Thai Leases Agreement Options

Real Lease rights and Contractual Obligations in lease agreements in Thailand

Foreigners may not buy land freehold in Thailand, they may legally lease land for up to thirty years.

Lease in Thailand cannot exceed thirty years. Any longer period than 30 years shall be reduced to thirty years (section 540 of the Thailand Civil and Commercial Code). An agreement to lease may be renewed upon its expiration, but it must not exceed thirty years from the time of renewal. As a 30 year term is too short for most property buyers you see lease structures suggesting a sixty or ninety year lease term.

How does this work?

The suggested longer term is a promise in the lease agreement to renew the lease after thirty years, and a ninety years lease term is based on a second renewal upon the expiration of the second term. Renewal options in the lease agreement are contractual promises between the parties signing to the lease agreement and not by law or registered legally recognized renewals rights. There is legally no guarantee the renewal of the lease will be granted.

True lease rights and contractual promises in the lease agreement

It is important to separate true lease rights from contract promises or non-lease rights in the lease agreement. Contractual non-lease rights in the lease agreement are promises and obligations which are not by nature lease rights, but often included in the lease agreement  to generate sales by suggesting longer lease terms.

Non-lease rights are for example:

• a promise by the lessor to repay rental to the lessee with interest should the lease not be renewed after 30 years,
• the option to transfer the land to a freehold title upon request by the lessee.
• the agreement to renew the lease agreement upon its expiration

These are personal contractual promise between the parties to the lease agreement. If the lessor dies during the lease term, or in case of a juristic person is dissolved or the is land transferred to another company during the lease term, the successor or transferee owner of the property is not by law bound by contractual obligations between the previous owner and lessee unless this is clearly accepted as a contractual option by the new owner.

Contractual promises in the lease agreement and death of the lessor

If the lessor/ property owner dies or ownership of the land is transferred during the lease the lease agreement is not terminated and the new owner takes the land subject to the registered lease (Section 569 Civil and Commercial Code), however, the Supreme Court has clearly ruled that only true lease rights by law transfer and with the land and will be binding upon the new owner. Non-lease rights (e.g. the famous renewal option) will not transfer to the new owner. This is based on the basic principle of contract law, no third parties are bound by a contract between 2 parties.

The protection the hirer finds in the law only concern the true lease rights, as found in the section hire of property in the Civil and Commercial Code (lease term, payment of rent, right to sublease, etc under the general provisions and duties and liabilities of the lessor and lessee in the section hire of property sections 537 to 574 Civil and Commercial Code).

True lease rights and contractual promises in the lease agreement

Non-lease rights are promises and obligations which are not by nature lease rights but are often included in the lease agreement. Non-lease rights are according to the law and Thailand Supreme Court for example the agreement between the lessor and the lessee to repay rental with interest should the lease not be renewed after 30 years, or the option to transfer the land to a freehold title or the right to purchase the land. Also the agreement to renew the lease agreement upon its expiration is a personal contractual promise and only binding between the parties. If the lessor passes away during the lease term, or in case of a juristic person is dissolved or the is land transferred to another company during the lease term, the successor or transferee owner of the property is not bound by contractual obligations between the previous owner and lessee unless this is clearly again accepted as a contractual option by the new owner.

A lease renewal upon expiration of the first 30 years has to be in accordance with the terms and price as set out by the new owner, at his discretion.

Should the lessee or hirer pass away during the lease term the lease and options are terminated, as the lessee is the essence of the contract according to the Supreme Court, and the remaining term and lease rights will not pass automatically to the heirs of the lessee. The transfer of the lease to the heirs is generally subject to the lease agreement and to agreement by the land owner and requires registering of the remaining lease term in the name of the heir(s). The heirs have the right to claim such performance directly from the original lessor based on section 374 Civil and Commercial Code. This right must be included in the lease or the lease will end upon death of the hirer and not transfer to his heirs. Also this option is primarily a contractual right and not a real lease right according to the Thailand Supreme Court and this right will generally be lost with the transfer of ownership of the property hired.

To prevent this situation one could include others in the lease as co-lessees who can each continue to lease in the event of death of one of the lessees.

• Read ups: Succession to a lease

Beyond lease agreements

It is important to distinguish real lease rights from contractual promises in the lease agreement. In practice leasehold structures are guaranteed for thirty years only and it is important to be aware of the limits and the personal nature of contractual structures in the lease. Nothing protects the lessee against a lessor going bankrupt, departing this life or even breaching his contractual obligations.

A ninety year land lease or a thirty year lease agreement with two pre-paid renewal options aims to generate sales.

In some specific cases the Supreme Court of Thailand has given additional rights to the lessee and his heirs in certain specific situations (beyond the section hire of property in the Civil and Commercial Code), and a correctly drafted lease should include some of these principles but it could in the end be up to a Court or the Thailand Supreme Court to determine the rights of the lessee or the lessee’s heirs under a leasehold purchase beyond 30 years.

Lease or hire of property is not an inheritable or tradeable right in Thailand. As a hire of property transfer of lease rights is always subject to cooperation and approval of the owner of the property.

• Contracts: Lease Agreement template forms