Inheritance of Real Estate Lease rights
A lease is not automatically an inheritable right
The heirs of the lessee are under Thai law not automatically entitled to succession of lease rights when the lessee/ tenant dies. Lease in Thailand is governed by the chapter 'rent of property' which is placed in the rubric CONTRACTS of the Civil and Commercial Code. Lease is in the first place a contract and personal right of the lessee and not a real asset. This means, as confirmed by the Supreme Court of Thailand, that the agreement is terminated upon death of the lessee because the lessee (tenant) as the contract party is the essence of a lease agreement. If he dies the lease is terminated (e.g. Scj. 1108/ 1994).
The chapter Hire of Property can be found in Book III 'Specific Contracts' and not under 'Property' (Book IV of the Civil and Commercial Code) or real property rights (such as superficies). This for example means that a lease agreement as a contract (not an asset) is not automatically transferable by inheritance and can only be assigned as a contract with formal acceptance of the other party in the lease agreement (the owner) and registration on the title deed.
If the owner of the property dies the lease contract is not terminated and remains in force against the heirs of the owner (section 569), however, ONLY in so far it concerns true rent of property or lease rights. Additional contract rights in the lease that are under Thai contract law not considered true lease rights (under current supreme court rulings the renewal option but also a lease inheritance clause) will not automatically transfer to the new owner and are as contract rights terminated upon transfer of ownership. The new owner must accept these clauses in the agreement or he will for example not be bound by a promise given by the previous owner to renew the lease or to assign the lease to the lessee's heirs (specific exceptions may apply).
Succession clause and inheritance of a lease agreement
To allow succession of the lease agreement and assignment to the heirs of the lessee the lease agreement should have specific clauses granting the right of succession. The transfer or assignment of the lease to the heirs of the lessee requires registration and assignment of the lease agreement at the land department and for that reason cooperation of the owner. In the event of premature death of the lessee his heirs have the right to claim such performance directly from the original lessor, if a valid succession clause has been included in the lease agreement. Otherwise the heirs could end up having no rights to succession and the lease or rental agreement will be permanently terminated upon the lessee's death and the owner can take possession of the property.
Succession clause is a contract right
Sample contract clause: The parties hereto agree that in the event of the death of the lessee prior to the expiration of the lease term the Lessor irrevocably agrees to let the person designated by the lessee or any person appointed by order of the administrator of the lessees estate to lease and use the land and the Lessor agrees to enter into a new lease agreement with that person for the same term and conditions specified in this agreement without any further payment.
It should be noted that the above succession clause is considered a personal contractual promise between the parties to the lease agreement. This is under Thai law not considered a true lease right (i.e. not protected by section 569 Civil and Commercial Code). As a separate contract right this obligation will not automatically follow the property when ownership is transferred during the lease term. A transferee owner (e.g. the heirs of the owner) is in fact a third party to this clause and therefore not bound by a succession promise given by the previous owner. If not accepted there is in principle no legal obligation for a transferee to assign the remaining term of the lease to the heirs of the lessee. The tenancy or lease ends at death of the lessee as the lessee is considered an essential element of the agreement - when he dies the contract ends. A succession clause is not considered true lease right (protected by section 569) therefore the heirs of the lessee may not be able to successfully enforce this clause by action against a successor of the property.
Special protection in specific cases
The Supreme Court of Thailand has in some specific cases gone beyond the normal principles of the law to protect the rights of the lessee and the lessee's heirs in case the lessee has made a substantial investment in the improvement or development of the property that at the end of the lease period will benefit the owner. In this case the lease will not be terminated upon the death of the lessee and the FULL contract of hire will transfer for the remaining term to the heirs of the lessee. It is however ESSENTIAL that the contract is drafted according the principles of Supreme Court rulings and the leasehold purchase is structured with ownership over the building by the lessee. Leases are often not drafted this way as this in fact includes that the lessor becomes the owner of the house upon expiration of the 30 year lease term which is what most foreigners want to prevent read more...
With regards to succession by inheritance or assignment of the lease to the heirs of the lessee there are 3 options:
- Nothing is arranged regarding succession and the lease is terminated upon the death of the lessee (e.g. only a standard land office lease agreement has been signed by the parties or the lease agreement between the parties is not registered on the title deed);
- A valid succession clause is included in the contract which is enforceable against the original owner party (lessor) of the agreement;
- Following the Supreme Court judgments in certain situations the contract for hire or lease goes beyond normal hire of property laws and the contract and its rights will in this case transfer to the heirs.
In a normal lease or hire of property laws the normal principles under the above 1 and 2 above apply and in this case it is recommended to have MORE THAN 1 person as the lessee in the contract to prevent early termination upon the death of 1 of the lessees. In case of No. 3 above the lease agreement MUST be drafted according to the Supreme Court judgments by a legal professional familiar with hire of property laws and who is up to date with the Supreme Court judgment governing lease and hire of property in Thailand. Foreigners must realize that under Thai law and Supreme Court judgments a lease can last only for a period up to 30 years.