Leasehold in Thailand

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Leasehold in Thailand

The terms “freehold” and “leasehold” are frequently used in Thailand, yet their meanings are often misunderstood. Freehold and leasehold are legal concepts predominantly utilized in the United Kingdom and the nations of the Commonwealth. Freehold signifies an unconditional right of ownership, whereas leasehold refers to the right to rent with exclusive land use rights for a specific duration. A notable aspect of British practice is the ability to enter into such agreements for extremely lengthy periods, often spanning hundreds of years.

In Thailand, some real estate agents, either unscrupulous or lacking competence, mislead clients by asserting that leasehold equates to a form of property ownership.

For instance, these agents might state: “For foreigners in Thailand, there are two types of property ownership: freehold and leasehold. Leasehold is a form of property that is possessed for a limited time.”

Such assertions should naturally raise doubts in anyone, even those without legal expertise.

More conscientious and knowledgeable agents describe leasehold as a type of property tenure, emphasizing that it is a long-term, state-registered lease. This leads potential buyers to perceive leasehold in Thailand as a unique title, akin to a real property right. While this view is understandable from a marketing perspective, as it aids in selling Thai real estate, it is not entirely precise.

In truth, leasehold in Thailand does not constitute a separate legal institution with specific legislative regulation. Leasehold is not a real property right. Instead, it falls under the provisions of the Civil and Commercial Code of Thailand regarding property hire, specifically sections 537 to 571. In Thailand, a lease is solely an obligatory (contractual) right.

However, it’s important to acknowledge that in practice, leasehold in Thailand differs from a standard lease agreement. Key characteristics of leasehold include a prolonged lease term and the requirement for lessees to pay the total rental amount for the entire term at the start of the lease, rather than periodically.

Long-term leasing has become popular in Thailand, driven by the prohibition on foreigners acquiring land ownership and limitations on owning condo units outside the designated “foreign quota”.

Leasehold Term in Thailand

In Thailand, the maximum lease term for residential property is 30 years with the possibility of a one-time extension for no more than another 30 years, as per Section 540 of the Civil and Commercial Code of Thailand.

The Lease of Immovable Property for Commercial and Industrial Purposes Act BE 2542 (1999) grants maximum lease terms of 50 years if the lease is for industrial or commercial purposes.

Any lease agreement exceeding three years must be registered with the Land Department. Otherwise, the contract will only be valid for three years.

Automatic renewal of the leasehold is not provided; the contract must be registered again for a new term. The extension of the contract is an option dependent on the agreement of the parties.

Despite this regulation, developers often offer two or even three consecutive renewals – schemes like “30+30+30” or “30+30+30+30,” implying that the lessee can own the property for 90 or 120 years. It’s important to consider that such terms may be deemed invalid, especially if the extension does not involve a reciprocal performance.

June 21, 2024 press reported that the Thai government is considering two major changes to property laws:

Increasing foreign ownership limits in condominium developments from 49% to 75%.
Extending the maximum land lease period for foreigners from 30/50 to 99 years.

These proposals aim to boost foreign investment in Thailand’s real estate sector. However, they are still under consideration and not yet enacted.

Purchasing a Villa via Leasehold

Leasehold is frequently used by foreigners to acquire villas in Thailand. Foreigners cannot purchase land, but they can buy a building located on that land or one that will be constructed there. When a developer sells a villa under construction, two agreements are typically drawn up: a building purchase agreement and a land lease agreement.

Under the building purchase agreement, the developer commits to construct the building and transfer its ownership to the buyer. The land, meanwhile, is transferred under a long-term lease.

This structure allows foreigners to own land in Thailand without violating the prohibition on foreigners acquiring land outright and without resorting to the creation of a land holding company – a company established with the purpose of acquiring land ownership.

However, when entering into such a transaction, it is crucial to consider the risks and thoroughly check the contracts.

Building Title

In Thailand, a separate document confirming ownership of a building is not issued. Instead, ownership is validated through either a building purchase agreement or a building construction agreement, depending on the scheme used by the developer. The developer may transfer the building permit to the name of the foreign buyer. Although this permit does not itself establish ownership rights and merely confirms the legality of the construction, it is often perceived in practice as evidence that the building belongs to the person named in the permit.

When selling a building, the parties sign a standard form of building purchase agreement at the land office. This is followed by a public announcement of the house sale, and after 30 days, the official transfer of ownership rights occurs.

Leasehold Contract: Points to Consider

When entering into a leasehold agreement in Thailand, it is recommended to pay attention to the following aspects:

The right and conditions for lease renewal (entering into a new agreement), registration of the new contract, and associated payments.
The right to purchase in case of changes in legislation.
Conditions for making lease payments.
Rights to improvements and changes, including construction and reconstruction.
Obligations for the care and maintenance of the leased property, as well as participation in its management.
Conditions for the transfer of the lease rights to heirs.
The possibility of transferring lease rights to other parties and the rights of the new lessee to enter into a new term agreement.
Conditions for subleasing the property.
Servitudes.
Allocation of tax obligations between the parties.
Terms and consequences of terminating the contract.
The dispute resolution procedure, and the advisability of including an arbitration clause.