Possession of real estate in Thailand under a lease agreement
Payment of rent
ESSENTIAL ELEMENTS OF A LEASE OR HIRE OF PROPERTY CONTRACT
Payment of rent is under Thai law an essential element of a lease agreement (section 537Section 537 'A hire of property is a contract whereby a person, called the letter, agrees to let another person, called the hirer (tenant/ lessee), have the use or benefit of a property for a limited period of time and the hirer agrees to pay rent therefore', In Thai: มาตรา 537 อันว่าเช่าทรัพย์สินนั้น คือสัญญาซึ่งบุคคลคนหนึ่ง เรียกว่าผู้ให้เช่า ตกลงให้บุคคลอีกคนหนึ่ง เรียกว่าผู้เช่าได้ใช้หรือ ได้รับประโยชน์ในทรัพย์สินอย่างใดอย่างหนึ่งชั่วระยะเวลาอันมีจำกัด และผู้เช่าตกลงจะให้ค่าเช่าเพื่อการนั้น). Possession of a real property under a lease agreement in Thailand without payment of rent would not be enforceable as hire of property under the Civil and Commercial Code. A lease without a lease price would not be governed by the chapter hire of property but for example by right of habitation or usufruct laws and a different set of rules would apply. For the registration of a lease agreement the land office will require that the lease includes a rent. The lease price or rental price must be considered a reasonable rent or the land office wil refuse registration of the lease agreement or will assess the rent based on the government appraised value of the property (registration fees, property tax, income tax for the owner will be based on this amount). Lease as opposed to superficies, usufruct or habitation cannot be registered for a nominal (1 baht) amount or without consideration to be paid.
The appraised valuations are set by the Treasury Department and the Land Department and adjusted every 4 years. The appraised value should be as closely as possible to the actual market value of the property. The assessed value is used as a baseline for market transactions and for tax purposes. 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 valuation or appraisal under normal market conditions.
A residential property lease in Thailand can be made for a term not exceeding 30 years at the time. Rental payment can be made in advance for the whole term, but not for additional lease terms or a term exceeding the registered 30 years lease term. It has previously been common practice in the Thailand real estate market to inlude additional pre-paid terms in a 30 year lease agreement aimed at foreigners (e.g. suggesting a fully paid 90 year term), however, under new 2008 land office regulations the land officers must reject registration of lease agreements containing such (void) clauses.
A clause in the lease agreement; '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 not enforceable under hire of property laws in Thailand. The maximum enforceable term allowed under Thai law is 30 years and any property lease agreement made for a longer period than 30 years will by law be reduced to 30 years (section 540Thai law translation section 548 Civil 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'.). A lease can be renewed upon expiration of the first 30 year term but the new lease must be registered by the parties with the land office and must include what is considered a reasonable rent at that time. Also the common clause in a lease agreement for foreigners, 'the renewal of the lease term under clauses x.a and x.b shall be granted without any additional rental or consideration to be paid by the Lessee', is not enforceable as a contract (read more: lease term and extensions).
Renewal of a 30 year lease
A lease renewal after 30-years is not a right given under hire of property laws but a mere contract promise between the parties to the contract, and even when dealing with the original lessor at the end of the registered 30 year term such clause should under Thai law be considered unenforceable by legal action. A renewal option in a 30-year lease could best be described as a moral obigation to the original lessor that will be extinguished upon transfer of ownership. Any possible court decision granting the lessee the right to continue to lease the property based on the circumstances at that time will include that the lease price must be for the market value (at that time), irrespective what is agreed in a lease agreement made 30-years ago.
Payment of tax (income, rental tax)
Income received in the form of rent is taxed as income under the Revenue Code (Personal Income Tax or Corporate Income Tax). If the rent is paid in advance (not exceeding 30 years) this could be taxed as income for the whole sum in the year received, or if apllied for with the Revenue Department, spread out as yearly income over the term of the lease. Housing and Land tax shall be paid if the owner leases out land and building or if the leased property concerns a apartment registered or unregistered under the Condominium Act (read more: can I rent out my condo)
Thai hire of property laws:
Section 537 A hire of property is a contract whereby a person, called the letter, agrees to let another person, called the hirer, have the use or benefit of a property for a limited period of time and the hirer agrees to pay rent therefore.
มาตรา 537 อันว่าเช่าทรัพย์สินนั้น คือสัญญาซึ่งบุคคลคนหนึ่ง เรียกว่าผู้ให้เช่า ตกลงให้บุคคลอีกคนหนึ่ง เรียกว่าผู้เช่าได้ใช้หรือ ได้รับประโยชน์ในทรัพย์สินอย่างใดอย่างหนึ่งชั่วระยะเวลาอันมีจำกัด และผู้เช่าตกลงจะให้ค่าเช่าเพื่อการนั้น
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.
มาตรา 540 อันอสังหาริมทรัพย์ ท่านห้ามมิให้เช่ากันเป็นกำหนด เวลาเกินกว่าสามสิบปี ถ้าได้ทำสัญญากันไว้เป็นกำหนดเวลานาน กว่านั้นท่านก็ให้ลดลงมาเป็นสามสิบปี อนึ่ง กำหนดเวลาเช่าดั่งกล่าวมานี้ เมื่อสิ้นลงแล้วจะต่อสัญญาอีก ก็ได้แต่ต้องอย่าให้เกินสามสิบปีนับแต่วันต่อสัญญา
Section 564 A contract of hire is extinguished at the end of the agreed period without notice.
มาตรา 564 อันสัญญาเช่านั้น ท่านว่าย่อมระงับไปเมื่อสิ้นกำหนด เวลาที่ได้ตกลงกันไว้ มิพักต้องบอกกล่าวก่อน