Monthly Archives: March 2018

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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