Property Lease in Thailand
Considerations for lease agreements in Thailand:
Given the substantial issues relating to foreigners owning a freehold interest in Thai land, a more viable option for people wanting to have a legal and long term interest in property is done through lease agreements. There are however a number of pitfalls to be aware of, much of which can be mitigated through a carefully structured agreement. The lease can be formulated in such a way that allows the foreigner to build property on the land, and even own the structure through a right of superficies. Any lease on property in Thailand in excess of three years must be registered accordingly at the Land Office, however, currently the Land Office will only register land for a maximum of 30 years, and the enforceability of a further period is not certain. Other necessary things for the parties to consider are payment of rent and penalties for late payment, what to do in the event of termination and the assignment of the various taxes and fees involved. The parties are considered to be, the lessee who is the party paying the consideration for the land, to the lessor, the legal owner of the land in question.
Enforceability of a second term:
Contentious issues arise with respect to the renewal of the second term of the lease, troubling many foreigners when deciding the determining viability of long term lease versus purchase of property. At the present time it seems as though a second term of renewal will merely be a contractual promise which will not necessarily be enforced by Thai courts in event of a dispute. The relevant legislation on this states that the duration of hire cannot exceed thirty years, and if it is made for a longer period, such period shall be reduced to thirty years, however this does not prevent a provision being included on a promissory basis. It is also reasonable to speculate that perhaps this maximum period of lease could be increased as Thailand becomes more liberalized through its involvement with ASEAN community. This would bring Thailand more in line with neighboring Asian countries who are known offer substantially longer lease periods, namely Singapore, Malaysia and Cambodia who permit foreigners to lease for 99 year periods.
Succession and termination:
Succession also provides for a difficult situation in relation to long term lease agreements. Upon the death of the lessee, a clause relating to succession will only be promissory in nature and cannot simply transfer through a will. The death of the lessee will essentially result in the termination of the agreement, and re-registration of the land would be imperative for successors of the lessee to retain an interest in the land.
Termination of the lease should also be carefully drafted in a land lease agreement. Termination might occur through some breach of the contract, or through death of the lessee. However, as will be elaborated upon further, a right of superficies can confer substantial post lease rights upon the lessee.
Tax and fee arrangements:
Several taxes and fees will be encountered throughout the process and these should be dealt with within the contract to avoid having to informally negotiate them as they come. One such tax would be a 12.5% tax in relation to commercial buildings which is levied on the rental value of the property; naturally this would be paid by the owner of the land. 1% of the rental through the entirety of the lease period is due at the land office, along with a stamp duty of 0.1% generally payable by the lessee.
Strengthening the lease in favor of the Lessee:
There are various ways in which to structure the agreement in favor of the lessee, to afford them more protection. For example inserting clauses allowing the land to be subletted and used for commercial purposes, if prior notice is given to the lessor. This may be valuable for foreigners who return to their home country for long periods of time. Furthermore, protection of the land from encroachment and allowing the land to be have buildings constructed upon it can further strengthen an agreement in favor of the lessee.
Additionally, combining the lease with a right of superficies is one of the best ways to secure certainty over the structure upon which you build on the land. A right of superficies will see the building on the land be put in the lessee’s name, as distinct from the actual land itself, substantially strengthening the lessee’s interest in the property. Additionally, the right of superficies will actually exist after the lessee dies, therefore allowing the interest in the house to be transferred to successors. Such a registration of superficies in Thailand will have to be registered in addition to the land lease itself.
See our Property Lawyer in Thailand.