Renewal options in a Thai lease agreement

Legal facts about a lease renewal option in a lease agreement

LAND LEASE agreements are commonly used in Thailand to transfer an interest in land to foreigners. The most common clause in a 30 year lease agreement aimed at foreign property investors is the lease renewal option, either included as 1, 2 (the 90-year lease) or more renewal terms.

The renewal option in a 30 year lease agreement is not a right or option given under Thai hire of property laws to create a longer lease term but a contract promise of the owner to renew the lease when the registered 30 year term of the lease runs out (read lease registration). Including a renewal option (or any number of renewal options) in the lease agreement is based on the freedom of contract between the parties but says nothing about the enforceability of such contract options when the registered 30 year lease term actually finishes. A renewal option is according to Thailand Supreme Court judgements in any case not considered a true lease right protected by section 569 of the Civill and Commercial Code.

First of all, legally it is a promise of the owner who is party to the contract only and therefore not binding upon third paties (a renewal option is not registered against the property). Should ownership of the leased property transfer during the lease term this option must be separately assigned as a contract obligation and accepted by the new owner before it would have effect upon him as a third party to the contract (contract promises in the lease have no effect on third parties to the lease, including the transferree owner). Transfer of ownership of the property hired does not break the lease (section 569) but transfer of ownership does under Thai contract law break parts of the lease that are under Thai contract law not considered true hire of property rights, like the renewal option in the lease agreement. Legally it does actually not make any difference if a renewal is given in a separate document (separate from the lease agreement registered with the land office in Thailand) or in the actual lease agreement.

Secondly a renewal option as a mere personal promise of the contract party to renew the lease in the future is not enforceable by legal action as a contract because of the lenght of time between the promise was given and the execution of the promise (irrespective if there is a form of consideration paid). If the owner of the land is not willing to give a renewal you won't get it. A renewal in a 30 year lease is a promise that is easy to break, especially when the owner of the land values money more than his word. The best description for a renewal option in a 30 year lease agreement is that it is from a hire of property perspective a moral obligation upon the owner of the land who gave the lease and as a moral obligation it s not enforceable as a contract by legal action.

Thai law strictly limits the term of a registered leasehold to 30 years. Any longer period than that can only be made by renewal of the lease upon expiration of the 30 year lease. If the lease is made for a longer period it will by law reduced to 30 years. Any signed consecutive lease agreements are considered void.

The answer to the question 'is a renewal of a 30 year lease possible under Thai law?' is yes, but a renewal is only possible upon expiration of the first term and the owner willing to give the renewal and upon his terms or the negotiated terms at that time. A renewal option is not an instrument to create a longer lease than the legally set maximum term of 30 years. Section 540. 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.

(continue: real estate laws in Thailand)

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