As foreigners can’t own land in Thailand (section 86 Land Code Act), leasing of land is the common way for foreigners to hold land and invest in real estate in the Kingdom of Thailand.
This article aims to explain the concept of land lease for residential purposes and how to structure long term possession of land/ real property in Thailand by foreigners in Thailand
It is legally permissible for foreigners to lease land in Thailand and then build on that land in their own name in Thailand. Lease or hire of immovable property (land, land and house, condominium) for residential purpose by foreigners is governed by the Thailand Civil and Commercial Code since there is no other specific law issued regulation this matter. The law is applied in the same manner if the hirer (lessee) is a foreign or a Thai national.
Any lease in Thailand over 3 years is enforceable if the lease is made in writing and registered by the competent official (the local land office where the land is located). The land official will record the lease in the official registers of the Land Department and in the land title deed copy of the owner, i.e. the Nor Sor Sam, Nor Sor Sam Gor or Chanote land title document (no registered lease rights are possible against lower land claims).
The first and most important document to assess in any real estate investment in Thailand is the land title document. The legal acts and rights registered against the land are noted on the back-side of the document and shown on the land title deed copy of the owner.
The maximum fixed and registered term under Thai law an owner can legally burden his property with a right of possession (e.g. lease, right of habitation, usufruct, superficies) is by law thirty years (sections 540, 1403, 1412, 1418 Thailand Civil and Commercial Code).
Section 540 Civil and Commercial Code Thailand: ‘The duration of a hire of immovable property cannot exceed thirty years. If it is made for a longer period, such period shall be reduced to thirty years. The aforesaid period may be renewed, but it must not exceed thirty years from the time of renewal’. Section 564: ‘A contract of hire is extinguished at the end of the agreed period without notice’.
The 30-year land lease may be renewed, however, a promise in the current lease to renew the lease is a personal right and not a registered lease right. Real lease rights are attached to the real property rather than a person and are enforceable against third parties (e.g. transferee owners). Real rights follow the title of the property rather than the person. If the owner of the property dies or transfers ownership of the property during the lease term, the property transfers including the real rights it is burdened with. Personal rights will not follow the title to the property. If the person dies a personal right or obligation dies with him. Personal rights are contractual promises between the parties signing to the lease agreement only. When buying a second home in thailand check with all legal firms before you sign a contract.
An option to renew the lease after 30-years or a purchase option (under present 2008 land office regulations a land purchase structure in the foreigners name may be refused when registering the lease) are deemed a personal right by the Supreme Court of Thailand, therefore under present law not enforceable if the property is transferred during the lease term. Under present law renewal promises is a personal promise given by the owner signing to the lease, i.e. after 30-years a new period must be registered at the Land Department and this is not enforceable against or by persons who are not party to the lease agreement.
Considering the legal status of non-lease rights in the lease an additional right of superficies (the right to own structures upon someone else’s land) could offer additional protection when leasing undeveloped land (e.g. you could lose your rights under a land lease agreement, but your rights to the land under the right of superficies agreement could remain and enforceable).
A right of superficies is not required for ownership of a structure, and proof of ownership of a structure in Thailand is primarily established through either a building permit (e.g. who’s name is in the building permit is assumed to be the owner of the building) or in case of an existing building the official Thai Land Office sale agreement (e.g. the name shown in the sale agreement administrated at the local land office is assumed the owner of the house).
Despite the fact that lease agreements suggest to guarantee lease renewals after 30-years it is important to separate personal contractual rights in the lease agreement from the real lease rights, which in the end are the registered rights and which will follow the land title of the land.
An investor of a leasehold property is not protected if the lessor goes bankrupt, dies or simply breaches his contractual obligations.
Property professionals may say you are protected to the fullest extent possible under Thai law, however, in practice leasehold structures are guaranteed for thirty years only. Lease structures in Thailand beyond thirty years are generally set up to generate sales, rather than offering guarantees to foreign investors.
Author: Robert Spelde
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