Options in a lease

TRANSFER OF OWNERSHIP DOES NOT BREAK RENT BUT BREAKS CONTRACT RIGHTS IN THE LEASE AGREEMENT

Contract rights vs real lease rights

The content of a registered lease agreement in Thailand can be divided into rights given under hire and property laws and rights based on general contract law and the freedom of contract between the parties. The practical importance of the two relates to the future enforceability of contract promises and obligations in a contract, especially in case ownership of the property is transferred during the term of the lease. Real lease rights in a lease agreement are enforceable agains third parties and once given the promisor can't change his mind or take it back should the circumstances change. A simple promise by the lessor to do something in future (renew a lease in 30 years time) can be revoked or may turn out unenforceable under Thai contract law.

Transfer of ownership and the lease agreement

If the leased real estate property is transferred during the term the lease is not terminated and the new owner takes the property subject to the registered lease (section 569Section 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'. In Thai: มาตรา 569 อันสัญญาเช่าอสังหาริมทรัพย์นั้นย่อมไม่ระงับไป เพราะเหตุโอนกรรมสิทธิ์ทรัพย์สินซึ่งให้เช่า ผู้รับโอนย่อมรับไปทั้งสิทธิและหน้าที่ของผู้โอนซึ่งมีต่อผู้เช่านั้นด้วย). Section 569 hire of property laws refers to and protects only rights and obligations in the lease agreement which are in essence hire of property rights. Only real hire of property rights'It is sometimes difficult to determine which contract terms in a lease agreement are real lease or real hire of property rights and which are contract rights. Real lease rights are enforceable against all other persons (e.g. the right of the lessee to sublet, purpose of the lease, payment of rent, termination), transfer of ownership does not break real lease rights. Contract rights (e.g. lease renewal option, option to transfer to a freehold title) are enforceable against a particular person or persons (the promisor) and transfer of ownership does break the rental or lease for this part. will by law transfer with the property to the new owner and are automatically enforceable against the new owner. Contract obligations (non lease rights), even though included in the lease agreement, remain with the original owner. True hire of property rights and non lease rights under Thai law are for example:

True hire of property rights		Non lease rights (contract rights)
1. payment of rent and lease term		1. renewal option in the lease
2. purpose of the lease		2. option to transfer to freehold
3. responsibilities for defects		3. penalty payment upon termination
4. right to sublet and assign		4. succession clause

The new owner is by law (section 569) bound by true hire of property rights and obligations, but not by non-lease rights in the lease agreement. Non lease rights are under Thai contract law personal to the original parties to the lease agreement. The new owner of the leased property would have to accepted the additional contract options in the lease agreement or he will not automatically be bound by these terms. This could be effected in a sale and purchase agreement (in a specific optional clauseThe land is encumbered with a Lease dated the [____] day of [____] 2010 and made between the Seller of the one part and [____] of the other part for an initial term of 30 years with an option to renew for a further 30 year term. (Copy attached hereto and marked Schedule [____]). The Purchaser hereby warrants and guarantees that he has read and fully understands the content of the Lease .........) between the original lessor and transferree owner of the property.

Read more:

• Registration of a Thai lease agreement 
• Contract options to extend the lease beyond 30 years
• More about contract options in a lease agreement
• Overview Thailand real estate laws