In the first article about legal vehicles of real estate ownership in Thailand, we pointed out that a foreign investor has two options to choose from – Freehold and Leasehold. Having already talked in detail about Freehold in the previous issue of RL Magazine, we now move to the second one. The question is: What is Leasehold and how comfortable and secure is it for a foreign property buyer in the Kingdom?
The Civil and Commercial Code of Thailand (Sections 537-545) views Leasehold as a state registered long term hire of immovable property for a term of over three years. The name of the lessee is put in both the Title Deed and the lease agreement and registered in the local Land Office.
The maximum lease period is capped at 30 years, but the law allows two consecutive extensions for the same term, giving a total of 90 years. The evidence from practice shows that the length of the lease is often limited by the agreement itself. Thus, when a property is resold, the new owner doesn't receive his own full 30 years but gets what is left from the original term.
The Transfer Fee for Leasehold is set at 1.1% of the actual or appraisal price of the property depending on the terms of the agreement. The common practice is that the fee is fully paid by the lessee when the initial Leasehold agreement is concluded and shared between buyer and seller when the property is resold.
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If several people have had rights to lease the property, the priority for extension of the agreement goes to the one who was chronologically the first. If the Leasehold agreements were not properly registered, the priority goes to the first lessee having proof of actual lease (paid bills, statements of witnesses etc).
The Leasehold owner can sublease the property if the contract allows. Also, the Leasehold can be titled under a Thai company limited rather than a person, which makes sense when the investor is leasing a commercial property or planning to start a new business. Leasehold rights, in this case, can be transferred by changing owners and director of the Thai company.
The Leasehold agreement can be terminated in case of non-purpose use of the property, damage to the property or its full destruction and non-payment of the lease fee. If such termination happens, parties have six months to appeal starting from the date of contract termination and return of the property to the owner. However, our company is yet to hear about a single case of termination of a Leasehold agreement registered in the Land Office.
A Leasehold property itself cannot be transferred by inheritance but the right of use can. To do this the investor has to consult a Thai lawyer and inform the lessor. The transfer is made according to the parameters of the initial Leasehold agreement.
Summing up, Leasehold ownership of real estate is common practice in Thailand and a comfortable and cost-saving option for a foreign investor because of the lower Transfer Fee (1.1% versus 6.8% in case of Freehold). Also, a Leasehold property is not considered an asset owned by the lessee and thus may not be included in asset declarations.
Finally, let us repeat the rule of thumb for all property buyers in Thailand. Put your trust only in real professionals who are genuine experts in their respective fields. An experienced property agent will help you to find the desired property, while a reputable law firm will check all the paperwork, compose the contract, conduct payment and register ownership.