Bricks and Mortar in Our Blood
Leasehold is denoted under Thai law in the Civil and Commercial Code as a ‘hire of immoveable property’.
This means that the hire is temporary and limited in time.
The maximum period of time allowable under Thai law is currently for residential property – 30 years.
There is no mention in the Civil and Commercial Code of any provisions relating to ‘renewals’ or leases or additional periods of time.
If the terms of the lease attempt to make a lease longer than 30 years, then the entire lease can be deemed ‘void and unenforceable’.
If the terms of the lease allow a ‘renewal’ but do not attempt to make the lease longer than 30 years, then the entire lease shall not be void.
A ‘renewal’ is an agreement ‘outside of’ or separate to the lease itself. It is an agreement to agree to do something in the future after a certain event – the expiry of the lease term has occurred.
A renewal can be relied upon if the renewal is between the original parties to the lease because any party violating the agreement will be able to sue the other party. Please note that ‘suing another party’ isn’t a particularly attractive proposition.
If the owner of the ‘freehold’ sells its interest to another party, the other party does not have to honour the renewal – it can choose to do so, only by specific agreement or in practice.
Many developers set up structures including corporate structures, to try and avoid the situation where a third party could acquire the freehold and undermine any ‘renewal’ provisions. Such structures include ‘collective leasehold’ structures, and should be vetted for reliability and all documents checked for an assessment of stability of such a structure.
1. Purchase a condominium as part of 49% of the registrable saleable area which can in the entire building be sold to foreigners, as a freehold ‘in the foreigner’s name’ basis
2. Purchase a lease of a condominium unit for 30 years. Some leases have ‘renewal’ options, which are subject to provisos and conditions under law and in practice. Someone has to be the ‘lessor’ the ultimate owner of the unit in order for a foreigner to take a lease. The owner may be the developer which developed the condominium building.
3. Co-Invest in a Thai company to acquire a Thai quota unit. This is subject to numerous provisos and restrictions including but not limited to: not using illegal nominee shareholders; ensuring laws relating to paid up capital of the company are complied with; the company conducting business and not being a ‘shell company’ used to circumvent the Condominium Act; a genuine commercial relationship existing between the investors in the Thai company.
3. Purchase a lease of the land from the developer or land owner for 30 years. Some leases have ‘renewal’ options for additional terms of 30 years. These are subject to provisos and conditions. In combination with purchasing the land lease, a foreigner can also purchase and own the building through transfer of a sale of a registered building, or through constructing the building by being the named party on the construction permit or having the construction permit transferred to them prior to completion of the building.
4. Co-Invest in a Thai company such company to acquire the land. This is subject to numerous provisos and restrictions including but not limited to: not contravening the Land Code which prohibits direct or indirect ownership of land by foreigners, not using illegal nominee shareholders; ensuring laws relating to paid up capital of the company are complied with; the company conducting business and not being a ‘shell company’ used to circumvent the Land Code or any other provisions of law; a genuine commercial relationship existing between the investors in the Thai company.
Land and law is unique in many jurisdictions, and that includes Thailand.
You should not assume that any aspect of law relating to land is similar to your home country jurisdiction.
In order to understand why a land title search is important, the following non-exhaustive key points are relevant:
1. All land types in Thailand are capable of being revoked. This means that even the ‘best’ land title can be ‘taken back’ if it is found to be illegal. The best land title is ‘Chanote’ which if originating from illegal practices can be investigated and revoked under the revocation provisions of the Land Code.
Therefore, it is very important to check the history of land.
2. Sometimes developers buy what they think is ‘good land’ and then discover part or all of it has land title issues. Then these issues may be hidden or concealed or not obvious on the face of initial inspection.
3. The shape of land in reality can be different to the shape of the land on the land title papers. IT is important to commission a survey to check this, to establish if land is ‘missing’ or if there is ‘encroachment’ into National Park, National Forestry Reserve or neighbouring land.
4. You might think there is access from the public road to the land, but maybe there is a ‘gap’ or an intervening issue affecting access
5. There may be a history of ‘upgrades’ of the land showing incomplete or technically incorrect surveys or strange very large increases in land size upon upgrades and re-measurement of the land boundaries.
6. The original ‘possessory’ origins of the land may not be properly explained or link to the evolution of land titles from its origins.
Land must have come into existence somehow, and that process must be legal. There are various methods by which land title can come to exist in Thailand but the most common is the possessory title ‘Sor Kor 1 (SK1)’ being notified to the Land Department by the possessor(s) in order to survey and issue a form of utilisation or ownership document. If there are issues relating to the origin of the title, or the history is missing, this can represent a ‘defect’ on the title.
7. Many Thai banks will not look into the history of land as extensively as a private investor would. This is also unusual because in many jurisdictions a bank will conduct rigorous checks on land title unless the title is ‘guaranteed’ by the state. In Thailand, there is no ‘state guarantee’ of land title per se. Therefore, if a bank issue a loan against land, this does not lead to the absolute conclusion that the land is legal or its title has been issued properly.
It is not possible to check these matters by a simple review of papers at the Land Department. Qualified competent Thai lawyers should be engaged to search and identify all relevant papers, this should be analysed, placed into a report and then reviewed by partners.
1. the number of ‘storeys’ on the building in the construction permit may be different to that which has been built. A seller or developer may try to pass off a ‘basement’ or ‘rooftop’ as a legal addition which may not be legal subject to the plans and the permit
2. the as-built drawings may materially deviate from the submission drawings provided to the authorities to obtain the permit
3. the construction permit may have been ‘endorsed’ to be ‘on behalf’ of a third party when in fact the endorsement does not by operation of law ‘transfer’ a permit
4. the building may be built on too steep a gradient in contravention of the gradient rules
5. the building may be built above a height limit of the building from ground level to the top of the building
6. the building may be built above a height limit from ground level measured whereby above a certain height above ground level, no buildings may be built.
Other matters should be checked in relation to building legality with thorough due diligence. The scope of due diligence will depend on the scope of an engagement and associated legal fees.
A construction permit allows a person or entity to build a property, accordingly only to the plans submitted to support the permit.
If the person or entity constructing under the permit completes the building but does not sell the building, then that person or entity will become the owner of the building – having constructed it.
If the person or entity construction under the permit transfers the permit to a third party prior to material completion of the building then the new owner may become the owner by simply having its name on the construction permit.
However, if the person or entity constructing under the permit completes the building, and then wishes to legally transfer the building to a new owner, then a sale must take place and be registered as having taken place by a bill of sale and payment of transfer fees and taxes by the parties.
1. Land Title History Search
2. Zoning Search
3. Survey of Land Boundaries versus land title document maps and physical markers
4. Litigation search of the land or property owner / developer / shareholders / directors at the local Provincial Court
5. Possible litigation search at other Provincial Courts
6. Company check at Department of Business Development of corporate documents of any companies involved
7. Regulatory compliance – licenses/notifications for any short term rental or hotel use
8. Type of permitted use of the building registered with the authorities
9. Asset management arrangements – property management agreement and property management company and any third party companies providing services or supplies to a property or project
10. Accounting, Financial and Tax due diligence into all relevant persons/entities
11. Review of any loans – internal or external loans – terms and conditions
12. Review quality of contractual rights in any leasehold ownership
13. Review quality of corporate rights in any corporate ownership
14. Review management of condominium building – committee; condominium juristic person and rules and regulations in any condominium project
15. Review legality and financial matters relating to any ‘mixed’ use
16. Review method of purchase in terms of registration fees and taxes
17. Review potential method of future re-sale post acquisition of property
18. Review contributions made to any ‘sinking’ fund or fund for capital renovations and status of usage of such a fund
19. Review history of any minuted meetings of any committee, shareholders, board of directors in relation to the project
Thai to Metric
1 Wah = 2 m
1 Talang Wah = 4 sqm
1 Rai = 1600 sqm
1 Rai = 400 Talang Wah
1 Rai = 0.40 Acre (approx.)
1 Rai = 0.16 Hectare
1 Ngan = 100 Talang Wah
Metric to Thai
1 m = 0.5 Wah
1 sqm = 0.25 Talang Wah
1 Acre = 2.53 Rai
1 Hectare = 6.25 Rai
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