Lease of immovable property under Thai contract law
Laws governing lease in Thailand is placed under (specific) contracts in the Civil and Commercial Code. Therefore lease is not a real property right, meaning in essence attached to the property itself, but a contract and in the first place a right of the lessee (tenant) and attached to the lessee. This for example means that a lease is by law automatically terminated upon death of the lessee. A leasehold in Thailand is therefore not a fixed asset (property), nor a mortgage-able asset, nor a trade-able asset, but in a personal contract right of the lessee(s).
Introduction to lease laws or property rentals in Thailand.
A real estate rent or lease agreement for land, house or apartment lease in Thailand is enforceable by action if the agreement has written evidence. A lease over 3 years must in addition be registered with the land office (section 538). For registration of the lease agreement a registration fee shall be collected by the land office at the rate of 1% of the total rent throughout the lease term. Stamp duty shall be collected at the rate of 0.1% of the total rental throughout the lease term. Income received from rental properties is income under section 40 of the Revenue Code (personal income tax).
Payment of rent is an essential element of a lease agreement and calculated yearly but in any long term contract usually paid in advance. If the right to use and possess the property was given without payment of rent it would not be a lease (e.g. a right of habitation and not a hire of property). In a long term rental or lease the rent is usually prepaid for the entire term.
Laws governing property lease in Thailand
There is no law in Thailand regulating hire of property for residential purposes by foreigners and foreigners have the same rights as Thais under the Civil and Commercial Code. Real estate lease or rental is under Thai law governed by the section hire of property in the Civil and Commercial Code. A lease or rental agreement in Thailand is a hire of property contract and as a contract placed in the Civil and Commercial Code between gifts and hire of services and not for example under the chapter 'property rights'.
Only in case of specific foreign commercial rentals the agreement could in addition be governed by the Hire of Immovable Property for Commerce and Industry by Foreigners Act B.E. 2542, if specific conditions and requirements such very substantial foreign investments have been met.
Inheritance of a lease agreement in Thailand
A lease or rental is under the Civil and Commercial Code a contract and not a real property right or fixed asset attached to the property. This among others means that a lease or rental (registered and unregistered) is in essence attached to the lessee or tenant and therefore, as a contract, terminated upon death of the lessee. Succession of the lease must be included in the lease agreement or the lease will be terminated on the death of the lessee(s), but even included it does not offer a full guarantee.
The registered lease term in Thailand
The maximum term an owner can legally burden his property with a lease is by law set at thirty years. Any agreed longer term will by law be reduced to 30 years (sections 540). A lease can only made longer by renewal of the lease agreement upon expiration or termination of the first term. If the lessee and lessor have executed 2 consecutive 30-year lease agreements it shall by law and supreme court judgments be deemed as 1 lease and reduced to 30 years (sections 540).
Renewal options in the lease agreement
A common clause in a 30 year lease agreement aimed at foreign property investors is the lease renewal option, either included as 1, 2 (the 90-year lease) or more renewal terms. A right of renewal of a 30 year lease agreement is not supported by Thai law other than that this is a private agreement between the parties to the lease agreement and not a registered lease right.
A renewal option as personal promise to enter into a new agreement in 30 years time holds legally very little value. → read more (external, opens in a new window)
Sub-lease and assignment
One of the principles of lease in Thailand is the fact that the leaseholder can only sub-lease or sell (assign) the leasehold interest to another person if this is agreed in the lease agreement. If nothing is arranged the lessee is not allowed to sublet or transfer his rights under the lease agreement (→ sections 544).
Transfer of ownership and a lease agreement
Transfer of ownership of the property does not break the lease agreement (section 569), but it is important to distinguish and separate true hire of property rights (or real lease rights) from other contractual obligations (non-lease rights) in the lease agreement. Only rights and obligations in the lease agreement that are by nature true hire of property rights transfer by law to the new owner. Other contractual agreements such as a renewal promise between the parties remain with the original parties to lease agreement.
Separate ownership of land and building
In any long term real estate interest in Thailand through lease or land leasehold it is important to separate ownership over land and structures upon the land. Ownership of a house separate from the land by the land leaseholder is basically obtained by paying for the construction of the building. The land lease agreement should (1) include a provision for the use of the land for building and (2) the building permit should be issued by the Or.Bor.Tor in the land leaseholder's name, or (3) for an existing building a land office sale of a structure procedure must be followed.
A right of superficies in addition to the land lease agreement gives greater security to the foreign leasehold buyer
Building and Land Tax
Also to limit property tax burdens the building should be owned separate from the land by the land lessee. In a land and house lease agreement building and land tax is collected at the rate of 12.5% over the yearly rental according to the lease agreement or the annual rental value assessed by the Land Department, whichever is higher. Building and Land Tax is governed by the Land and House tax Act B.E. 2475