The Basics of Leasehold
As the local law protects against foreigners owning direct property, the leasehold is a viable way to acquire an interest over real property under one’s own name for a limited amount of time. There are several alternative leasehold ownership structures to consider as they are designed to further protect the tenants’ interest such as the use of Superficies or the creation of Thai or Offshore holding companies. In the current article though we are only laying the foundation, discussing the basics of what the leasehold represents and can or cannot offer.
All types of property may be leased. The term represents the right of exclusive possession and use of the property by the leaseholder while the lessor of the property granting the lease is retaining the ownership.
This is a right registered on an existing freehold title and not a title itself, as Thailand does not have the separate title right called leasehold.
The details of the leasehold such as period of time and rent are specified in a “lease agreement”. This becomes a registrable legal interest against the freehold title document and it becomes a lien upon the title deed. This is shown on the back of the land title document and serves as a notice to anyone who intends to purchase the land that the lease exists and that by purchasing the land they would be subject to the lease as a legal interest, the new owner being bound to respect the rights of the tenant. The lease can be also bought and sold.
In Thailand, the maximum period of time allowed for a lease is 30 years and no Land office in the country will register anything longer than that. However they do allow private agreements that stipulate lease renewals. Therefore the 90 year leasehold we hear sometimes is just a 30 year lease, together with two 30 years options to renew the lease. Important to understand is that only the first 30 years are guaranteed by the law, the renewals are reduced simply to promises to renew.
Furthermore, the renewals are under the principle of “privity of contract” binding only the two original signatories. In the scenario where the land is sold or transferred, according to the Supreme Court, the renewal contracts are not transferrable and the new owner is under no obligation to respect them.
It is also important to understand that the leasehold does not automatically renew itself even if the original signatories are still standing. A new lease agreement must be registered at the Land Department otherwise the lease will simply end at the end of the 30 years term.
Since the leasehold is essentially a rental contract, termination can also occur in the case the lessee breaches the contract.
Last but not least, the leases are tied to the original lease taker therefore termination will happen with the death of the lessee. Therefore to ensure succession, the contract must include reference to the heirs and the inheritance issue must be tackled.
As stated in the beginning of the article, the leasehold is a viable way to enjoy the right to real property here in Thailand. As there are various ways to go with it, we strongly recommend you to hire qualified advice to assist you in finding the best option. Shambhala Realty Co., Ltd., through its legal partners, can assist you all the way.
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