Real lease rights and contractual obligations in lease agreements in Thailand
THAILAND LEASE AGREEMENT
FOREIGNERS ARE NOT ALLOWED TO OWN LAND BUT THEY MAY LEASE LAND REAL ESTATE FOR A TERM NOT MORE THAN THIRTY YEARS
A lease agreement in Thailand can contain clauses based on general freedom of contract between the parties and clauses based on specific hire of property laws. The importance of the distinction between the two lies in the future enforceability of contract obligations and true hire of property right (real lease rights). Real lease options and obligations are enforceable against all other persons and by law binding upon successors of the leased property (real lease rights follow the property along with the ownership), and once given the owner (lessor) can't take the option in the lease back and he cannot change his mind, in contrast to contract promises in the lease agreement and possibile difficulties in future enforceability. Under Thai law and Supreme Court rulings the agreed term in the lease is considered a real right of the lessee, but an option to renew the lease is considered a contract option or contract obligation (not a real lease right) that needs to be enforced in the future.
Lease rights and contractual promises in the lease agreement
Transfer of ownership does not terminate the lease agreement in Thailand (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’). Transfer of ownership does not break the lease, but section 569 of the Civil Code must be read ONLY in relation to the content of a lease agreement that is in essence hire of property. When reading a real estate lease agreement it is important to understand that not everything written in a lease contract remains enforceable in case the property is transferred. Only rights and obligations that are under Thai law considered true hire of property rights transfer under section 569, not sections in the lease that are considered mere contract promises. Lease contracts to sell real estate to foreigners are drafted to generate sales and can include promises that are not always guaranteed or enforceable as a contract read more...
Non-lease rights are for example the option in the lease to renew a rental or lease agreement upon its expiration (Supreme Court Judgment (6763/ 1998) ‘In case the lessor promises in the lease agreement to extent or renew the lease term but has sold the leased land before the lessee was entitled to accept, the renewal option is not binding upon the new owner’) but also considered a contract promise and not a lease right under hire of property laws is the option to assign and transfer the lease agreement to the lessee's heirs upon the lessee's premature death (read more...).
If the lessor dies during the lease term, or in case a juristic person is dissolved or the land is transferred to another company or person, the transferee owner is not by law bound by contractual promises made by the previous owner, unless this is clearly accepted as a contractual obligation by the new owner. The protection the lessee finds in the law (section 569 Civil and Commercial Code) concern the rights and obligations which are under Thai hire of property laws considered hire of property rights (e.g. lease term, payment of rent, right to sublease, responsibilities for defects, purpose of the lease, termination, etc.).
Renewal options in a lease agreement
The rule with renewal options in a lease agreement in Thailand is that there is nothing against including them, but as a renewal guarantee giving more than a registered 30 year lease term they don't and cannot work. Any personal promise to enter into an agreement in 30 years time (that is what is required) that is not backed by written law, formal registration or Supreme Court judgments holds very little value. If the lease is near termination the lease can be renewed (the owner willing to renew it), but legally renewal is not enforceable in a court based on a promise made in a lease signed 30 years ago - read more... (lease term and renewal)
Superficies and lease agreements
It is not common in Thailand (yet), but in a proper structured land lease agreement a supporting real property right of superficies should be registered in addition to the land lease agreement. As opposed to European Civil Law countries, the real estate sector and land offices in Thailand are not familiar with right of superficies. This while in fact a right of superficies is a higher and stronger right attached to the property, compared to a hire of property (lease agreement) attached to the lessee. A superficies is a real property right as opposed to contract rights such as a lease agreement. As a real property right it is attached to the land rather than a person and is as opposed to a lease by law transferable by inheritance and not terminated upon death of the lessee.
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Beyond lease agreements: 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 lease agreement could include some of these principles but this must include an investment by the lessee (the house upon the land) becoming ownership of the lessor upon expiration of the lease agreement -
read more...An alternative leasehold purchase structure concerns the true intention of the parties, i.e. transfer of ownership, even though land ownership is prohibited for foreigners. The land offices in Thailand will refuse such contract structures therefore it is created by a separate addendum to the lease agreement. Legally it is and will be up to a court in Thailand to determine the additional rights of the foreigner under a contract leasehold purchase structure (if any and the contract structure not deemed void for illegality). The foreigner's true registered rights always remains a 30 year hire of property with uncertain additional rights based on contract law.