Leases in Thailand
One way of owning a land in Thailand would be through leasehold. Through leasehold, a foreigner would have a chance to own a land in Thailand, but for residential purpose only. Leasehold in Thailand allows the foreigners to own a freehold interest in land. With the leasehold, a foreigner would have a chance to build house on the land and own the structure built on the land through right of superficies.
Thai law allows foreigners to lease real properties in Thailand such as land for a maximum duration of thirty (30) years. The right to use the land needs to be registered at the Land Department for the lease to be legal and binding. The lease is a contract made between the lessor and the lessee. To secure the leasehold of a real estate property in Thailand, a tenancy contract called lease agreement is drafted. This written contract protects both parties involved as it details the terms of the agreement made regarding the property.
Under Thai law, the maximum period for a lease registration of a residential property is only 30 years. The lease agreement could guarantee only the initial 30-year lease. This can be extended to two renewal periods of 30 years each, however enforceability of a further period is not certain.
A foreigner may construct a house on the land he leased provided that he secures a construction permit under his name, and the structure is under his name.
For leases more than 3 years, the lease contract needs to be registered at the Land Office. It is drafted in Thai language. The lease agreement will contain particulars of the lease such as the name of the owner, the name of the person who holds the lease of a property, the monthly rental fee, how long the lease is valid, what happens if either party terminates the lease agreement, tax and fee arrangements, other terms and conditions of the lease. The title deed and the lease contract will be maintained at the Land Department.
Issues on Lease Agreement
1. securing the contract with a family member as co-lessee
In drafting the lease agreement, it is recommended to include a young adult family member as co-lessee in the contract. In the unexpected demise of the parent, the children can carry on the full term of the lease period.
2. enforceability of a second term
Land department only accepts maximum of 30 years for the first term. The renewal of the 2nd term of the lease is just a contractual promise, meaning the renewal of second term of the lease is not enforceable by law. For example, the owner of the land didn’t agree to the renewal of the 2nd term of the lease, then it cannot be enforced by Thai courts in the event of dispute. This is because as per Thai law, duration of hire cannot exceed 30 years.
Another gray area on long term lease agreement would be the succession of the lease. Upon the death of the lessee, there is a question on whether or not the lease can be transferred to a successor through a will. A clause on the lease agreement relating to succession will only be promissory in nature. Please take note that upon the death of the lessee, there will be a termination of the agreement. The only way for the successors of the lessee to retain the land would be re-registration. Thai will says who gets to inherit the rest of the lease after the lessee dies.
A sublease is when the tenant leases out the property to a third party who usually pays more than the original rent to the tenant. The tenant makes a profit after paying the owner. Issue on whether or not the land can be subletted/subleased would depend on the lease agreement. The lease agreement can be structured in a way wherein it would allow the land to be subletted/subleased and used for commercial purposes provided that a prior notice is given to the lessor. Owners can state in the agreement that subleasing is allowed.
5. terminating a tenancy
On the event of the demise of the lessor, or that the land has been sold to another owner, leases are still valid. However termination of tenancy happens on the death of lessee, breach of contract, or when the lessee has to leave prior to the agreed date. On the latter, lessee will forfeit his/her deposit unless otherwise stated in the lease agreement that the lessee can terminate their contract with sufficient notice (usually a 60-day notice); If indicated on the lease agreement, then the lessee will be able to collect his/her deposit.
Lessor cannot legally terminate the contract unless the lessee has broken a specific rule that was mentioned in the agreement (such as nonpayment of rent, or illegal activities).
Land Lease and the Right of Superficies
Through leasehold, a foreigner may acquire the ownership of the land. One of the concerns on land lease would be how to secure certainty over the structure upon which you build the land. Aside from registering the land lease at the Land Office, it would be best to register superficies. The right of superficies will strengthen the lessee’s interest in the property because it will see that the building on the land will be put in the lessee’s name, as distinct from the actual land itself. A right of superficies can confer substantial post-lease rights upon the lessee. Even after the death of the lessee, the right of superficies will still exist, and this will allow that the interest of the house be transferred to the lessee’s successors.