Buying residential real estate in Thailand under a lease agreement
The importance of supplemental contracts
As foreigners are not permitted to own land in Thailand the standard contract under which property is sold to foreigners is a lease agreement. Residential leasehold housing and apartment projects in the tourist areas of Thailand often include service and maintenance agreements as an integral part of the lease agreement . These contracts could put an ongoing extra financial burden on the lessee for the duration of the lease that is often difficult to control or to get rit of. Lease contract structures aimed at foreign tourists often include contracts such as:
- rules and regulations of the project
- maintenance agreement
- management contract
- rental pool agreement
To understand the importance of these supplemental contracts you need to understand lease or tenancy laws in Thailand. A leasehold is under normal written Thai law not a real asset or fixed asset (it is not a true leasehold) but a rental or tenancy contract that can be terminated prior to the term of the contract if you do not comply with the contract structure. As maintenance and management contracts are often made an integral part of the lease agreement this usually means that any breach of these contracts could be considered a breach of the lease agreement and vice versa. Breach of any of the contracts under which the property is sold could actually lead to eviction of a tenant who does not comply with the terms of the lease contract structure.
How are the management and maintenance fees calculated
An important aspect is of course, how are the fees calculated? Maintenance and management fees could (depending on the contract) be set yearly by the developer at his own discretion and as he wants to make a profit this does not benefit the tenants. And as some of these contracts cannot be terminated (as these are part of the lease agreement) or contain clauses that make it very difficult to terminate it could put an ongoing financial burden on the lessee, almost similar to payment of extra yearly rent to the owner.
Common complaints in leasehold projects
Common complaints in residential leasehold projects in Thailand relate to high annual management and maintenance fees and poor services. You could say in case of poor performance in relation to the fees to withhold payment of the annual fees, but using this leverage could be considered a breach of the lease and could give the owner the right to take legal action against the lessee even though the contract terms may seem unfair. It is advisable to double check all the contracts in a leasehold arrangement because when signed you are committed even when the terms are in practice unfair for the lessee. Note that hire of property laws in Thailand are considered pro landlord and Thailand does not know real tenant protection laws.
Control over the ongoing project fees
Some developers of leasehold property in Thailand have set up a more democratic system of management of the project, similar to how a registered condominium is run (recommended) by giving control to the residents. However, the majority of the developers aiming their services at foreigners use structures in which they control the development and the long term tenants basically have to comply with the fees set and decisions made by the owner/ developer. As a warning to foreigners in Thailand who often 'buy' real estate in Thailand and who do not obtain independent legal advice or obtain poor legal advice, supplemental contracts in a leasehold could be a costly trap.