Real Estate Blog Lease Purchase of a Condominium in Thailand
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. Expensive tourist resort condos are not popular among Thais and the units in the required majority Thai ownership percentage of the condominium often remain unsold or sold to foreigners under a leasehold agreement.
Beware of the practical and legal differences of unlicensed (leasehold) apartment buildings and registered and licensed condominiums read more...
Before the 2006 land office regulations preventing the misuse of Thai companies by foreigners the apartment units in the Thai side of a condominium could, as an alternative to leasehold, be sold to foreigners under a Thai company structure. Since 2006 and a serie of new regulations issued by the Land Department this practice is currently less common and ownership in a partly foreign owned Thai company can only be registered by circumventing the law. The legality of condo holding companies is highly controversial or considered illegal but this structure is still promoted by the real estate sellers in the tourist areas to sell the remaining units in a condominium project to foreigners when the 49% foreign ownership quota is filled up - read more...
Leasehold 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 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.
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.
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.
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!
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.
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.
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.
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.
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.
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Note on selling condos in Thailand:
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Practical advice from real lawyers on most common legal issues for expats in Thailand. Samuiforsale provides general Thai legal information and law resources in English over the Internet. The information in Samuiforsale should be used as general Thai legal information but should not be treated as a substitute for specific legal advice concerning individual situations.
Comments
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?
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.
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?
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