Acquiring Property in Thailand
July 1, 2009
Investors considering purchasing a condominium, investing through a Thai company into freehold or becoming a long term lessee will spend some time considering how safe each option is in terms of legal and practical problems with each method. Investors should be aware that the legal rights and protections they acquire differ greatly under Thai law depending on the type of investment or purchase of property.
Setting up a Thai company and investing in property in Thailand is a well documented exercise. However, the effect of being considered a Thai in the eyes of the law in respect of freehold purchase through a Thai company comes at a price. Caution must be taken to ensure compliance by the Thai company with the regulations of the Ministry of Commerce and Land Office in relation to the shareholders of the Thai company. Most potential investors in Thailand are now aware of the scrutiny that nominee arrangements have received both in relation to land transactions but also in relation to a company which has a foreign interest. Setting up a Thai company will require satisfaction of criteria which an investor may or may not find difficult to satisfy such as: Thai partners as shareholders justifying their investment and evidencing payment for shares; a genuine bona fide business demonstrating that a Thai company has not been set up solely to acquired land for an alien or foreigner under Thai law.
Apart from this the protection of a Thai company as a buyer of a freehold property will mainly be determined by the bargaining power of the parties to the transaction and by the negotiated terms and conditions of the sales contract. For example, in many jurisdictions, buyers can under law make a claim against a seller of a newly built property for a guarantee between two and 10 years. Though the Thai Civil and Commercial Code stipulates a liability period for construction works relating to a building of five years, this can be varied by the parties in a contract. In practice, most sellers would not provide more than a one year guarantee on structural defects of a building. Therefore, when buying freehold using a Thai company, buyers together with their legal advisor should ensure that they are sufficiently protected under the terms and conditions of the sales contract.
Another commonly used structure of property acquisition in Thailand is leasehold purchase of a property. An investor enters into a long term lease agreement relating to a property with contractual renewals. The maximum lease term currently available under Thai law is 30 years. In relation to leasehold investments, there are some legal issues relating to the enforcement of renewals of leases. The privacy of the rights relating to renewals is an important concept to understand. In the event that the parties to a lease change, there is a threat to the enforceability of such a right. Risks may be minimized through direct ownership of a building; obtaining a guarantee and indemnity from the lessor in respect of future lessors to whom it may transfer the freehold interest; compensation for loss of use in the event of failure to renew or termination of such an interest.
Another protection frequently offered by developments offering leasehold properties is a central land owning company being controlled by a collective of lessees. When buying in a development, additional rights and protections might be provided to leasehold buyers with regard to the property through management arrangements. However, all the aforesaid rights are strictly contractual and generally not backed up by Thai law. Therefore it will be the responsibility of a leasehold buyer to ensure through negotiations of the relevant contracts that he is sufficiently protected with regards to the renewals of the lease and any additional rights relating to maintenance of the leasehold property which might be offered under a separate management agreement at additional cost.
The strongest protection under Thai law with regards to a property acquisition is provided to investors who buy a condominium unit. The development of a condominium project and sales of condominium units (forty-nine percent of which in a condominium project can be owned freehold by foreigners) are governed and regulated by the Condominium Act which was amended in March 2008 for the fourth time. Already prior to the latest amendment buyers were afforded the benefit of five years structural and two year non-structural defects warranty regardless of what the sellers contract stipulates.