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.
Clearly 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.
However, what is not completely clear is whether or not 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:
- Lease of building for residential purpose (2018)
- Residential construction (2017) [which we detailed here]
- Gymnasium service (2011)
- Electricity appliance hire-purchase (2001)
- Condominium unit sale and purchase (2000)
- Mobile phones service (2000)
However, the following three notifications specifically exclude application to contracts entered prior to their effective dates:
- Loan by financial institution (2001)
- Car and motorcycle hire-purchase (2000)
- Credit card (1999)
This indicates that unless a 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 so 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 a 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 years or 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.
Undoubtedly the Notification 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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