Thailand Leasehold System
The Thailand leasehold system is a system of property tenure wherein a person acquires the right to occupy a particular land or building for a pre-determined period of time by paying a fixed sum or in instalments. The owner of the building or land (landlord), hands over temporary possession and occupation of the premises to the person leasing the property (tenant or leaseholder).
Difference between a Freehold and a Leasehold Property
A freehold property is a property that gives full legal rights to the owners to occupy, use, lease, sell or develop the property. Purchasing a condominium is the simplest process for foreign buyers. Thai law allows foreign freehold ownership of condominiums as long as you buy a unit within a building’s foreign quota, which is 49% of the condominium block. The freehold will, however, give you rights over the building but not over the land.
A leasehold property is a property that only gives the lessee the right to live in the property or use it for commercial or residential purposes for a specific period. However, the lessee’s rights in association with the leasehold are limited under Thai law.
Thai law stipulates that foreigners may not personally own land in Thailand. However, the right of freehold ownership for a building which sits on the land can be purchased. There are a number of different purchase options available to foreigners. Most property developers will offer buyers both freehold and leasehold alternatives. Foreigners can purchase the land as leasehold and the property that sits on the land as freehold. A foreigner may only purchase land to build a property if the land is on leasehold. However, if a foreigner is operating a business in Thailand, he may purchase the freehold of the land through his Company. In this case, the company will own the land and not by the individual.
Lease Agreement and Registration
A lease agreement is a personal tenancy contract with a fixed and a prepaid term with a maximum lease term of 30 years. Any lease of immovable property for a longer period than 30 years may only be made by renewal of the lease contract upon its expiration. Renewal for a further 30 years is at the discretion of the owner. However, both parties must register the renewal with the local Land Office and must settle all the necessary government fees at the end of each term.
In order for a lease to be valid, any lease longer than a three-year period must be registered with the local Land Office. Therefore, the back of the title deed must indicate the lease. This allows any possible third-party buyers to know of the lessee’s rights to the land during the lease period. If the lease agreement is not registered, the lease is enforceable by action for a 3- year term only.
Thailand Leasehold System Advantages
One advantage of going through leasehold is that you do not have to renew the contract frequently. Moreover, the lessee, as the temporary owner, is not solely responsible in maintaining and preserving the leasehold property. Landlords have to perform their legal obligations, as the lease agreement stipulates. This ensures that the lessee or the tenant enjoys full and uninterrupted possession of the property. Leaseholders have an option to renew the contract with the previous arrangements after the end of each term. The lessee is free to pursue alternative arrangements for his benefit. Unlike in freehold, the lessee is not tied to the property. The lessee holds no other interest apart from his previous tenancy.
Thailand Leasehold System Disadvantages
A major disadvantage is that the contract and the right of possession terminates upon death of the lessee. It is not automatically transferable by inheritance. Although the lease agreement must include a succession clause, this does not offer full guarantee for the lessee’s heirs.
The lessee’s degree of control over the land or property is more limited. For a pre-determined period of time, the tenant can possess and enjoy the property but not complete authority. The lessee cannot mortgage or use his leased property as collateral. Unless otherwise provided by the lease contract, a lessee cannot sublet or transfer his rights in whole or part of the property leased to a third person.