Our legal column in this issue of B&M covers some of the most important things you should know about investing in Thai real estate. To download your copy click on the image below.

Our article in this issue of B&M provides a few of the most important things to know and do when investing in real estate in Thailand. To view and download your copy of the article click on the image above.

In March of 2018, we detailed a Previous Notification under the Consumer Protection Act (1979) that went into effect on 1 May 2018 and which regulated residential structure leases, for example, leases of houses; apartments; and condominium units. However, that notification raised significant questions regarding its applicability, as we also explained.  

Then, on 31 October 2019, a New Notification of the Contract Committee Re: The Stipulation of Residential Property Leasing as a Contract-Controlled Business was issued. The New Notification went into effect on 30 January 2020 and repealed the Previous Notification. And although the New Notification largely followed the provisions of the Previous Notification it significantly revised and reduced the rights and protections of the lessees (and, thereby, increased the rights and protections of the lessors) covered by the New Notification. Unfortunately, however, the New Notification did not resolve some of the most significant unanswered questions raised by the Previous Notification. 

The New Notification provides the following:

• “Residential property leasing business” means a business that leases five or more property units to individual lessees for residential proposes. “Lessor” means anyone who leases property for residential purposes and receives a rental fee from the lessees in return. This remains unchanged from the Prior Notification.

• “Property” means a house, apartment, condominium, or other residential property. However, dormitories, hostels, and hotels that are regulated under separate statues are excluded. This too remained unchanged by the New Notification.

• A tenant or “lessee” can terminate the lease agreement by giving 30-days’ notice.  However, unlike the Previous Notice, the New Notice requires that at least half of the lease term be expired before the lessee can exercise this right.

• With regard to termination by the landlord or “lessor”, the terms under which he can do so must be displayed in the lease agreement in a format that is clearly visible, such as typed in red or bold and black font, or font that italic and underlined. But the New Notification further provides and categorizes the landlord’s termination rights as follows:

• if the lessee breaches a provision in the lease contract the lessor can terminate the lease by serving a written notice to the lessee at least 30 days in advance;

• if the lessee’s action directly disturbs the peaceful living of other tenants, the lessor can terminate the lease by serving a written notice to the lessee at least seven days in advance; or

• if the lessee does not comply with the law relating to public order or good morals, the lessor can terminate the lease, effective immediately.

These new provisions make it much easier for a landlord to terminate the lease contract than under the Previous Notification, which required the lessor to provide the lessee with 30-days’ notice of any breach of the contract during which the lessee could cure the alleged breach. 

The New Notification has also significantly revised, in a largely landlord-friendly manner, what a covered lease agreement is not allowed to include as follows:

• Under the Previous Notification, the lease agreement could not exclude the lessor’s liability for breach of the agreement or tort against the lessee. However, now the lease agreement may exclude the lessor’s liability for any “non-material” breach of the agreement or any “justifiable” tort against the lessee. 

• The New Notification allows the lessor to require a total advance rental payment plus security deposit in an amount equivalent to three months of rent payment. This provides more security for the lessor than the Previous Notification’s one-month advance and one-month security deposit limitations. 

• Under the Previous Notification, the lessor could not confiscate the security deposit or advance rental payment. However, the New Notification allows the lessor to do so if the reason for doing so is due to the lessee’s fault. 

• The Previous Notification did not allow the lessor to enter the property without prior notice to the lessee. But the New Notification allows the lessor to do so to avoid harm to the lessor or others.

• Under the Previous Notification if the lessee defaulted on the lease agreement, the lessor could not prevent the lessee from entering the property nor could the lessor enter the property and seize the assets of the lessee. Under the New Notification, however, the lessor can do so as long as the lessor first properly terminates the lease agreement. 

However, although the New Notification provides that lease agreements “made under” the Previous Notification before this New Notification comes into force will be valid until their termination date, it still fails to clarify crucial questions as to its applicability. For example, what does “made under” mean. As we explained there is a strong argument that the Previous Notification applied retroactively to lease agreements entered prior to the effective date of the Previous Notification. If that is the case, then all agreements made prior to the effective date of the New Notification were “made under” the Previous Notification. Consequently, are all relevant landlords, including those whose relevant lease agreements were entered into prior to the effective date of New Notification and who have been, for example, charging a premium for utility service, now obliged to stop charging their mark-up from that date forward?

Furthermore, it remains unclear how the New Notification applies to real estate projects, particularly condominiums, that have marketed long-term prepaid leaseholds to foreigners. Are they now required to return all pre-paid rent save for up to one to possibly three months in advance? And are such long-term prepaid lessees now allowed to also terminate their lease agreements for good cause per the New Notification? In any event, the New Notification (like the Previous Notification) certainly appears to end the common long-term prepaid leases in developments that are marketed to foreigners in Thailand.

Undoubtedly the New Notification provides significant, and arguably fair, protections to residential lessees in Thailand. It also strikes more of a balance with regard to the rights of covered lessors than the Previous Notification. And, ultimately, the applicability of the New Notification to contracts entered prior to 1 May 2018 may not withstand judicial scrutiny, particularly a constitutional challenge. But for now, and in any event, but the potential for disruption in Thailand’s real estate sector due to the New Notification appears to remain just as significant as under the Previous Notification. 

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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 75 other countries. Visit them at duensingkippen.com

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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:

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 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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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

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

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

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.

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