samuiforsale
Real Estate Law Real Estate Blog Lease Purchase of a Condominium in Thailand


Buying a leasehold condominium in Thailand

Tourist resort condos are often sold leasehold and freehold to foreigners

THE UNITS IN A CONDOMINIUM registered under the Thailand Condominium Act can be foreign owned for up to 49% of the units in floor space. A higher percentage of foreign ownership in a condo building is not allowed under the 2008 Condominium Act and at least 51% of a condo project MUST be owned by Thai nationals. It is not required that 51% of the condo is occupied by Thai nationals and the Thai owned apartments can be leased to foreign nationals.

Beware of the practical and legal differences of unlicensed apartment buildings (leased holiday apartment units) and official registered and licensed condominiums read more...

The old practice (before 2006)

Expensive resort condos are not popular among Thai nationals and units in the Thai side of the condominium often remain unsold or are leased to foreigners by the developer. Before the 2006 land office regulations restricting the misuse of Thai companies by foreigners the units in the Thai side of a condominium could be sold to foreigners under a Thai company structure. The foreigner would own the unit in a Thai company name. Currently this practice is less common and foreign ownership on a Thai company name can only be registered by circumventing the law. The legality of holding companies is highly controversial or even considered illegal but still you see it promoted in the tourist areas to sell units in the Thai ownership side of a condominium to foreigners and offered as an alternative to foreign freehold or foreign leasehold - read more...

What is lease or leasehold in Thailand:

Lease of condos in Thailand is NOT governed by the Condominium Act but by the chapter Hire of Property (sections 537 - 574 of the Civil and Commercial Code). Thai property law does not know lease as a real property right but only lease as a hire of property contract. Lease is under Thai law in essence a tenancy contract with a (prepaid) fixed term not exceeding 30 years. The lessee does not obtian the title of the property and he cannot freely sell his leasehold during the term of the lease (it is not an asset) but he can only assign his contract with the consent and cooperation of the Thai owner of the condo unit. A major drawback of lease in Thailand is that it is terminated upon death of the lessee and not automatically transferable by inheritance. The lessee's rights associated with leasehold are limited under Thai law and a lease agreement in Thailand can be terminated prior to the agreed term when the lessee defaults on the terms of the lease agreement (or associated contracts) or when the lessee dies. A leasehold condo is absolutely not equal to ownership under Thai law.

What are the main consideration when buying a condominium under a lease agreement:

Voting rights

Unless specifically arranged differently voting rights associated with ownership of the condominium remain with the owner of the unit and are not transferred to the leasehold purchaser. As usually only a few owners turn up in the condominium general meetings the developer with the percentage of voting rights of the leasehold units control the condominium joint owners meetings and matters concerning management and maintenance fees in which he has a financial interest. Selling leasehold condos could disturb the democratic voting system in a condominium.

Selling and assigning a leasehold condo

The primary right of a leasehold purchaser of a condominium is a personal right of possession of the unit for a specified term. The leasehold purchaser does not have any rights himself to sell or assign the leased condo apartment during the lease term (assignment of a lease is a three party agreement between the owner, the current tenant and new lessee/ tenant). Only the registered owner (developer) has the right to transfer ownership or to accept assignment of the lease to another person and have it formally registered with the Thailand Land Department. Also sub-rent by the lessee is only allowed if this is agreed with the owner of the condo in the condominium lease contract, otherwise Thai hire of property laws prohibit sub-let of the unit by the lessee in section 544Translation Civil and Commercial Code section 544: 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. The 'leasehold' purchaser's rights relate primarily to possession of the condo for the registered term only.

Inheritance of a leasehold condo

A foreign freehold owner of a condominium can pass on a condominium by inheritance in Thailand to another foreigner. Lease in Thailand is a contract right and under hire of property and Thai contract law this type of contract is terminated upon death of the lessee (as confirmed by the Thailand Supreme Court). Possession of a property under a lease agreement in Thailand is a contract right of the lessee and when he dies the contract and the right of possession is terminated. The lease agreement must include a succession clause for his successors however this does not offer full guarantee for the lessee's heirs. Transfer of ownership of the condominium does not break rent under Thai law, death of the lessee does!

Term of the lease in the contract

Real estate lease agreements in Thailand cannot exceed 30 years. Any longer term will be reduced to 30 years pursuant section 540 Civil and Commercial Code. The often in the contract suggested pre-agreed renewals, or pre-signed consecutive contracts or even registered contracts suggesting a longer term are not enforceable by legal action under Thai contract law because of the conflict with section 540. It is possible to include such terms based on the general freedom of contract between the parties but having it in writing says nothing about the future enforceability of such terms. Besides, even if such terms would be enforceable, as a contract, it would only be enforceable between the original parties to the contract.

Condominium lease contract content

Selling a condominium freehold in a development is by law a government contract controlled business, meaning that the content of the condo sale contracts must comply with minimum standards and consumer protection laws. Selling the units in the same project leasehold to foreigners is not a contract controlled business and these contracts are primarily written to generate sales and often include terms that are in practice unenforceable under Thai hire of property laws. A typical common clause in such leases is the owner's promise to renew the lease upon expiration of the first term. Read a sample wording relating to renewal of the lease in clause 4 and especially 4.5 of the downloadable sample condominium lease agreement which is nicely written but not according to Thai hire of property laws and in practice not enforceable as a contract. This particular sample clause is in addition void as the new lease must include a rental payment.

Sinking fund and expenses for common property

The registered owner of the condominium is responsible for contributions to the condominium juristic person such as the sinking fund fees and periodic maintenance and management fees and additional special fees to cover major repairs and upgrades of the building. These fees and cost will always become the responsibility of the lessee in the lease agreement and shall not be refunded to the lessee when the lease runs out. For example when the joint owners decide in year 27 of the lease that they will invest in a major upgrade of the building the lessee must pay the owner's share to the condominium juristic person even though he only has 3 years left of his lease or the lease agreement could be terminated for breach of contract.

The lessee's additional property tax burden

As opposed to owner occupied freehold properties, leasehold condominiums in Thailand are subject to a rental tax at a rate of 12.5% over the actual yearly lease price or annual assessed lease price, whichever is higher. In addition to the expenses for the common property becoming the responsibility of the lesee this is also an additional financial burden for the leasehold buyer of a condominium as this is always passed on to the lessee in the lease agreement (see standard wording in clause 7.5 of the sample condominium lease agreement). For a 4 million baht leasehold apartment this will be an additional financial burden for the lessee of approx 16,000 baht each year.

Registration tax and fees

Transfer of ownership of a condominium is subject to conveyancing tax and fees, buying a condominium under a lease agreement is subject to a lease registration fee of 1.1% of the total lease price. Income from lease is taxed as personal or corporate income tax.


 

Note on selling condos in Thailand:

  • To generate sales and income in an off-plan condominium project some developers in the tourist areas of Thailand are offering more freehold sale agreements to foreigners than is available under the 49% foreign ownership quota in the project. This could be deliberately as they hope the foreigner will accept a leasehold when it comes to registration of ownership of the unit, or they have worded the sale contract as a freehold OR leasehold sale and purchase.
  • Selling units in a condominium project on a freehold basis is a contract controlled business, meaning there is some government control and consumer protection and the sale contracts must comply with Ministerial Regulations issued under the Condominium Act and Consumer Protection Act. Selling the same units on a leasehold basis is not a contract controlled business nor offers specific tenant protection and these contracts (as there is little control) could on details be false or misleading in some way read more...

Related:

Comments   

 
#1 GHS 2012-04-27 12:30
What about USUFRUCT condominium in Thailand?

If foreign freehold ownership is not available in a condo project is it better to buy the unit under a usufruct contract or better a lease agreement?
 
 
#2 Consultant 2012-05-02 06:31
The best is of course foreign freehold ownership of the unit. Lease or usufruct is subsidiary to ownership.

For a lICENSED condominium a usufruct may be better. With usufruct you automatically obtain the voting rights in the condo owner meetings. Secondly you will be responsible for the normal condo fees but not for the extraordinary fees. Costs made for the upgrade of the condominium common areas or cost made for major repairs remain the responsibility of the owner.

The drawback is that in any case a usufruct (as a personal property right) comes to an end at death (not transferable). Leasehold in Thailand is also terminated upon death, however as a contract the lease can include a succession clause and is as such transferable by inheritance.
 
 
#3 GHS 2012-05-04 09:03
So to summarize:

1 with a lease I have no voting rights in the condo - with a usufruct I have the voting rights?
2 as a lessee I have to pay a yearly rental tax - with a usufruct I do not have to pay a rental tax?
3 as the lessee I'm rsponsible for all condominium fees and costs, including the upgrading and major repairs - with a usufruct I'm only responsible for the regular condo fees and the owner is responsibility for major repairs and upgrading of the building and common areas?
4 a lease is terminated upon my death but can include a succession clause - usufruct is terminated upon death and cannot include succession upon death?
 
 
#4 Consultant 2012-05-06 09:03
It is very simplified and it all depends on the content of the agreements between you and the owner, but seen from the basic elements of usufruct and how a condo leasehold contract is usually drafted it is correctly summarized.
 

Related articles

thai house and documents

Bangkok skyline of Thai condos

signing of a Thai English language lease agreement

workers on construction site in koh samui Thailand

land seen from maenam hill top koh samui

real right in thailand - usufruct, superficies, habitation, servitude