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. Expensive tourist resort condos are not popular among Thais and the units in Thai side of the condominium often remain unsold or are 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...

The old practice (before 2006)

Before the 2006 land office regulations preventing the misuse of Thai companies by foreigners for property purchases 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 the Thai side of a condominium to foreigners - read more...

Leasehold of condos in Thailand is NOT governed by the Condominium Act but by the chapter Hire of Property (sections 537 - 574 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. Leasehold is under Thai law in essence a normal tenancy contract with a (prepaid) fixed term not exceeding 30 years. The lessee cannot freely sell his leasehold during the term of the lease (it is not an asset) but only assign his contract right with the consent and cooperation of the registered owner of the condominium unit, and as a contract right a lease is not automatically transferable by inheritance. 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 when the lessee dies. A leasehold condo does not have the same value and is not equal to freehold ownership. 

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 voting right of the leasehold units control the condominium meetings and matters concerning management and maintenance fees in which he has an 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 (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). A lease agreement or right of possession of the condo will not automatically transfer to the heirs of the lessee (lease in Thailand is a contract right of the lessee, if he dies the contract is terminated). The lease agreement must include a succession clause however this does not offer full guarantee. 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. Pre-agreed renewals, 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 Civil and Commercial Code. 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.

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 same units in the project leasehold to foreigners is not contract controlled and these contracts are primarily written to generate sales and often include terms that are in practice unenforceable under Thai hire of property laws - e.g. a contract promise to renew the lease upon expiration 30 years after signing. See the standard 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.

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 normal condo fees becoming the responsibility of the lesee this is a yearly 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.

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.

Related:

• Condominium acquisition: most asked questions
• Intro Thai real estate law: condominium ownership
• Legal definitions: licensed codominium versus standard apartment building 
• Legal definitions: registered condos vs unregistered (leasehold) apartments
• Off-plan purchase: use of Escrow Act in property developments
• Lease laws: articles hire of property