Key Clauses in a Residential Lease Agreement

What you should know before signing

During the leasing process, it is very common for tenants to request a copy of the lease agreement before delivering a holding deposit.

However, it is important to understand that the final contract is not shared at that stage, as it is part of the legal policy process and must first be reviewed and authorized by the property owner.

Sharing draft versions too early often leads to:

• Confusion between different versions
• Incorrect interpretations
• Unnecessary conflicts if the owner later requests adjustments

For this reason, the correct process is:

1. The lease is drafted based on the legal policy and applicable law
2. It is reviewed and approved first by the owner
3. Once validated, it is shared with the tenant for final comments

That said, we understand that as a tenant you want clarity on what you will be signing.

Below, we explain the most relevant and common clauses found in a standard residential lease, so you can be fully informed in advance.

A balanced contract, based on the law

The lease agreements used at Mundo Urbano are:

• Based on the applicable Civil Code
• Extensively reviewed and tested in practice
• Designed to protect both parties

They do protect the owner, as it is their property.

At the same time, they protect the tenant by guaranteeing:

• Peaceful use of the property
• A dignified living environment
• Clear rules and obligations
• Legal certainty throughout the term

These are not one-sided contracts. They are balanced, professional agreements.

Most important clauses you should know

1. Asset forfeiture (extinción de dominio)

This clause establishes that the property must be used exclusively for residential purposes and never for illegal activities.

Its purpose is to:

• Protect the owner
• Release the owner from criminal liability
• Make clear that any illegal use is the tenant’s responsibility

It is a preventive clause fully aligned with the law.

2. Security deposit

The contract clearly specifies:

• The number of months required as a deposit
• That the deposit is not rent
• That it may be applied to cover:
• Damage to the property
• Outstanding utilities
• Contractual breaches

The deposit exists to protect the property and is returned at the end of the lease, provided the unit is delivered in good condition and with no outstanding balances.

3. Use, maintenance, and hidden defects

The tenant is required to:

• Use the property properly
• Preserve installations, finishes, and contents
• Repair damage caused by misuse

At the same time, the tenant is protected through the concept of hidden defects, establishing that:

• The owner is responsible for structural or pre-existing issues
• The tenant must report them promptly

4. Penalties for non-compliance

Penalties are not fees — they are contractual consequences for non-compliance.

The most relevant include:

Early termination

Lease agreements are generally annual and legally binding, meaning the payment commitment covers the full term. From a legal standpoint, the owner could demand full compliance.

However, recognizing that personal circumstances may change, in practice most owners accept an early termination penalty.

• The market standard and minimum reasonable penalty is two months’ rent

This compensates the owner for vacancy time and re-marketing costs.

Failure to renew or late move-out

• Remaining in the property without renewing
• Failing to clearly state intent to renew or vacate

These situations trigger penalties based on the current rent, designed to force timely decisions.

Late payment interest

• After 5 calendar days past the due date
• Late payment interest applies automatically

5. Pets (when permitted)

If pets are allowed, the contract establishes:

• Full responsibility of the tenant
• Penalties for damage caused by the pet
• Liability for damage to furniture, finishes, or common areas

6. Term, payments, and key dates

The lease specifies:

• Contract term (typically one year)
• Rent amount and payment method
• Payment dates and ongoing obligations

Other common questions about the lease

Property inventory
At the beginning of the lease, a detailed inventory is prepared documenting the condition of the property and its contents at delivery.

This inventory serves as the reference point at the end of the lease.

Rent adjustments upon renewal
For renewals after the initial term, rent adjustments:

• Are based on applicable inflation in Mexico City
• Are negotiated and documented expressly in the renewal

Access and delivery of the property

Under no circumstances is the property delivered unless all of the following are met:

• Lease signed by the tenant and their guarantee (co-signer or guarantor)
• Full payment of:
• Security deposit(s)
• Agreed rent

Without a signed contract and completed payments, delivery cannot take place.

Termination due to force majeure

If the property becomes uninhabitable due to force majeure (fires, severe structural damage, extraordinary events):

• The lease must be terminated
• A fair solution is sought for both parties

In these cases, the legal policy may intervene to:

• Facilitate negotiations
• Speed up agreements
• Avoid unnecessary disputes

Subleasing

In our lease agreements:

• Subleasing is strictly prohibited
• Whether partial or total
• Temporary or permanent

This clause protects the use, safety, and intended purpose of the property.