Understanding Leasehold in Thailand
In Thailand, “freehold” and “leasehold” arrangements are commonly used, though they have distinct meanings. Freehold provides full, unconditional ownership rights, while leasehold confers the right to use and occupy land for a specified period without ownership. In countries like the UK and many Commonwealth nations, leasehold agreements can span hundreds of years, but in Thailand, they are typically capped at shorter terms.
Common Misconceptions
Some real estate agents in Thailand may inaccurately present leasehold as equivalent to ownership. They might say: “Foreigners have two property ownership options: freehold and leasehold,” suggesting that leasehold confers ownership. However, leasehold in Thailand is not an ownership right but rather a long-term, state-registered lease. While this description may help agents market property to foreigners, it is not strictly accurate.
Legal Basis for Leasehold in Thailand
Under Thai law, leasehold is governed by the provisions on property hire in the Civil and Commercial Code (Sections 537-571). Leasehold does not establish a separate property right but grants the lessee a contractual right to use the property. This arrangement is particularly popular among foreigners, who are prohibited from directly owning land in Thailand but can lease it for long-term use.
Long-term leasing has gained traction in Thailand due to restrictions on foreign land ownership and limitations on owning condominium units beyond the designated “foreign quota”.
Leasehold Terms in Thailand
• Residential Leases: Maximum 30-year term, with an option to renew for another 30 years, as per Section 540 of the CCC.
• Commercial and Industrial Leases: Up to 50 years under the Lease of Immovable Property for Commercial and Industrial Purposes Act BE 2542 (1999).
Leases longer than three years must be registered at the Land Department to be enforceable. Developers frequently market terms like “30+30+30”, suggesting potential 90-year leases, but these terms require new agreements for each renewal, as automatic renewal is not legally binding.
In June 2024, reports indicated that the Thai government is considering increasing maximum lease terms for foreigners from 30/50 years to 99 years. These proposals are still under review and have not yet been enacted.
Acquiring a Villa in Thailand Through Leasehold
Leasehold is a common approach for foreigners to acquire villas in Thailand, as it allows ownership of the building while leasing the land it occupies. This method ensures compliance with Thai property laws, which restrict foreign land ownership.
When acquiring a villa through leasehold, the process generally involves two separate legal agreements:
1. Land Lease Agreement:
• Grants the right to use the land for up to 30 years, with potential renewal options.
• This agreement must be registered at the Land Department to be legally enforceable.
2. Building Purchase or Construction Agreement:
• Covers ownership of the villa as a structure distinct from the land.
• For under-construction villas, developers often sign a construction contract or building sale-purchase agreement, transferring ownership of the villa to the buyer upon completion.
Process for Acquiring a Villa
• For Villas Under Construction:
Developers typically offer two agreements:
• A land lease agreement for the land.
• A building sale or construction agreement, ensuring the buyer owns the villa upon completion.
• For Existing Villas:
Ownership of the villa can be transferred separately from the land. The process involves:
• Signing a Thai-script sale of structure agreement at the Land Department.
• A 30-day public notice period to allow any objections to the transfer.
• Finalizing the transfer, with the agreement officially stamped as proof of ownership.
Key Considerations
• Ownership Separation: The lease applies solely to the land, while the villa is owned outright by the buyer.
• Legal Compliance: Ensure all agreements are properly registered with the Land Department.
• Building Permits: For newly constructed villas, the building permit is typically issued in the buyer’s name, confirming compliance with construction regulations.
• Due Diligence: Verify that the developer or seller has clear rights to lease the land and sell the building, and review all agreements for legal and financial clarity.
By understanding and following these processes, foreigners can legally own villas in Thailand while adhering to land ownership restrictions.
Read more about house ownership separate from the land here
Leasehold Contract: Points to Consider
When entering into a leasehold agreement in Thailand, key considerations include:
• Renewal Terms: Specify rights and conditions for renewal, the registration of new lease terms, and any associated payments.
• Purchase Rights: Include an option to purchase the property if regulations change.
• Payment Terms: Clearly outline the conditions for lease payments.
• Improvements and Maintenance: Define rights for construction, reconstruction, and maintenance obligations.
• Transfer of Lease Rights: Outline the terms for transferring lease rights to heirs or third parties.
• Subleasing and Servitudes: Address the rights for subleasing and any servitudes affecting the property.
• Tax Responsibilities: Define the allocation of tax obligations between lessee and lessor.
• Termination Terms: Outline the conditions for terminating the contract and the process for resolving disputes, including a potential arbitration clause.
Also Read:
Real estate in Thailand
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