Section 540 Civil and Commercial Code: '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'.
Section 564 Civil and Commercial Code: 'A contract of hire is extinguished at the end of the agreed period without notice'.

Legal information like: 'the lease agreement can include two further 30-year renewals, which gives a 90 year lease, making it effectively ownership' is NOT correct and generally suggested by people with an interest in the property market (sales or legal). Other than that this is a personal promise this common used sales argument to sell leasehold to foreigners cannot be found in Thai law nor in Supreme Court judgments. The lease cannot exceed 30-years and is simply extinguished after 30 years without notice (section 564). Any lease made for a longer period shall be reduced to thirty years (section 540). The lease may be renewed, however, a promise to renew the lease at the end of the 30-years lease term is on a person-to-person agreement between the parties to the lease and therefore not enforceable by the heirs of the lessee or against the heirs of the lessor.

According to the Civil and Commercial Code, if the land or immovable real estate property is transferred during the lease term the lease is not terminated and the transferee is entitled to the rights and is subject to the duties of the transferor towards the hirer:

Section 569 Civil and Commercial Code; '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'.

If an immovable property under leasehold is transferred during the lease term the new land owner takes the property (land) subject to the lease rights. However, only real lease rights will transfer and follow the freehold title of the land and will be binding upon the transferee owner. Non-lease rights in the lease agreement have effect only between the parties signing to the lease agreement and do not transfer to the new owner. Non-lease rights are contractual promises between the original lessor and lessee that are not directly lease rights and are (generally) not enforceable by or against any third parties (Supreme Court judgments section 569), even though written in the lease agreement registered at the Land Department.

Real lease rights are the right to sublease, the right to assign, the payment of rent, the lease term, termination, default clause, purpose of the lease, responsibilities for defects. Non-lease rights are for example a promise by the lessor to purchase the building upon expiration of the lease should the lease not be renewed, part repayment of rental with interest should the lease not be renewed, or the option to purchase the land by the lessee should this become permissible under Thai law. These contractual rights are not enforceable if ownership of the land is transferred and have effect between the original parties of the lease only. Also the common used renewal clause in a lease is a contractual non-lease right and NOT a lease right.

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 contractual rights are not binding upon the new owner and only lease rights that are 'real lease rights' will transfer to the new owner'.

The same rule applies in the event of dissolution of a juristic person, bankruptcy or death of the lessor.

An option to renew the lease after 30-years does not follow the freehold title of the property. If the property hired is sold or transferred the new owner/ transferee lessor must explicitly accept the contractual options in the lease or he or she will not be bound by these non-lease clauses in the lease. This could be effected in the form of an additional clause in the sale and purchase agreement between the lessor and future lessor, however, it would be up to the present lessor to include this in a sale and purchase agreement or the new owner will be bound by lease rights that are real lease rights only (Supreme Court).

For any renewal paying rent is an essential element of the lease agreement (Section 537 Civil and Commercial Code). Without a rental fee it will not be 'hire of property'. Rent free will not be enforceable as hire of property. A new 30-year lease term can also not be registered as 'rent free' or the lease price will be assessed by the Land Department, what the lease price should be and fees and taxes must be paid. A clause in the lease, 'it is hereby agreed that there shall be no further payments due for any renewals as the price shall cover the entire lease term however long it may be' is in a court legally meaningless. The lease term cannot exceed 30 years! and that is how long the entire lease term may be under Thai law. To extend the lease term the lease must be renewed and registered by both parties at the Land Office upon its expiration after 30 years and paying rent for the new term is part of the lease agreement.

A promise in the lease by the lessor (if he is still alive or not dissolved or transferred the land) to grant you a second lease term for free or a token amount is after 30-years, as such (rent free), not registrable nor enforceable in court, even if the promise is accompanied by the present transfer of the physical property in question. A promise to renew the lease without further payment or for a token amount will be at the best a moral duty upon the original lessor rather than a legal obligation.

If in case of an enforceable lease renewal both the lessee and the lessor are allowed to refer to the courts for a decision as to whether the agreed renewal price after 30 years! is still reasonable or fair, and the court has the power and will assess the market value for the new lease term, irrespective an agreed renewal price in the lease 30 years ago. Token amounts mentioned for the lease renewal are in long term lease structures legally of no value.

A lease renewal can only be accepted within a reasonable period prior to the expiration (meaning in case of a long term lease not more than 3 years prior to the expiration of the lease term). Pre-paid and pre-signed 30-year leases with pre-specified dates of execution are considered void or voidable as this is an avoidance of and in conflict with section 540 Civil and Commercial Code, the lease cannot exceed 30 years. If not considered void or voidable, the leases together will in line with Supreme Court judgments (Section 540) be considered as one lease and the total term will be reduced to 30-years. The lease may be renewed upon its expiration, however, previous payments to the present owner for any renewal can be ignored by any future owner.

If after 30-years the original parties are still the lessor and lessee, and the lease is set up correctly, the renewal could be enforceable in court, however, this is not guaranteed and the renewal could be difficult to enforce without the lessor wanting it. There are several defenses under contract law the lessor could take not to grant a renewal option (or on the terms) he gave you 30-years ago. In a court decision granting the lessee the right to renew the decision will likely include the condition that the lease price must be for the market value (at that time), irrespective what is agreed in the lease agreement 30-years ago.

If the lessee is not dealing with the original lessor after 30-years, under present law, the renewal would not be enforceable in court. However, in our opinion, the Supreme Court could for specific situations and under certain circumstances (but not general), say, upgrade the renewal option to a lease right that will limited follow the freehold title of the land.

In specific situations the court could for example grant the lessee some protection by ordering the new owner of the land to pay at his option either the price of the building or the sum representing the increase of value accruing to the land by reason of the building or the owner must allow the lessee to lease the whole or part of the land at the market price at the time of renewal. The lessee's position will be stronger if the lease is combined with a renewable superficies.

'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 collateral asset valuation or appraisal under normal market conditions with no transaction costs (nor taxes).

Should the lessee(s) remain in the possession of the property after the expiration of the initial 30 year lease, and the lessor knowing thereof, parties are deemed to have renewed the contract for a indefinite period (this is not 30-years). And in this situation either party may terminate the lease at any time, provided that notice of at least one rent period is given, but no more than two months notice need be given (section 566). Meaning, without registration of a new lease term after 30-years the land owner could order you to leave the premises within 2 months.

Section 570 Civil and Commercial Code: 'If, at the end of the agreed period, the hirer remains in possession of the property and the lessor knowing thereof does not object, the parties are deemed to have renewed the contract for an indefinite period'.
Section 566: 'If no period is agreed upon or presumed, either party may terminate the contract of hire at the end of each period for the payment of rent, provided that notice of at least one rent period is given, but no more than two months notice need be given'.

Lease is a personal right and as a general rule, in the event of death of the lessee the lease will be terminated and the lessor could ask the Land Office to remove the lease from the land title deed and in case of a short-term lease the lease will simply be terminated. In practice problems will in most cases arise at the expiry date of the lease between heirs and the then lessor as contractual option rights in the lease, as these are personal to the lessee and are gone.

Supreme Court Judgment 1108/ 1994; 'The lessee is the essence of the lease agreement. Therefore, should the lessee die, the lease contract will be terminated and the lease rights WILL NOT transfer to the heirs of the lessee'.

The lease could include a clause that in the event of death of the lessee prior to the expiration of the lease term, his or her heirs shall continue to lease the land or that the lease will be transferred/ assigned subject to a condition that takes effect when… Without such a clause in the lease agreement the lease will be terminated and will not transfer to the heirs (though, the Supreme Court created limited exceptions to this rule). Note that the lease does not transfer automatically and it is the contractual obligation of the lessor to transfer and register the lease to the heirs. Such a succession lease clause could in our opinion (but is under present law not) be a lease right that will be binding upon future lessors.

One could use an (offshore) company as the lessee or include others as co-lessees or party in the lease agreement who each could independently continue to lease. This would prevent the necessity of re-registering or transferring the lease in the event of death of the lessee. Note again, contractual options like renewal are personal to the original lessor and lessee(s), and not absolute or real rights. The non-lease contractual obligations do not follow the freehold title of the land, but are on a 'person-to-person' basis.

In the event of death (or bankruptcy) of the lessor the lease will not be terminated, however, options in the lease that are are not real rights do not pass on to the heirs or future lessors (Scj. 163/2518).

It is possible to include a clause in the lease that the lessor must include a clause in his will stating that if he dies a designated heir of the land must honor and accept the land subject to the lease and subject to all the terms and conditions contained therein or forfeit his inheritance rights, however, obviously this does not offer full protection.

The right to transfer lease rights or sublease must be included in the lease. 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'.

Example; Should the lessee lease raw land (and not be allowed to sub-lease the land) and then build a house on the land and rent out the house, this will not be seen a sub-lease or breach of the lease contract (Scj. 2237/1981). Should the lease contract state that the lessee is not allowed to let someone else use the land, then in the same situation, it will be seen as breach of the lease contract (Scj. 6843/ 1998). Sub-lease is generally not subject to permission of the owner/ lessor.

In case of commercial or residential property often a lease term of 5 years is offered. To avoid registration and taxes this in practice means a 3 year lease with an option for another two years. However any lease to be enforceable over 3 years must be registered at the Land Office.

Section 538; 'A hire of immovable property is not enforceable by action unless there be some written evidence signed by the party liable. If the hire is for more than three years or for the life of the letter or hirer, it is enforceable only for three years unless it is made in writing and registered by the competent official'.

Supreme Court Judgment 6451/ 1995; 'Should both parties have made 10 lease agreements at the same time, each contract has a three year term and pre-specified dates of execution consecutively for 30 years, it will only be enforceable for the first three years'. This will be seen as an avoidance of 538 CCC and therefore not enforceable.

If a lease over 3 years is not made in writing and/ or registered by the competent official (the Land Department) only the first 3 years is enforceable and secure, *unless the lease is deemed a special reciprocal contract. This type of contract is not specified in the Civil and Commercial Code but created by the Supreme Court, however has limited application. Should the lessor sell the property within the first 3 years or just does not want to give you the option to renew for the extra 2 years is generally not enforceable.

Lease registration fee shall be collected at the rate of 1% of the total rental throughout the lease term. Rental shall include the remuneration for the lease, the remuneration during the construction, the key money, the fee for the land's survey, the construction cost contribution or other amount of money paid by the lessee to the lessor for the lease benefits. Stamp duty shall be collected on the register of the lease at the rate of 0.1% of the total rental throughout the lease term.

The income derived from lease is personal income according to section 40 (5) (Kor). An individual Thai citizen or foreigner who lives in Thailand for one or more periods totaling at least 180 days in any tax (calendar) year is, for tax purposes, deemed a resident of Thailand and subject to tax on all assessable income derived from sources within the country, whether paid within or outside Thailand, and on assessable income derived from foreign sources to the extent that it is brought into Thailand in a year in which income is received. A non-resident individual is subject to tax only on assessable income from Thai sources, regardless of payment location.

Land and House tax Act B.E. 2475: For individual land owers if they lease out their property Building and Land Tax shall be collected at the rate of 12.5% of the yearly rental according to the lease agreement or the annual value assessed by the Land Department, whichever is higher (read under owning a house)

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