Why a Longer Long Term Lease Thailand Investors Want Needs Real Reform
A long term lease Thailand law currently caps at thirty years — and neither of the JFCC’s proposed workarounds actually achieves a longer enforceable term without amending the Civil and Commercial Code itself.It is well known that foreign ownership of land in Thailand is restricted. As a result, a long-term leasehold is often the best option for a foreigner looking to invest in real estate. However, the duration of a leasehold in Thailand is limited to thirty years under Section 540 of the Civil and Commercial Code (the “CCC”). It is generally agreed that thirty years is rather short for an investment of any significance, and in an effort to “overcome” this limitation, a typical long-term lease agreement in Thailand will provide for two additional successive 30-year renewal periods — despite the fact that current Thai law provides for only one such renewal. We will not address the issue of a second renewal here.
Due to these restrictions, developers and consumers have for many years called for an extension of the maximum lease term. However, extending the current maximum term and/or renewal periods under Section 540 would require a change in the law, and therefore parliamentary approval — which, for various reasons, has proven infeasible to achieve through the legislative process.
Understandably, then, the Joint Foreign Chambers of Commerce (the “JFCC”) has been working on a proposal to extend the maximum lease term. In March 2010, the JFCC’s Property Committee finalized and submitted a white paper to the Thai government titled “Proposal for Leasehold Extension” (the “JFCC Proposal”). The JFCC Proposal’s second core idea is to extend the scope of the Lease of Immovable Property for Commercial and Industrial Purposes Act (1999) (the “Act”) to cover residential purposes, since the Act currently allows for a fifty-year maximum lease term.
The white paper’s introduction, however, acknowledges that changing the law itself would be difficult, and asserts that the JFCC Proposal will instead focus on “a fast-track solution available under existing law.” We agree that such a solution would be preferable if it existed — but unfortunately, it does not. It is our position that, however well-intentioned, the JFCC Proposal misunderstands the relevant law, and that its core recommendations are not workable under existing law. In our view, the JFCC should withdraw the Proposal and instead focus its efforts on advocating for an amendment to Section 540 of the CCC to allow for a longer maximum lease term.
The First Proposed “Solution”: Back-to-Back Registered Leases
The JFCC Proposal’s first “more achievable and sensible solution” calls for revising Land Department regulations to ensure that two lease agreements can be registered and enforced back-to-back under the CCC, creating a “clear, definite 60-year term.” The JFCC clearly recognizes that the CCC currently caps the maximum lease term at thirty years. However, it also appears to believe that a lease becomes enforceable simply through registration. The Proposal complains that under current Land Officer practice, a second lease agreement can typically only be registered — and therefore become binding — after the first lease term has ended, and recommends that the regulations clearly state that the Land Department will register and enforce back-to-back 30-year leases, allowing for a 60-year consecutive term.
Unfortunately, this recommendation rests on a fundamental misunderstanding of the relevant law. The Land Department does not “enforce” land leases — its role is to register them. The deeper, more consequential misunderstanding, however, concerns the legal effect of lease registration itself.
The legal effect of registering a land lease is one of the more common points of confusion in Thai real estate law. It is often mistakenly believed that registration somehow renders all elements of a lease contract enforceable and unassailable. In reality, registration is merely an administrative act. To the extent registration does trigger legal rights between a lessor and lessee, those rights derive from the law itself — not from the act of registration. For example, under Section 538 of the CCC, any lease exceeding three years must be registered or it will not be enforceable beyond three years, which is why parties register long-term leases. But registration itself creates no additional legal rights or obligations beyond what Section 538 already provides; its only further effect is to make the lease a matter of public record. It does not transform an otherwise unenforceable lease into an enforceable one.
In other words, simultaneously registering a second 30-year lease term does not make that second term automatically enforceable — believing otherwise reflects a fundamental misconception of current law. Thai law does not provide for an “extension” of a lease term; it provides only for a “renewal.” For example, if land ownership changes during the first 30-year lease term — say, the land is sold to a new owner — and that initial term then ends, the new owner is under no obligation to enter into a new lease with the existing lessee, even if the original lessor had already “registered” a renewal term.
The relevant legal question is therefore: who owns the land at the start of the new lease term? Only the owner at that time can act as lessor and enter into a new lease agreement. Simply registering a second 30-year renewal term in advance does not, by itself, make that renewal term enforceable.
A Related Misunderstanding: Section 569 of the CCC
The source of the JFCC’s confusion also appears to stem from a misreading of Section 569 of the CCC. The Proposal asserts that under Section 569, only the contractual rights and obligations under a property lease transfer and bind a new land owner — while a “renewal option” is merely a personal “promise” between the original lessor and lessee that does not transfer to a successor owner unless that successor agrees to be bound by it.
It is true that under Section 569, if land is leased for thirty years and ownership changes during that term, the new owner is bound by the existing lease. It is equally true, however, that the new owner would not be bound by an option or promise to renew that lease made by the prior owner — because that option or promise is not part of the original thirty-year lease itself, and Section 569 only binds the new owner to a lease that currently exists. If a promise to renew is not part of the first lease and therefore not binding on a new owner, then a second “new” lease created by the original lessor is no more binding than that renewal option would be. From this, two conclusions follow: (i) Section 569 only binds a new land owner to a lease that currently exists; and (ii) a second lease intended as a “renewal” does not yet legally exist, and the mere act of registering it does not make it a currently existing lease.
The Second Proposed “Solution”: Extending the Commercial Leasing Act
The JFCC Proposal’s second core idea is to extend the scope of the Lease of Immovable Property for Commercial and Industrial Purposes Act (1999) (the “Act”) to cover residential purposes, since the Act currently allows for a fifty-year maximum lease term. However, Section 3 of the Act, along with its legislative commentary, makes clear that the Act applies only to commercial or industrial purposes. It is therefore not permissible to use the Act to support a fifty-year lease for residential or recreational purposes.
Extending the Act’s application to residential leasing would itself require amending the Act — meaning this proposal is no more straightforward than simply amending the CCC directly. In fact, given that the Act is specifically titled for “Commercial and Industrial Purposes,” amending the CCC instead seems the more reasonable and likely path forward.
Conclusion
What is needed is not a legally ineffective administrative fix, nor an attempt to repurpose a law intended for commercial and industrial leasing, as the JFCC currently proposes. The only viable path forward is an amendment to the relevant law itself — Section 540 of the CCC — to provide for a lease term of more than thirty years. Redirecting the JFCC’s efforts toward this goal would make its advocacy far more effective, and would offer a genuine opportunity to secure the benefits a longer maximum lease term could bring to Thailand and to those investing here.
Until Section 540 is actually amended, anyone structuring a long term lease Thailand property purchase relies on should treat any “renewal” provision as exactly what it is — a promise, not a guarantee — and plan their investment horizon accordingly.