Our GTDT guide to investing in real estate in Thailand

Our GTDT Real Estate Thailand 2018 guide  answers 48 of the most essential questions when investing in real estate in Thailand.

If you are investing in real estate in Thailand click on the link above to download it now.

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Thailand’s new residential lessee protections (part 2)

On 18 February 2018 Thailand issued a Notification under the Consumer Protection Act (1979), which regulates residential rental contracts of structures structure (i.e., e.g. houses, apartments, and condominiums) which we detailed in part one of this article. The Notification goes into effect on 1 May 2018 and where it applies will provide significant protections for residential lessees.

The Notification will, of course, also affect landlords who come under its purview. Their lease contract rights will be curtailed under the Notification. Such lessors will no longer be allowed to: charge utilities at a rate higher than the service provider’s rate; require security deposits equal to more than one month’s rental; or require rent to be paid more than one month in advance; nor deviate from the rest of the Notification’s lease contract compliance requirements.

 Now it is clear that these obligations will apply to affected landlords who lease such residential structures from 1 May 2018 onward. And if a landlord who is regulated by the Notification fails to comply with its requirements, he may not only face civil litigation for damages by his lessee, but he will also be subject to a fine of not more than Thai Baht 100,000 and up to one year in prison, or both, for each violation.

Furthermore, what is not completely clear but which appears to be the case, is that the Notification is intended to apply to lease contracts entered prior to 1 May 2018. The Notification itself does not say that it applies only to the relevant lease contracts from 1 May 2018 forward. Furthermore, there is nothing in the Act nor in the Royal Decree Prescribing Bases and Procedures in Relation to a Business that is Subject to Contract Control and Description of a Contract (1999) that requires controlled contracts to comply only from the effective date of such a notification forward.

And in fact, since the Royal Decree was promulgated, there have been nine notifications to control contracts. Six of those notifications are silent as to whether or not they apply to all contracts including those prior to the effective date of the notification, they are:

  1. Lease of building for residential purpose (2018)
  2. Residential construction (2017) [which we detailed here]
  3. Gymnasium service (2011)
  4. Electricity appliance hire-purchase (2001)
  5. Condominium unit sale and purchase (2000)
  6. Mobile phones service (2000)

However, the following three notifications specifically exclude application to contracts entered prior to their effective dates:

  1. Loan by financial institution (2001)
  2. Car and motorcycle hire-purchase (2000)
  3. Credit card (1999)

This indicates that unless the notification specifically excludes application prior to the effective date, the notification is intended to apply to all contracts including those entered into prior to the notification’s effective date.

The only Thai Supreme Court case (2899/2002) that has ruled on the enforceability of a controlled contract prior to the effective date of the relevant notification did on the basis that the notification was one of the three that have excluded such applicability.

This raises several significant issues. For example, and to name but a few, if the Notification applies to contracts prior to 1 May 2018, then landlords who have been charging premium for utilities service would be obliged to stop charging their mark-up from that date forward. Projects, particularly condominiums, that have marketed long-term prepaid leaseholds to foreigners of thirty, ninety years or more may be required to return all unused pre-paid rent save for up to one month in advance. And such long-term prepaid lessees may now be allowed to also terminate their lease agreements for good cause as defined by the Notification. And regardless, the Notification certainly appears to end the current common long-term prepaid leases in developments that are marketed to foreigners from 1 May 2018 onward.

The Notification certainly provides significant and arguably fair protections to residential lessees in Thailand. And, ultimately, the applicability of the Notification to contracts entered prior to 1 May 2018 may not withstand judicial scrutiny, particularly a constitutional challenge. But for now the potential for disruption in Thailand’s real estate sector due to the Notification appears significant.

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DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in over 50 other countries. Visit them at: duensingkippen.com

 

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Thailand’s new residential lessee protections (Part 1)

On 18 February 2018 Thailand issued a notification under the Consumer Protection Act (1979), which regulates residential structure (i.e., e.g. house, apartment, and condominium) leases. Pursuant to the notification any person or company that leases five of more residential structures (with some limited exceptions) is considered a residential structure “business operator”.

The notification goes into effect on 1 May 2018 and requires all residential lease agreements between a business operator and the lessee to include a readily legible version in Thai. Details of the physical condition of the property and equipment (if any), inspected and acknowledged by the lessee, must be attached to the lease agreement. The entire agreement must be made in duplicate, having the same content, one of which must be given to the lessee immediately upon execution. And the agreement must contain at least the following details:

  1. name and address of the business operator and its authorized person;
  2. name and address of the lessee;
  3. name and location of the property;
  4. details of the property’s physical condition, including any items and equipment in the property;
  5. term of the lease, specifying its commencement and expiration dates, months and years;
  6. rental fee, due date and method for payment;
  7. public utility fee rates for example, electricity supply fee, water supply fee, telephone fee, due dates and method for payment;
  8. service fee rates for example, electricity and water meter reading fees, water pump fee for boosting water pressure in the property, which must be reasonable and at the actual cost paid for the services, due date and method for payment;
  9. other fees and expenses (if any), which must be reasonable and at the actual cost paid, due date and method for payment; and
  10. amount of security deposit.

The notification requires the business operator send invoices for the fees in items (f)-(i) above to the lessee at least seven days before the rental payment due date.

Furthermore the notification requires that any security deposit must be immediately returned to the lessee at the end of the agreement, unless the business operator has to investigate any damage to ascertain whether or not it is the responsibility of the lessee. If the lessee is found not to have caused such damage, the security deposit must be returned within seven days from the end of the agreement and the business operator retaking possession of the property. The business operator is also responsible for any expenses incurred in returning the security deposit to the lessee.

Significantly, affected lessees will now have the right to terminate lease agreements that come under the notification’s regulation early, provided that: at least 30 days’ advance written notice is given to the business operator; the lessee does not owe any rent; and there is a reasonable and necessary cause for such termination

Any material breach for which the business operator can terminate the agreement must be clearly written in red, bold, or italic font. The business operator can only terminate the agreement if written notice has been given to the lessee to rectify the breach within 30 days of receipt and the lessee fails to do so.

Furthermore residential lease agreements that are subject to the notification must not contain the following:

(1) Any waiver or limitation of the business operator’s liability from its breach of agreement or wrongful acts;

(2) Any advance rental fee equivalent to more than one-month’s rent;

(3) Any term allowing the business operator to change the rental fee, public utilities fees, service fees, or any other expenses before the end of the agreement;

(4) Any security deposit of more than one-month’s rental fee;

(5) Any term allowing the business operator to confiscate the security deposit or advance rental fee;

(6) Any term allowing the business operator or its representatives to inspect the property without prior notice;

(7) Any stipulation of electricity and water supply fees exceeding the rates specified by the relevant authorities;

(8) Any term allowing the business operator to prevent or obstruct the lessee’s access to the property to seize or remove the lessee’s belongings if the lessee defaults on rental fees or other expenses relates to the lease of the property;

(9) Any term allowing the business operator to request any fee for renewing the lease;

(10) Any term allowing the business operator to terminate the agreement early other than for a material breach of the lease agreement by the lessee;

(11) Any term making the lessee liable for damages incurred due to ordinary wear and tear from usage of the property’s contents and equipment; or

(12) Any term making the lessee liable for damage to the property, contents, and equipment that was not the lessee’s fault and in force majeure situations;

(13) Any term making the lessee liable for defects to the property, contents, and equipment incurred due to ordinary wear and tear through usage.

The notification should be welcome news to residential lessees with lease agreements regulated by it. This in turn would generally also be good news for the real estate investment sector. However, certain implications of the notification may be disturbing if not worse for lessors regulated by it, particularly developers who are planning to lease (and who have leased) condominiums, apartments, and villas. We explain why in part two of this article.

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DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in over 50 other countries. Visit them at: duensingkippen.com

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Real Estate Rights in Thailand

OWNERSHIP

The preferred real estate title deed in Thailand is ownership. The only true ownership title deed to land in Thailand is called a “Chanote” and is issued in accordance with the Land Code (1954). Condominium units also have “Condominium Ownership Title Deeds” which are issued in accordance with the Condominium Act (1979). Ownership deeds issued under the provisions of these Acts are registered with the land department and state the ownership, boundaries, area measurements, and encumbrances (such as mortgages or servitudes, if any) with particularity. A purchaser of land or a condominium unit is registered as the owner of the land or condominium unit on the relevant title deed at the land department at the time of transfer.

There are also three basic types of possessory (in other words, not true ownership) right documents for land still in use in Thailand. They are the “Nor Sor 3 Gor”, the “Nor Sor 3”, and the “Sor Kor 1”. Of the three, the Nor Sor 3 Gor is the preferred. This document contains an accurate location of the land and boundaries (but unlike in the case of land under Chanote title deed, no survey markers are placed by the land department) along with verification of the utilization of the land in the past. A Nor Sor 3 is similar to the Nor Sor 3 Gor except that the measurements and boundaries of the Nor Sor 3 Gor are more accurate. Further, a Nor Sor 3 requires a 30-day public notice period before transfer to a new possessor whereas the transfer of a a Nor Sor 3 Gor can be registered immediately. The least preferable is the Sor Kor 1. This document is an unregistered form stating a claim by an occupant of land that the land belongs to him. The measurements are vague or missing and can be easily disputed. Encumbrances, such as a mortgage, can only be registered on Chanote, Nor Sor 3 Gor, or Nor Sor 3, title deeds. However, in some cases, it is possible to upgrade a Sor Kor 1 to a Nor Sor 3 Gor or a Chanote title.

As mentioned, condominium units also have ownership title deeds. This is in contrast to buildings with similar units that are not licensed under the Condominium Act (1979) and which are merely apartments that can only be rented or leased from the owner of the entire building. The owner of a condominium unit, also owns a pro rata portion of the common area of the entire condominium project (based on the proportional area of their individual unit). Unlike land, foreigners are allowed to own up to 49% of the floor space of a condominium project. However, the money to purchase a foreign owned condominium unit must be brought into Thailand in foreign currency for that purpose or held in a “foreign currency account” in Thailand.

LEASE

Land, structures and any part of either may be leased. The maximum lease term is 30 years and the Civil and Commercial Code provides for an additional renewal lease term of up to 30 years. Leases for industrial or commercial purposes have a term of up to 50 years. This again is renewable for a period of 50 years. However, the availability of industrial or commercial leases is significantly limited. The Civil and Commercial Code provides that any extant lease is enforceable against a new owner of the property who becomes the new lessor under the original lease terms. However, because any additional lease term is a “renewal” (and not an “extension”) a clause providing for a renewal term is enforceable as against the original lessor but not against a new lessor. Any lease of more than 3 years must be registered or it will not be enforceable for any term beyond 3 years.

USUFRUCT

A usufruct gives the grantee the right to possess, manage, and exploit a property. It can be either for the life of the grantee or a period of time up to 30 years with the possibility to renew it for up to another 30 years. The rights of a usufruct may be transferred. However, in any case a usufruct ends with death of the original grantee.

HABITATION

A habitation is a right to occupy a building for either the life of the grantee or up to 30 years with a possible renewal term of up to 30 years. Unless otherwise prohibited, the grantee’s family may occupy the building with the grantee. However, a habitation is not transferrable in any way.

SUPERFICIES

A superficies is the right to own freehold title deed to a building on someone else’s land. A superficies may be granted for the life of the grantee or up to 30 years with the possibility of a renewal term of up to 30 years. Unless prohibited by the act creating it, a superficies is fully transferrable by the grantee.

SERVITUDE

A servitude binds the owner of a “servient” property to suffer certain acts or refrain from certain rights inherent in his ownership for the benefit of another “dominant” property. This right commonly granted for purposes of physical or utilities, access or for both. The rights and obligations of the dominant and servient property owners travel with the two property deeds in perpetuity.

CHARGE

A charge is similar to a servitude, however, it is a personal right which gives the grantee a specified use or enjoyment of the property (such as access across the land). A charge may be granted for the life of the grantee or up to 30 years with the possibility of a renewal term of up to 30 years. A charge is only transferrable if so specified by the act creating it.

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DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in over 50 other countries. Visit them at: duensingkippen.com

 

 

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Getting the Deal Through – guide to real estate transactions

Duensing Kippen is proud to have been  selected to provide the Thailand chapter for the Getting the Deal Through: Real Estate 2018  guide — a comprehensive overview of key issues and answers to real estate investment and transactions in Thailand.

To download your own pdf version of the guide please click on the link below.

GTDT Real Estate Thailand 2018

 

 

 

 

 

 

 

Reproduced with permission from Law Business Research Ltd. Getting the Deal Through: Real Estate 2018, (published in November 2017; contributing editors: Joseph Philip Forte, Sullivan & Worcester LLP) For further information please visit gettingthedealthrough.com

If you would prefer to view the guide online please click here.

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Our latest legal column: construction contracts & consumer protection

Our latest legal column explains how consumers who enter construction contracts in Thailand are now protected by law.

 

 

 

 

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Hiring someone to build a house? Thai law now protects you.

After ten years of success of consumer protection for condominium units purchased from a developer in Thailand, consumer protection for the construction of residential houses is now celebrating its first year of enactment.

On 1 January 2017, by way of the Notice of the Contract Committee for the business of residential building construction which shall be contract-controlled (2016) (the “Notification”), residential house construction contracts were officially included among the list of contracts that are regulated by the Consumer Protection Act (1999) (the “Act”).

How can you benefit from this?

In short: if you hire a contractor to construct your house in Thailand, you now have rights that are applicable to your agreement with the contractor regardless of whether your agreement with the contractor explicitly includes these rights or even if your agreement with the contractor provides for terms contrary to these rights.

And these rights have teeth. The Act specifies that should your contractor fail to comply with the Notification the contractor may be subject to imprisonment for a term not exceeding one year, or a fine not exceeding one hundred thousand Baht, or both.

The Notification outlines several terms a contractor must now include in all residential construction contracts, such as:

  • the details of the parties to the contract with the parties’ addresses and identifications, the place and date of contract, the purpose of the construction, a description of the building, and the construction location;
  • the details of the construction costs, including VAT;
  • a description of the construction materials, including quantity and price;
  • the payment schedule in accordance with work progress;
  • the due date of the building permit application, to be measured from the contract execution date;
  • the completion date, to be measured from the date the building permit is received;
  • the contractor’s liability for defects, such as five (5) years for structure and one (1) year for component parts and equipment;
  • lists of the construction materials, including quantity and prices;
  • your right to have a third party remedy construction defects in case of any failure by the contractor to remedy the same; and
  • your termination rights in case of delays in starting construction or completion including a contractual penalty of 0.01% of the construction price per day (limited to 10% of construction price) for late delivery.

The Notification also provides that certain terms are now prohibited in residential construction contracts, such as:

  • the exclusion or limitation of liability for breach of contract by the contractor;
  • termination by the contractor without written notice or under any circumstances where you are not in material breach of the contract;
  • the contractor’s right to claim partial payments before the due date as set out in the contract if you are not in default of any payment or otherwise in breach of the contract;
  • the contractor’s right to amend the contract’s construction specifications, prices, or conditions, or to add any additional obligations with which you must comply, without your written consent;
  • the contractor’s right not to refund your payments;
  • restrictions to your inspection rights;
  • the contractor’s right to assign the contract without your consent;
  • that any of the construction and equipment for which you have paid will be owned by the contractor at any time; or that
  • should you fail to inspect the work within any specified time you will be deemed to have accepted the construction, including any construction defects.

Thailand’s inclusion of condominium development sale and purchase agreements in the list of contracts protected by the Act ten years ago has been of significant benefit to investors and, thereby, to Thailand’s real estate market and greater economy. We expect that this year’s inclusion of residential construction agreements under the Act will yield similar benefits.

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DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in over 50 other countries. Visit them at: duensingkippen.com

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Using a Thai company to own a home is a bad idea (part 1)

This is part one of our two part article published in The Phuket News in 2012 on using a Thai company to own real estate in Thailand. It was a bad idea then, and its still a bad idea for all the same reasons.

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PROTECTING YOUR VIEW

You have bought your dream house in Thailand, which includes an incredible ocean view. You couldn’t be happier. And then, it happens. Someone starts construction of their dream house, directly in front of yours which, when completed, will completely block your beautiful view. What, if anything, can you do?

There are legal measures that can address this issue. How successful those measures are depends on what steps you take and when. Most commonly purchasers fail to take any steps to protect that treasured view that was part of why and what they thought they were buying.

CONTRACT

Sometimes parties will enter into a contract, which includes a provision to protect their view. This is already better than nothing. However, if your contract party is no longer the owner of relevant land at some point in the future (because they cease to exist or sell the land to someone else, etc.), then you are essentially in the same position as an owner who did nothing.

Furthermore, we often see contractual provisions that are intended to protect an owner’s view wherein such protection was dependent on some “owners committee”—that does not legally exist, and therefore, cannot be held liable to protect such view.

CIVIL COURT

So what if you have no enforceable contract?

One possible option would be to file a case in civil court based on the loss of the full benefit of your property. However, your view might not be recognized as a compensable benefit. And, even it is, at best you would be awarded money, but not your view.

 ADMINISTRATIVE APPEAL

Another possible option would be to challenge the construction itself. A party who is affected by the government’s bureaucratic actions may challenge such action by administrative appeal. In our case, this would include the government’s issuance of a building permit to the party who is or will block your view. However, in order to succeed on such a claim, you will need to show that the building permit we issued illegally. If so, the construction may be halted or, if built, ordered to be demolished. However, if the permit was issued legally, your claim will not succeed.

REAL PROTECTION

As you can see, in none of the circumstances above could your action legally secure your view. There is, however, an alternative that will do that. A “servitude” is a real estate property right which allows you to restrict construction on the land that would block your view. If you wish you protect your view, and if such is a key component to your purchase, then it is recommended that you require such a servitude to be registered on the relevant land in favor of your purchase land as a condition of and prior to your purchase.

As a legal right (as opposed to a contractual right) a servitude is registered on the title of the land that could block your view. Thus, regardless of who the current or future owner of that land is, the owner will be restricted from blocking your view.

Furthermore, the legal servitude right will also be registered on your land title and be applicable to future owners as well, an obvious added benefit to your heir or your sale price should you decide to sell the property on later.

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DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in over 50 other countries. Visit them at: duensingkippen.com

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Thailand’s Phuket Court declares long-term leases unenforceable, again

An investment in real estate in Thailand on a leasehold basis is commonly used by foreigners due to the stringent rules that are in place to restrict foreign ownership of land and apartment units in Thailand. Under Thai law the maximum lease term is thirty years, which may be renewed upon expiration of that term. Because thirty years is a relatively short duration, leases marketed to foreigners typically provide for an initial thirty‐year term plus two additional successive thirty‐year renewal terms or “30 + 30 + 30 leases” as they are often referred to.

The problem for investors in such a lease is that the renewal terms are generally not secured. Should the owner of the leased property change during the lease, the remaining renewal term(s) is not enforceable against the new owner. Thus, to address this issue developers have marketed “secured leases” to foreigners. However, five Phuket trial and appellate judges found such leases to be legally void in 2015 as we wrote about at that time. It was these judges’ opinion that such a lease is the legal equivalent of a purchase and that such a lease agreement is entered into by the parties in order to conceal another contract: a sale and purchase agreement for the same immovable property.

Now, in yet another surprising decision, the Phuket trial court has ruled that leases of immovable property with a term of thirty years with two successive thirty-year renewal options themselves are invalid for the same reason. In this court’s opinion, any thirty-year lease with two thirty-year renewals is void because it is not a lease but rather a sale.

What is also interesting (or perhaps, disturbing) is that in both the secured lease case as well as in the recent case involving a simple 30 + 30 + 30 lease, neither the plaintiff nor the defendant argued that they intended to conceal a sale and purchase agreement—-the courts found and concluded this on their own.

In the recent 30 + 30 + 30 case, the relevant law that the court was relying on is Section 155 of the Civil and Commercial Code of Thailand (“CCC”) which states:

A declaration of intention made with the connivance (wrongdoing) of the other party which is fictitious is void; but its invalidity cannot be set up against third persons injured by the fictitious declaration of intention and acting in good faith.

If a declaration of fictitious intention under paragraph one is made to conceal another juristic act, the provisions of law relating to the concealed act shall apply.

In lay terms what this means is that if two parties are “faking” a contract (for example, a lease agreement), in front of other people, but they really mean to and are entering into a different contract (for example, a sale and purchase agreement), then the fake contract (in this example, the lease agreement) is “void” —-that is, legally it never existed. A “lessee” that entered into such a void “lease agreement” would then have no right to the relevant immovable property itself and could be forced to vacate the premises at any time as provided by Section 172 of the CCC:

A void act cannot be ratified, and its nullity may be alleged at any time by any interested person.

The return of a property arising from a void act shall be governed by the provisions on Undue Enrichment of the Code.

As we discussed in our article regarding the court decisions on “secured leases” it makes no difference if the lease itself was already registered at the land department or not. The finding that a lease is void means that it never legally existed and, therefore, as far as the law is concerned, a void lease cannot be, nor ever could have been, registered. Even if the legally void lease went through the land office formalities of registration, with registration fees paid, papers signed and stamped by the land officials, it simply does not change the legal non‐existence of the void lease. If you have a void lease agreement, you have nothing.

What about the “actual” agreement the parties entered, according to the Phuket court, the sale and purchase agreement? Doesn’t the “lessee” at least have rights under that finding by the court? Not according to the court because, as Section 456 of the CCC provides:

A sale of immovable property is void unless it is made in writing and registered by the competent official.

And the courts, in the secured lease case and the recent simple 30 + 30 + 30 lease case, concluded that since the “sale” was not made in writing nor registered with the competent official, it too was void. In other words, as a legal matter, it never happened.

This is now the second case that we are aware of in which Phuket courts have declared long-term leases void. This must be extremely disturbing to many foreign investors investing or intending to invest in real estate in Thailand. Even though the present government is discussing an extension of the current 30 year lease to a maximum of 50 years, the problem of void leases will remain.

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DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in 45 other countries. Visit them at: duensingkippen.com

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