Possession of real estate in Thailand under a lease agreement

Payment of rent

ESSENTIAL ELEMENTS OF A LEASE OR HIRE OF PROPERTY CONTRACT

Payment of rent is under Thai law an essential element of a lease agreement (section 537Section 537 'A hire of property is a contract whereby a person, called the letter, agrees to let another person, called the hirer, have the use or benefit of a property for a limited period of time and the hirer agrees to pay rent therefore', In Thai: มาตรา 537 อันว่าเช่าทรัพย์สินนั้น คือสัญญาซึ่งบุคคลคนหนึ่ง เรียกว่าผู้ให้เช่า ตกลงให้บุคคลอีกคนหนึ่ง เรียกว่าผู้เช่าได้ใช้หรือ ได้รับประโยชน์ในทรัพย์สินอย่างใดอย่างหนึ่งชั่วระยะเวลาอันมีจำกัด และผู้เช่าตกลงจะให้ค่าเช่าเพื่อการนั้น). Possession of a real property under a lease agreement in Thailand without payment of rent would not be enforceable as hire of property under the Civil and Commercial Code. A lease without a lease price would not be governed by the chapter hire of property but for example by right of habitation or usufruct laws and a different set of rules would apply. For the registration of a lease agreement the land office will require that the lease includes a rent. The lease price or rental price must be considered a reasonable rent or the land office wil refuse registration of the lease agreement or will assess the rent based on the government appraised value of the property (registration fees, property tax, income tax for the owner will be based on this amount). Lease as opposed to superficies, usufruct or habitation cannot be registered for a nominal (1 baht) amount or without consideration to be paid.

The appraised valuations are set by the Treasury Department and the Land Department and adjusted every 4 years. The appraised value should be as closely as possible to the actual market value of the property. The assessed value is used as a baseline for market transactions and for tax purposes. Market value is the probable open market price agreed on by a willing and knowledgeable buyer and seller with no prior relationship with each other where the transaction is not a forced sale. The market value is the probable price on the date of the valuation or appraisal under normal market conditions.

A residential property lease in Thailand can be made for a term not exceeding 30 years at the time. Rental payment can be made in advance for the whole term, but not for additional lease terms or a term exceeding the registered 30 years lease term. It has previously been common practice in the Thailand real estate market to inlude additional pre-paid terms in a 30 year lease agreement aimed at foreigners (e.g. suggesting a fully paid 90 year term), however, under new 2008 land office regulations the land officers must reject registration of lease agreements containing such (void) clauses.

Leasehold and re-sale of a lease agreement 

Hire of Immovable property

THE RIGHT TO SUB-LEASE AND ASSIGNMENT OF A PROPERTY LEASE

Lease in the Civil and Commercial Code is placed under the rubric contracts and as a hire of property primarily a personal contract right of the lessee (termination upon death of the lessee) with aspects of a real property right'Real property rights are rights over real estate enforceable against all other persons (e.g. right of the lessee to sublet if agreed), as opposed to contract promises (e.g. lease renewal option) which are enforceable against a particular person or persons - under Thai hire of property laws the dividing line between real property (lease) rights and personal contract promises in a lease agreement is not always easy to draw'. This is the reason why under Thai law the right to sub-rent or assignment of a residential lease agreement is only allowed if the lease agreement contains the right of the lessee to transfer his lease rights or transfer possession of the leased property to a third person (section 544 Section 544 (Civil and Commercial Code): 'Unless otherwise provided by the contract of hire, a hirer cannot sublet or transfer his rights in the whole or part of the property hired to a third person. If the hirer fails to comply with this provision, the letter may terminate the contract.' In Thai: มาตรา 544 ทรัพย์สินซึ่งเช่านั้น ผู้เช่าจะให้เช่าช่วงหรือโอนสิทธิ ของตนอันมีในทรัพย์สินนั้นไม่ว่าทั้งหมดหรือแต่บางส่วนให้แก่บุคคล ภายนอก ท่านว่าหาอาจทำได้ไม่ เว้นแต่จะได้ตกลงกันไว้เป็นอย่างอื่น ในสัญญาเช่า ถ้าผู้เช่าประพฤติฝ่าฝืนบทบัญญัติอันนี้ ผู้ให้เช่าจะบอกเลิกสัญญา เสียก็ได้). The right of the lessee to sublet or assignment of his lease must be included in the lease agreement or the lessee is under Thai laws not allowed to sublet or assign the lease to another person.

Lease and an agreed investment in land or real estate

Special Reciprocal Contract

SPECIAL TYPE OF (LEASE) CONTRACT CREATED BY THE SUPREME COURT

Contrary to a lease agreement governed by normal hire of property laws this type of special lease contract is not specified in the Civil and Commercial Code but created by the Thailand Supreme Court. In some specific situations where the lessee has made an agreed substantial investment in the improvement of the leased property that upon expiration of the contract will benefit the owner the lease could be deemed a special reciprocal contract. When there is mutual agreement between the parties of making the investment by the lessee and the benefit for the owner upon expiration of the contract term the hire of property contract could be consider a special reciprocal contract and (based on Supreme Court Judgments) a different set of rules would apply on the contract (beyond hire of property laws). This type of special contract is not specified in the Civil and Commercial Code but is created by the Supreme Court but has limited application.

Laws governing leasehold, lease and rentals of real estate and condos

Hire of property laws

WHETHER CALLED LEASEHOLD, LEASE OR RENTAL THE AGREEMENT IS GOVERNED BY THE SECTION HIRE OF PROPERTY OF THE CIVIL CODE

The legal agreement whereby rent is paid in order to use another man's real estate property (residential or commercial property) in Thailand is governed by the lease agreement between the parties and the Civil and Commercial Code. The laws governing hire of property in Thailand is applied in the same manner if the hirer is a Thai or foreign national. The primary source of laws governing hire of property is the Civil and Commercial Code. The general principles of lease (as a contract) is governed by Title VI Juristic Acts and Book II Obligations and more specifically the Chapter Hire of Property, but the Supreme Court of Thailand gives rules for the exact interpretation of words and sections of the Civil and Commercial Code and therefore lease in Thailand cannot be fully understood without also taking into account specific Supreme Court judgements. You can read the Civil Code but won't be able to fully understand it.

What is lease or leasehold in Thailand

The main drawback of Thai property law is that leasehold in Thailand is not a real property right (governed by book IV Property) but a personal contract right of the lessee (governed by book III specific contracts). The lessee cannot buy or sell his lease unless the owner is willing to cooperate, the lessee cannot mortgage his lease nor use it as collateral. Lease in Thailand is in essence a normal hire of property contract (a tenancy) governed by the section hire of property in the Civil and Commercial Code. A lease in Thailand (as it is in essence a normal tenancy) is a personal right of the lessee and attached to the lessee therefore according to the Thailand Supreme Court terminated upon the lessee's death.

The Chapter Hire of Property (lease in the Civil and Commercial Code)

• General provisions
• Duties and liabilities of the letter (lessor)
• Duties and liabilities of the hirer (lessee)
• Extinction of a contract for hire (lease)

Only in case of specific commercial leases the Thai government created a specific act requiring large investments into Thailand; the Hire of Immovable Property for Commerce and Industry by Foreigners.

Lease contract and lease term

THE TERM OF THE LEASE AGREEMENT CANNOT EXCEED 30 YEARS

The term of a real estate lease in Thailand may be fixed or periodic. The maximum lease term in Thailand is 30 years (section 540Translation Civil and Commercial Code 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'.). Any lease of immovable property for a longer period than 30 years in Thailand may only be made by renewal of the lease contract upon its expiration. Based on supreme court judgment it is possible to say that a valid and enforceable renewal can only be made within a period of 3 years prior to the expiration of the first lease term (not 30 years prior to expiration). If for example the lessor and lessee have executed 2 or more consecutive 30-year lease agreements it shall by law be deemed as 1 lease and reduced to 30 years.

For specific leases by foreign corporations the Thai government created a longer term in a specific act; the Hire of Immovable Property for Commerce and Industry by Foreigners Act B.E. 2542.

Thai law puts a limit of 30 years on any property lease in Thailand. Parties cannot extent this term in the contract. For the same reason parties cannot make an enforceable provisiona guaranteed renewal of a 30-year lease would be in conflict with the law (section 540) as it would extent the maximum lease term by contract option for renewal of a 30 year lease term. A renewal promise in a 30 year lease agreement is under Thai hire of property laws not enforeable by legal action and legally best described as a moral obligation to the person or developer who gave the option. A renewal promise in a 30 year lease agreement merely hold the illusion of a longer lease contract.