
• the structure is useful when the seller wants to dissolve its business or change its line of business.

The disadvantages include that:

• each asset must be transferred individually (longer process);
• it requires new licences, permits and contracts or be obtained or assigned;
• ISAI and other fiscal charges are paid for the real estate acquisition; and
• it can generate operational interruptions if not properly managed.

Other Combined or Alternative Structures

A control or ownership trust is used especially by foreign investors (restricted zone), and can be a holding and/or operating vehicle.

In a lease with the option to purchase, the buyer explores the business before buying. A future price is agreed upon and operational control is taken before formal closing.

In a joint venture, two parties (eg, the property owner and an operator) create a new entity for the development or operation of the hotel.

In Mexico, hotel transactions and their terms are generally not public. However, certain aspects can be accessed through public registries or can become known under specific conditions.

What Is Public?

Real estate transfers

The transfer of real property (land and buildings) is recorded in the Public Registry of Property (Registro Público de la Propiedad). Such information is accessible by anyone, although some states require a formal request or a legitimate interest, and includes:

• the identity of the buyer and seller;
• the property details; and
• sometimes the purchase price (although this may be omitted or undervalued for tax purposes).

Corporate ownership (if acquired via shares)

Changes in shareholders of a Mexican corporation are typically not public unless:

• the entity is publicly listed;
• the company files a public notice (eg, for mergers); or
• the transaction triggers a change in control requiring publication.

Environmental or urban development permits

Environmental impact statements, land use changes and development permits may be publicly accessible via government portals or transparency requests.

What Is Not Public?

The following information is not publicly accessible:

• the terms of the deal, such as purchase price, warranties, indemnities, leaseback provisions, etc, are confidential and contained in private contracts;
• hotel management agreements are often governed by strict non-disclosure clauses;
• financing terms, including loan structures and security instruments (except for mortgage registration), are private; and
• due diligence reports and business performance data are not disclosed publicly.

Foreign investors are permitted to acquire hotels in Mexico, but there are specific restrictions and conditions, especially when the property is located in certain areas.

General Rule: Foreign Investment is Allowed

Under the Ley de Inversión Extranjera (Foreign Investment Law), foreign individuals or entities can own 100% of a Mexican company that owns or operates a hotel. No special permits are required for most sectors, including hospitality and tourism.

Key Restriction: the “Restricted Zone”

Defined in Article 27 of the Mexican Constitution, the zona restringida includes areas within 50 km of the coast, and within 100 km of the borders. In these zones, foreigners cannot own land directly (including hotel real estate).

The solution for foreigners is to use a trust (fideicomiso):

• foreigners can acquire beneficial rights to property via a trust with a Mexican bank;
• the bank holds legal title, while the foreign investor is the beneficiary and can use, lease, sell or develop the property;
• trusts are typically valid for 50 years, and are renewable; and
• they are a common structure for foreign ownership of coastal hotels, especially in places like Cancun, Los Cabos or Puerto Vallarta.

Hotel ownership and management vary depending on the hotel type, location and target market. The most common structures and how they differ in terms of hotel control, risk and brand involvement are outlined below.

Privately Owned/Independently Operated Hotels

These are common for small to mid-sized properties, often in secondary cities, boutique destinations or family-owned resorts. They represent a significant portion of the market, especially outside the major tourist zones or cities.

The owner handles both ownership and operations, with no third-party operator or brand being involved.

This structure provides full control and responsibility for staffing, marketing and standards. It offers greater flexibility but access to global distribution networks or branding power is often limited.

Hotel Management Agreements

Hotel management agreements are common for upscale and luxury hotels, especially branded hotels in tourist hubs such as Cancún, Riviera Maya, Mexico City or Los Cabos. They are used when the owner wants to retain property ownership but leverage a global operator (eg, Marriott, Hilton, Hyatt).

The structure is as follows:

• the owner owns the property;
• a hotel operator manages the hotel under its brand; and
• the operator earns base fees plus incentive fees, based on revenue and profit.

The key features are as follows:

• the owner bears all operational and financial risks;
• the operator provides expertise, brand, systems and personnel; and
• a long-term contract (15–30 years) with performance benchmarks is often utilised.

Hotel Lease Agreements

These are less common, although they are frequently used in city business hotels or institutional real estate contexts (eg, FIBRAs or REITs), where the owner seeks predictable rental income.

The operator leases the hotel from the owner for a fixed or variable rent, and the operator assumes full control and risk of operations.

The key features are as follows:

• the owner earns steady income regardless of performance;
• the operator controls branding, pricing and operations; and
• the lease terms vary but often involve fixed rent plus revenue share or indexation clauses.

Franchising Agreements

These are widely used, especially in midscale to upper-midscale segments. They are popular with Mexican hotel groups or investors who want a global brand but wish to keep control.

They are structured so that the owner operates the hotel (directly or through a third party) but uses a franchise brand (eg, Holiday Inn, Ibis, Wyndham), and pays franchise fees plus marketing and reservation fees.

The key features are as follows:

• the owner must follow brand standards but runs the day-to-day business;
• the structure provides access to global distribution systems, loyalty programmes and training; and
• there are lower fees than hotel management agreements, but less operational support.

Please see 3.1 Common Hotel Ownership and Management Structures.

The hotel lease agreement is regulated in Articles 2398–2447 of the Civil Federal Code and in the respective articles in each of the 31 states and Mexico City.

The typical structure and terms of a hotel lease agreement include the following:

• the parties and a definition of concepts;
• recitals from each party;
• the purpose of the lease, including the legal description of the real estate property and surface and authorised zoning;
• the term of the agreement, renewals or any preference right;
• rent, increase of rent and payment method;
• use of the property;
• acknowledgement of or authorisation to enter into a hotel management agreement and/or franchise agreement;
• utilities;
• assignment and sublease;
• maintenance of the property and maintenance fees, if applicable;
• lessor inspections at the property;
• tenant obligations;
• lessor obligations;
• early termination of the agreement;
• force majeure events;
• insurance;
• labour relations;
• tax obligations;
• notices;
• applicable law and jurisdiction; and
• signatures.

Hotel lease agreements may face certain regulatory challenges, including the following:

• real estate and lease agreements are governed by state level civil codes, the rules of which may vary across the 31 states and Mexico City;
• more than 50% of the land in Mexico is still owned by ejidos (communities), which have their own legal framework based on the Agrarian Law; and
• dispute resolution and enforcement are handled by civil courts from each state, if arbitration is not agreed in the lease agreement.

Please see 3.1 Common Hotel Ownership and Management Structures.

In Mexico, financing hotel transactions – whether for acquisition, development or renovation – can involve a range of options. The most commonly used methods depend on the size and type of the project, the profile of the investor, and market conditions.

Traditional Bank Financing (Commercial Loans)

These are used for acquisitions, renovations or refinancings of operating hotels. Mexican and international banks (eg, BBVA, Banorte, Santander, Scotiabank) offer secured loans, which are typically mortgage-backed.

Typical terms

Such loans typically contain the following terms:

• the loan-to-value ratio is 50–70%;
• interest rates are variable, often based on the Interbank Equilibrium Interest Rate (TIIE) or the Secured Overnight Financing Rate (SOFR) for USD-denominated loans;
• the tenor is usually five to 15 years; and
• the collateral is hotel property and revenue streams.

Development Loans/Bridge Financing

This method is offered by commercial banks or development banks such as Bancomext (for tourism projects) and is often used in resort areas or tourism-promoted zones. Financing is disbursed in stages based on project milestones.

Mezzanine Financing/Subordinated Debt

This is used to fill the gap between senior debt and equity, and is offered by private equity funds, development banks or family offices. It involves higher interest rates, but often with profit-sharing or convertible options. Such financing is common in larger or branded developments.

Equity Investment

Equity partners may invest in exchange for an ownership stake. Such investment is often used in joint ventures between landowners and hotel developers, and in projects with high upside potential. Financing may come from Mexican real estate groups, private equity funds or foreign institutional investors (eg, Canadian or US pension funds).

Mexican Real Estate Investment Trusts (FIBRAs)

Some hotel assets are held or acquired by FIBRAs, which offer sale-leaseback or joint venture structures. Examples include FibraHotel and Fibra Inn. FIBRAs are attractive for owners seeking liquidity without fully exiting.

Vendor Financing/Seller Notes

Sometimes, the seller finances part of the acquisition price via a deferred payment or loan to the buyer. This is useful for transactions involving independent or family-owned hotels.

International Financing and Multilaterals

For sustainable or large-scale tourism projects, financing may come from the International Finance Corporation (IFC) or IDB Invest. It is often linked to ESG standards or climate-related goals.

Government Incentives and Subsidised Loans

Public bank institutions (ie, Bacomext) support hotel investments in tourism zones or underserved regions. They may offer preferential rates, guarantees or co-financing.

Key Money Loans

These are commonly granted by hotel operators to owners in order to address operator standards and hotel upkeep. They may offer different rates or guarantees.

There are no restrictions on foreign financing, except for the direct acquisition of land for hotels in restricted zones – ie, within 50 km of the coast or 100 km of the borders. In this case, foreign investors must use a Mexican bank trust (fideicomiso) to hold the property, or a Mexican company with a foreign investment clause, provided that:

• a notice is submitted to the Ministry of Foreign Affairs (SRE by its acronym in Spanish), informing it of the acquisition; and
• the Mexican company includes the Calvo Clause in its by-laws, which waives diplomatic protection and accepts Mexican jurisdiction.

There are other regulatory requirements for foreign investors – eg, to register with the National Registry of Foreign Investments and comply with reporting obligations.

The general characteristics of the Mexican tax system are as follows.

• Corporate income tax (CIT) ‒ Mexican resident entities are subject to CIT at a rate of 30% on taxable income. Most business-related expenses may be deductible, provided several formal requirements are met.
• Value-added tax (VAT) ‒ services provided and enjoyed inside Mexico by Mexican residents are subject to VAT at the general rate of 16%. In most cases, the entities that pay VAT can recover such VAT by crediting the input VAT against output VAT.
• Withholding tax (WHT) ‒ payments made by Mexican tax residents to non-Mexican tax residents are generally subject to WHT. However, Mexico has a broad network of double taxation treaties that in most cases reduce or eliminate the WHT.
• Formalities ‒ Mexico is a very formalistic country, and compliance with formalities is crucial for Mexican taxpayers.
• Interest ‒ for the owner of the real property, interest payments may be one of the most relevant transactions. Interest is subject to deductibility limitations, including thin capitalisation rules (3 ‒1 debt-equity ratio) and a net interest limitation, determined through the comparison of a parameter known as net interests versus the amount resulting from multiplying an adjusted tax profit (Utilidad Fiscal Ajustada) by 30%. In addition, interest payments to non-residents are subject to WHT at 4.9%, 10%, 15%, 21% or 35%, depending on the type of payee or payer.

Managed Hotels

From a tax perspective, the most relevant transactions involved in a managed hotel structure are management fees (and incentive fees, if applicable) and royalties. Moreover, subcontracting rules play an important role for the operator of the hotel.

Management fees

These are fees paid by the entity that carries out the hotel activities, to a management services provider that assists in the management of the hotel. In most cases, it is advisable for the management services to be provided through a Mexican subsidiary, to avoid risking the creation of a permanent establishment, which may otherwise exist if the services were provided by a non-Mexican entity.

Assuming the management services are provided through a Mexican subsidiary, the provider must charge a 16% VAT rate to the receiver and remit such output VAT to the tax authorities. The receiver of the services will be able to recover such input VAT by crediting it in its monthly VAT returns.

Royalties

In most cases, the entity that carries out the hotel activities pays a royalty to a foreign entity (of the same business group as the management services provider) for the use of the hotel name/trade mark. These royalty payments are subject to WHT in Mexico; the rate provided under the domestic law is 25%. However, most of the double taxation treaties provide a reduced tax rate, usually between 10% and 15%.

Subcontracting of personnel

This is prohibited in Mexico, and the provision of employees for the rendering of specialised services is permitted but strictly regulated. Therefore, it is important to carry out a thorough analysis of management structures, considering the subcontracting and specialised services rules to mitigate potential risks.

Leased Hotels

From a tax perspective, the most relevant transaction involved in a leased hotel structure is the lease payment, the main tax implications of which are as follows.

• The payor of the lease should be able to deduct such payment for CIT purposes, provided formal deductibility requirements are met.
• The lease of a property used for hotel activities that is located inside Mexico is subject to a 16% VAT rate. The payor of the lease will be able to recover such input VAT by crediting it in its monthly VAT returns against output VAT charged to its customers.
• If the lease is provided by an individual to an entity, the entity should withhold the VAT and remit it directly to the tax authorities.

Franchises

From a tax perspective, the most relevant transactions involved in a franchise structure are royalty payments and technical assistance. In most cases, the royalties and technical assistance are paid to a foreign entity that holds the rights on the IP and know-how, and that has the technical knowledge for the provision of the technical assistance.

Mexican tax law provides that royalty and technical assistance income obtained by a non-Mexican resident is deemed to have a Mexican source of wealth, and is therefore subject to WHT in Mexico, in the following cases ‒

• if the goods or rights related to the royalties or the technical assistance are enjoyed inside Mexico; or
• if the payor is a Mexican tax resident or a non-Mexican resident with a permanent establishment in Mexico.

The WHT rate provided under the domestic law for both royalties and technical assistance is 25%. However, under most of the double taxation treaties, royalties would be subject to a reduced tax rate that varies between 10% and 15%. In the case of technical assistance, there are arguments to support that such payments should be treated as business profits under the treaties, and should thus be free of WHT in Mexico.

In Mexico, the principal zoning classification that permits hotel use is the “Touristic” (Turístico) designation. The applicable regulatory framework is primarily established through Zoning Regulations (Reglamentos de Zonificación) or Urban Development Plans (Programas de Desarrollo Urbano), which are enacted and enforced at the state or municipal level.

For example, in the State of Jalisco, hotel use is specifically categorised under the “Touristic Hotel” (TH) classification, as defined in the state’s Zoning Regulations. This classification outlines the permitted land uses, density, building height and other urban parameters applicable to hotel developments.

It is important to note that other zoning classifications may also be applicable to hotel operations, depending on the specific provisions of the local zoning instruments. These may include Mixed-Use (Uso Mixto) or Commercial (Comercial) designations, particularly in urban areas where such uses are integrated into broader development strategies. Accordingly, a thorough review of the applicable municipal or state-level zoning instruments is essential to determine the permissibility and scope of hotel use on a given real estate property.

Changing Zoning Classification

The steps required to change the zoning classification or to obtain a derogation for hotel use will depend on the Municipal Regulations. Please note that there are thousands of municipalities in Mexico, but the steps may be similar if the change of the zoning is regulated, pursuant to the principles regulated in the General Law on Human Settlements, Territorial Planning and Urban Development, which is a federal law. The steps are generally as follows.

• The City Council approves the review of the current programme and issues notice of the commencement of the planning process.
• The municipal agency prepares a draft programme based on public input. The draft is submitted for public consultation for a period ranging from one to three months.
• Comments, opinions and proposals from the public in general are received. The draft is then forwarded to the Municipal Council, the local Ministry of the Environment and the local Urban Development Prosecutor’s Office, if any.
• The feedback received is analysed and formally addressed. The responses are made available to interested parties.
• The revised draft is submitted to the City Council’s commissions for review.
• Once reviewed, the draft is presented in a City Council session for approval, modification or rejection.
• Upon approval, the programme is published and registered with the Public Registry of Property at the state level.

Specific building and development regulations regarding hotel construction or refurbishment in Mexico, in terms of height, density, floor ratio and parking requirements, are highly localised and depend entirely on the geographic location and surface area of the property in question. These regulatory parameters can vary significantly from one municipality to another.

Each municipality or state may adopt its own Urban Development Plans and Construction Regulations, which establish the technical and legal framework for permissible development. A case-by-case analysis shall be done in order to confirm this information.

In terms of fire protection, please note that all constructions shall comply with the NOMs, including but not limited to the following:

• NOM-002-STPS-2010, regarding fire alarms and sprinkler systems, fire-resistant materials in construction, emergency exits and signage, evacuation plan and fire brigades;
• NOM-003-SEGOB-2011, regarding the colours and symbols for emergency exits, firefighting equipment and evacuation routes; and
• NOM-001-SEDE-2012, regarding electrical installations and safety standards for electrical systems in buildings, preventing fire hazards from electrical failures.

In terms of disability and accessibility, hotels must comply with NOM-001-SSA3-2012 and NOM-R-003-SCFI-2015 for accessibility, under which ramps, elevators, accessible bathrooms and designated rooms for persons with disabilities are mandatory.

The procedure for obtaining a building permit for a hotel refurbishment or new construction in Mexico will depend on the specific regulations in each municipality. In general, the process will be as follows.

• Feasibility phase ‒ the developer confirms the feasibility of the project on the corresponding real estate property, reviewing and securing:
1. the Zoning Certificate confirming the project;
2. the water and electricity feasibility letters;
3. the environmental and social assessment, securing an Environmental Impact Authorisation, if applicable (eg, for a beachfront hotel);
4. traffic impact studies; and
5. financial viability based on the final project.
• Building permit application ‒ the owner of the real estate property, together with a Certified Construction Director (Director Responsable de Obra), file for a building permit application before the Public Works Office of the corresponding municipality, including all the technical (plot plans, structural calculations, feasibility assessments, etc) and legal requirements (proof of land ownership, zoning certificate, etc).
• Review and approval ‒ municipal authorities review the documents and secure any additional approvals that may be required (eg, regarding civil protection or from the environmental municipal office).
• Payment of government fees ‒ the municipal authority issues the government fees payment order based on the Income Law of the municipality for the corresponding year, which normally states an amount per square metre of construction.
• Issuance of permit ‒ the building permit is issued by the municipality under the property owner’s name, with a specific term to complete the construction works, which is extendable in most cases.

Duration will depend on each municipality and the feasibility studies required before the permit application submission, but it may be between six and 18 months before construction can begin.

Any individual who may be adversely affected by the construction or refurbishment of a hotel – typically neighbouring property owners, although not necessarily limited to those with contiguous boundaries – may have standing to object to such works. This includes but is not limited to members of the local residents’ association or communities within the area where the hotel is being developed or renovated.

While it is not possible to preclude the possibility that an affected party may file a legal objection or that a court may issue an injunction or other provisional measure to halt construction activities, compliance with all applicable legal and regulatory requirements significantly strengthens the legal position of the developer or operator. This includes obtaining and maintaining all relevant construction permits, land use authorisations, and health and safety certifications. Such compliance not only facilitates a defence against potential claims but also increases the likelihood of successfully challenging and lifting any precautionary measures that may be imposed by judicial authorities.

The only regulatory requirement that may limit the conversion of hotels into other uses and/or vice versa in Mexico is the zoning classification, which is determined by each municipality.

Pursuant to the Federal Law on Archaeological, Artistic and Historical Monuments and Zones, owners of real estate properties that have been declared historical or artistic monuments are legally obliged to preserve such properties. Where necessary, they must undertake restoration works, subject to prior authorisation from the National Institute of Anthropology and History (INAH for its acronym in Spanish).

Similarly, owners of adjacent properties who intend to carry out construction or other works that may affect the characteristics or the surrounding environment of such monuments must obtain the corresponding permit from the INAH.

The INAH is responsible for providing professional guidance to ensure that the conservation and restoration of designated monuments are carried out in accordance with applicable technical standards and regulatory criteria.

Any restoration or conservation works undertaken without the required authorisation, or in violation of the conditions set forth in the granted permits, shall be subject to suspension by order of the INAH. In such cases, the INAH may order, after due process, the demolition, restoration or reconstruction of the works executed in contravention of the provisions of the abovementioned federal law.

To operate a hotel in Mexico, the following permits shall be secured by the entity that will operate the property; please note that this list is not exhaustive and may vary according to each state and Municipality Regulations:

• a Zoning Certificate from the municipality;
• an Environmental Impact Authorisation (EIA) for construction and operation – please note that a beachfront hotel is federal jurisdiction and this EIA should be granted by the Federal Environmental Ministry (SEMARNAT), while a city hotel may come under state or municipal jurisdiction;
• building permits and an Occupancy Certificate or Termination Notice/Authorisation from the municipality;
• Civil Protection Internal Programme Authorisation at the state or municipal level;
• a Federal or State Air Emissions Environmental Licence, if applicable;
• registration as a hazardous and non-hazardous waste generator;
• a water services agreement and/or Federal Water Rights Concession Title;
• a waste water services agreement and/or waste water treatment plant authorisation and federal waste water discharge permit under national water;
• registration with the National Tourism Registry as a Tourism Services Provider;
• Hotel Classification with the National Tourism Registry;
• a permit to sell alcohol, which is granted by the Finance Ministry of the State in certain areas, such as Quintana Roo and Nayarit; and
• an Operating Municipal Licence.

The Operating Municipal Licence is public and the requirements to obtain the licence may vary in different municipalities but the general requirements are as follows:

• articles of incorporation and powers of attorney of the legal representative and the person who is attending to file for the permits and IDs;
• Federal Taxpayer Registry (RFC) and updated certificate (Constancia de Situación Fiscal);
• property title or lease agreement;
• Zoning Certificate;
• Environmental Impact Authorisation;
• proof of property tax payment;
• proof of paid utilities (water and municipal waste service);
• Civil Protection Internal Programme authorisation;
• a permit to sell alcohol, if applicable;
• a health licence or operating notice before the Health Ministry;
• photographs of the hotel; and
• a receipt for the payment of government fees regarding the operating municipal licence cost.

Mexican Official Standard NMX-AA-171-SCFI-2014 (“Requirements and Specifications of Environmental Performance for Lodging Establishments”) establishes a set of voluntary sustainability criteria specifically applicable to lodging services, including hotels, inns and hostels. The primary objective of this standard is to guide such establishments in the implementation of sustainable management practices that holistically integrate environmental, social and economic dimensions.

From an environmental perspective, the standard promotes the efficient use of water and energy resources, the adoption of clean technologies, and the implementation of comprehensive waste management strategies based on reduction, reuse and recycling principles.

On the social front, it encourages fair labour practices, respect for human rights, and the active participation of local communities through employment opportunities and the integration of local suppliers into the value chain.

Economically, the standard advocates for responsible financial management and sustainable procurement practices aimed at fostering long-term value creation. Furthermore, it mandates the implementation of training and awareness programmes to ensure that both personnel and guests are actively engaged in sustainability efforts.

In addition to this standard, there is a national voluntary certification known as the “S” Distinction (Distintivo “S”), issued by the Mexican Ministry of Tourism (Secretaría de Turismo, or SECTUR for its acronym in Spanish). This certification is awarded to hotels and tourism service providers that demonstrate compliance with internationally recognised sustainability practices. It is valid for a period of one year and may be renewed upon successful reassessment.

The “S” Distinction evaluates various aspects of environmental management, including resource conservation and pollution prevention, as well as social responsibility indicators such as fair labour conditions, community engagement and the preservation of cultural heritage. It aims to promote the protection and celebration of Mexico’s rich cultural legacy within the tourism sector.       

Hotel transactions in Mexico, such as acquiring or transferring hotel businesses, can trigger specific employment law requirements under the Federal Labour Law (FLL). Legal requirements include the following.

Employer Substitution

When an acquisition or transfer of a hotel business is structured as an acquisition of assets and the new owner will continue to operate the business, maintaining the same operation with the same assets and staff, an employer substitution according to Article 41 of the FLL may apply. In Mexico, the following conditions must be met in order for an employer to be valid:

• the former employer must transfer to the new employer the labour-related assets related to the transferring employees;
• the new employer must honour and replicate all working conditions and benefits in kind and cash currently granted by the former employer; and
• the new employer must continue the business activities in which the transferring employees are involved.

In this case, the new employer and former employer will be jointly liable for all labour obligations for six months following the effective date of the employer substitution.

The key features of an employer substitution are as follows:

• employees are not terminated;
• employees’ consent is not required in order for the transfer to be effective;
• employees must be notified of the change in the employer; and
• from a social security perspective, the new employer may keep the same risk premium associated with work-related insurance with the social security institute (IMSS).

Termination and Rehire

If the above requirements are not met, the employer substitution will not be valid. In such a case, employees can be transferred through termination/rehire, either with or without recognition of seniority.

The key features of termination/rehire are as follows:

• employees’ consent is required, and severance payments may be triggered;
• the new employer is not required to provide the same labour benefits and conditions; and
• from a social security perspective, the new employer must self-register in the corresponding premium and class for work-related insurance with the IMSS.

Collective Bargaining Agreements (CBAs)

If the employees to be transferred are unionised, some consultation obligations must be taken into consideration.

Employer substitution

Union consent is not required in order for an employer substitution to be effective. However, if the CBA is to be transferred from the former employer to the new employer, a substitution agreement must be executed with the union and filed with the labour authority.

Termination and rehire

Union consent is necessary for the termination and rehire process. If unionised employees are transferring, the former employer will have to negotiate the terms and conditions of the termination/rehire process with the union. In addition, the union will likely request the new employer to execute a CBA under the same terms and conditions as the existing agreement.

In both cases, any modification or negotiation of the CBA must follow formal procedures and involve the union.

Profit Sharing Obligations (PTUs)

Employers in Mexico must distribute to their employees an amount equal to 10% of their pre-tax profits within 60 days after they are required to file their annual tax return. If the transaction closes mid-year, agreements often include clauses allocating PTU responsibility between buyer and seller.

Subcontracting

Due to the 2021 reform of the FLL, the subcontracting of personnel is prohibited. Instead, companies must contract specialised services that do not overlap with their core business and main economic activity. Therefore, hotels can no longer outsource core operational staff unless the services to be provided comply with the subcontracting rules. In this case, the service providers must be specialised service providers registered with the Ministry of Employment and holding a valid REPSE (Registro de Prestadoras de Servicios Especializados u Obras Especializadas) registration.

Employee Retention

There is no legal obligation to retain specific employees. In an employer substitution, any unilateral termination by the buyer without cause after the acquisition requires the full severance payment (three months of aggregate salary; seniority premium equal to 12 days of the base wage per year of services, with the daily salary capped at two times the minimum wage and any other accrued benefits).