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Guidelines on buying land and property in Thailand

Reproduced with permission from Wichien Harnpraween:

Wissen & Co Limited,
Level 8, Suite 3801, BB Building,
54 Sukhumvit 21 (Asoke), Klongtoey Nua,
Wattana, Bangkok 10110.
Tel: 02 259 2627
Fax: 02 259 2630
Mobile: 081 647 8100
Email: wissen@csloxinfo.com
www.wissenandco.com

For readers interested in purchasing property in Thailand, as a retirement or holiday home or for investment purposes, Wichien Harnpraween - Managing Director of Bangkok-based legal firm Wissen & Company - outlines the entitlement of non-Thai nationals.

Can foreigner be an owner of land, house, condominium unit in Thailand?

For land, under the Land Code of Thailand, an Alien may not own land in Thailand. The term 'Alien' means an individual being a non-Thai national or a juristic entity, such as a company, partnership, foundation or association, where the majority of shares are held by non-Thai persons. Nevertheless, under the Land Code, an Alien may own land if he/she/it is permitted by special law.

Currently, when an alien company (more than 49% shares held by non-Thai national or more non-Thai national than Thai national in the company) has obtained the investment promotion from the Office of the Board of Investment to operate the business in Thailand, such company will be permitted to own land but only to use the land for its promoted business.

Nevertheless, BOI Office also permits a BOI promoted company to buy land for offices and residential purposes for executives or skilled personnel of the company but the total land area may not exceed five rai (1 rai - 1,600 square metres) for offices and 10 rai for executive or skilled personnel residences.

In addition, alien or foreign national company may also own land by virtue of other laws, i.e. the Act on Industrial Estate Authority of Thailand, where such company operates its business within the estate of location of the Industrial Estate as approved and supervised by the Industrial Estate Authority of Thailand, and also by virtue of the Petroleum Act where such company receiving concession for oil and/or gas operation may be owner of the land throughout the time of the concession period.

For a company that has more than 49 percent of its shares held by foreign national(s), or has more foreign national shareholders than Thai nationals, it is deemed to be 'Alien' under the Land Code as stated above and as such may not own land unless it is granted permission under these special laws. A foreigner may own shares in a company up to 49 per-cent of the total equity, in which case such a company is not regarded as 'Alien' and may own land.

There has been no law prohibiting the minority shareholders to have management control of the company. Therefore, the company under control of the minority shareholder is still considered as Thai national company provided always that 51 percent shares are held by Thai nationals and that there is a greater numbers of Thai shareholders than foreign national shareholders. Such control of power may be achieved by contractual arrangement under a shareholders agreement and the Articles of Associations (or by-laws) of the company being registered with the authority. One of the more common ways is to create a class of shares by fixing certain voting rights to the particular class of shares. It is also possible to indicate in the Articles of Association of the company that any change of director need certain number of votes. For instant, 60 percent or more of the votes of shareholders is required to change any director. Therefore, the 51% shareholders cannot eliminate a director without approval of the minority shareholders.

It is important to note that using a Thai national as a nominee to hold shares for foreigners in the company that will own land (except for the company that is entitled to own land under special law as mentioned above) is illegal. In principle, the Thais must be investing with their own funds in the company that owns the land.

As for a house or other construction on land the Land Code only prohibits foreigner to own land but does not prohibit ownership of the property itself. Any foreign national, either individual or company, may be the owner of a house or construction built on land that belongs to anyone. In reality, a foreigner may build his/her own house on the land that he/she leases it from others.

The purchase of condominium units is covered under the 1979 Condominium Act. Under this Act foreigners are permitted to own units up to maximum 49 percent of the total sale units of any condominium building. It is important to bear in mind that, for the purposes of this Act, 'condominium building' means any building that has received the necessary license or permit. Owners of units in a condominium building are referred to as a 'co-owner' as they are co-owners of the common spaces within the building and the compound, such as a swimming pool, car park, garden, sauna and fitness room. These areas are known as 'common property'.

Under the Condominium Act, a foreigner that wishes to buy a condominium unit must present evidence showing that he/she has brought in the funds from outside Thailand to make the purchase. Exceptions apply to foreigners with permanent residency status.

Note that, under the law, ownership transfer of land/house/condominium unit will be legally effective and complete when it is registered with the relevant land office upon payment of transfer fees, taxes and stamp duty.

Can foreigner be a long term lessee or so-called leasehold for property in Thailand?

As discussed above, in general, foreigner either individual or company is not allowed to be owner of land in Thailand. However, foreigner is allowed to occupy land by way of long term lease. Currently, under Thai law, foreigner can lease the land for residential purpose maximum for the term of 30 years. The Thai Civil and Commercial Code provides that "lease term of immovable property (land/house) cannot be longer than 30 years, if it is longer than 30 years, the period shall be reduced to be 30 years. However, when such period of lease ends, it can be renewed but must not be longer than 30 years from the renewal date". Moreover, the same Civil and Commercial Code also provides that "the lease term can be made for the life time of either the lessee or lessor". Therefore, in principal, if the lease is made for the term of life time of either lessor or lessee and he/she lives longer than 30 years, then the lease term could be longer than 30 years. In reality, it is not common for any lessee and lessor to agree for the lease term of life time of either lessee or lessor, and as such they prefer to make the lease term of 30 years initially.

Since the law allows the extension of the lease term for another 30 years, it is very common to state in the lease agreement for many real estate development projects that the owner (lessor) covenants to the customer (lessee) has option to extend the lease term for another 30 years. This provision in the lease agreement is enforceable as such has been upheld by the Supreme Court of Thailand in many cases, e.g. case No. 876/2537, and No. 1602/2548.

Some real estate developments have made their lease agreement with customer (lessee) with an additional option for the lessee that the lessee can extend the lease term by another 30 years after the first 50 years period. This provision has not yet been upheld by the Supreme Court as to its enforceability but it is simply an interpretation among lawyers that the covenant of the landlord to allow such extension of lease term should have the same legal effect and enforcement as the option to renew the initial lease term of the first 30 years.

It is important to note that under Thai law, i.e. the Civil and Commercial Code, any lease agreement of immovable property (land, house, building or condo) for the lease period of longer than three years must be registered with the land office in order to cause such agreement valid and enforceable according to its terms. Nevertheless, if any lease agreement with a term of longer than three years fails to register with the land office, such lease agreement will still be valid for the period of three years. Therefore, even the lease agreement for longer period than three years without registration, the lessee can enjoy utilising the leased property for three years only.

The government charges for the registration fee of lease agreement at 1 percent of the total rental amount in the lease agreement for the whole lease period, plus 0.1% of stamp duty, to be charged at one time at the time of registration.

It is also essential to verify the correctness of the registration particulars of the lease agreement. The original land title deed of the leased land will record the name of the lessee and the land office will issue an official one page lease agreement stating important particulars of the lease agreement, i.e. name of lessee, address, lease term, rental amount, and other conditions (if any).

A lease of land is an alternative for non-Thai national to occupy and utilise the land for long term, and such acquiring of lease of land for long term mostly has intention either to re-sell (or officially "assignment of lease") or to have it inherited to their heirs.

The Supreme Court Judgment used to render its judgment in the black case index No. 2760/2534 in the year 1991 holding that the lease right is a personal right, and the lease right is exclusive right being given by the lessor selected, and that, therefore, lease agreement is terminated on the reason of the death of the lessee.

By virtue of such Supreme Court Judgment, all lease agreements regardless if it is registered with the Land Office, is terminated when the lessee who is a natural person is dead.

However, there is a another Supreme Court Judgment in the black cast index No. 1729/2540 in the year 1997 holding that although lease right is a personal right, the lessor and the lessee can indicate in the agreement that the lease right can be inherited. Therefore, the lessee can indicate as its property to be inherited to the heirs of the lessee. Important to note that the lease right is inherited only when the lessor and the lessee have agreed in the lease agreement that the lease right of the lessee is inherited. Thus, without such a clear statement, the lease right cannot be inherited and ceases when the lessee passes away.

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