Leasing in Thailand

 

 

How long for leasing in Thailand?

Because of the barriers in place to the purchase of land by foreigners, the most effective way to acquire land that a building resides on is to purchase the land on a 30-year leasehold with an option to extend the lease for subsequent 30-year periods.

Leases are limited to 30 years, except on land for industrial purposes, which may be established for 50 years. Similarly, lease extensions are capped at 30 and 50 years respectively. Possession of the land leased for an already owned building is protected by the fact that the building rests on the land; ownership of the building is separate from the land and cannot be seized by the lessor once the lease expires.

 

Leases exceeding three years are enforceable for only three years unless they are registered with the Land Department. Therefore, a 30-year lease must be registered with the Land department. In addition, a lease continues to be valid even in the event the property on the land is sold.

 

Leasing for Foreigner

Leasing is the easiest way for foreigners to hold land in the Kingdom of Thailand and, unless it is a unit in a registered condominium, ownership and long term possession of real property in Thailand usually includes a land lease agreement as foreigners can't own land in Thailand (section 86 Land Code Act). It is legally permissible in Thailand for foreigners to lease land (which must be registered on the land title document at the Land Department) and then build on that land in their own name (which should be through a building permit issued by the Or.Bor.Tor in the foreigner's name).

Hire of immovable property for commerce and industry by foreigners is governed by the 'Hire of Immovable Property for Commerce and Industry Act B.E. 2542'. Lease or hire of immovable property (land, land and house, condominium) for residential purpose by foreigners is governed by the Thailand Civil and Commercial Code since there is no other specific law issued regulation this matter. The law is applied in the same manner if the hirer (lessee) is a foreign or a Thai national.

Any lease in Thailand over 3 years is enforceable if the lease is made in writing and registered by the competent official. The local land office is the only competent authority to record rights and legal acts (lease) over immovable properties in their district. The land official will record the lease in the official registers of the Land Department and in the land title deed copy of the owner.

To record rights or legal acts (e.g. lease, usufruct, mortgage) such land must be covered by title deed (Sections 71 to 83 of the Land Code Act). The land owner's title deed document (i.e. Nor Sor Sam, Nor Sor Sam Gor or Chanote should look as the document shown on the left with a size of a large A-4 document (no registered rights are possible against lower land claims).

The land title document shows the status of the land (title), the location and area of the land, the owner of the land and if any legal acts and/ or third parties rights are registered against the land. The first and most important document to assess in any real estate investment is the land title document. The legal acts and rights registered against the land are noted on the back-side of the document (i.e. shown on the land title deed copy of the owner).

The maximum fixed and registered term under Thai law an owner can legally burden his property with a right of possession (e.g. lease, right of habitation, usufruct, superficies) is by law thirty years (sections 540, 1403, 1412, 1418 Thailand Civil and Commercial Code). The limited fixed term of thirty years is not specific for Thai law but is in line with many other (Western European) countries (i.e. it is not aimed against foreign land ownership, but a legal political choice that is made with regards to rights of possession of immovable properties opposite freehold ownership).

"Section 540: 'The duration of a hire of immovable property cannot exceed thirty years. If it is made for a longer period, such period shall be reduced to thirty years. The aforesaid period may be renewed, but it must not exceed thirty years from the time of renewal'.

Section 564: 'A contract of hire is extinguished at the end of the agreed period without notice'. "

The lease may be renewed, however, a promise in the current lease to renew the lease is generally a personal right (i.e. it follows the parties to the agreement and not the land).

In lease or leasehold agreements (or usufruct agreements) it is important to understand the legal difference between real rights (or real lease rights) and personal rights. Real rights are attached to the real property rather than a person and are enforceable against third parties (e.g. transferee owners). Real rights follow the title of the property rather than the person. If the owner of the property dies, or transfers ownership of the property during the lease, the property transfers including the real rights it is burdened with. Personal rights will generally not follow the title to the property but the person. If the person dies a personal right or obligation dies with him. Personal rights and obligations are contractual promises relating to the property between the parties signing to the lease agreement only (e.g. under present law a promise to renew the lease).

"Section 569; 'A contract of hire of immovable property is not extinguished by the transfer of ownership of the property hired. The transferee is entitled to the rights and is subjected to the duties of the transferor towards the hirer'. Only the real lease rights will transfer with the freehold title of the property. "

A purchase option (under present land office regulations (2008) a land purchase structure in the foreigners name may be refused when registering the lease) or renewal option clause is deemed a personal right by the Thailand Supreme Court and not a real lease right or registered right on the land title, therefore under present law not enforceable if the property is transferred during the lease term. Future law and regulations could however give greater protection to the lease owner, and long term leases (e.g. where the investment is aimed to exceed the 30-year period) are drafted with this in mind, but under present law renewal promises remain a personal right given by the owner party to the lessee party signing to the lease (i.e. after 30-years a new period must be registered at the Land Department and this is not enforceable against or by persons who are not party to the lease agreement)).

 

Under Thai Contract Law there are several defenses the lessor could take not to grant personal promises (e.g. renewal option, option to purchase) or grant promises on the terms he gave you 30-years ago.

Considering the legal status of non-lease rights in the lease an additional superficies agreement could offer additional protection when purchasing undeveloped land (e.g. you could lose your rights under a land lease agreement, but your rights to the land under the right of superficies agreement could remain and enforceable). However, it will in the end up to a Court's decision if greater protection to the lessee and superficiary is granted.

 

Ownership of the structures built upon the land

Foreigners are allowed to own structures upon the land freehold in their own name, which in the case of undeveloped land should be effected through a separate registered right of superficies. A right of superficies is not required and proof of ownership is primarily established through either a building permit (e.g. who's name is in the building permit is assumed to be the owner of the building) or in case of an existing building the official Thai Land Office sale agreement (e.g. the name shown in the sale agreement administrated at the local land office is assumed the owner of the house).

 

Building and Land Tax

Not only makes it common sense as an investment protection to own the building freehold by the foreigner (as this is allowed by Thai law), it also reduces Building and Land tax. Building and Land tax is governed by the Land and House tax Act B.E. 2475. Therefore building and land tax shall be collected at the rate of 12.5% of the yearly rental according to the lease agreement or the annual rental value assessed by the Land Department, whichever is higher.

 

Lease registration fee

Lease registration fee shall be collected at the rate of 1% of the total rental throughout the lease term. Rental shall include the remuneration for the lease, the remuneration during the construction, or other amount of money paid by the lessee to the lessor for the lease benefits.

Stamp duty shall be collected on the register of the lease at the rate of 0.1% of the total rental throughout the lease term.

The lessee needs to ensure that the building permit is issued in the foreigner's name and that the construction contract offers them sufficient protection in the event that the contractor is in default. 

 

 

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