Owning property in Thailand is a common goal for many long term foreign residents. It is an elusive goal. While foreign nationals can own part of a condominium project, foreign direct ownership of property or land in Thailand is generally not allowed.
There are exceptions for foreign companies that make substantial investments into the country but they are only allowed to own the property for the duration of their active business (Section 96 of the Land Amendment Act 1999).
Most foreign nationals attempt to gain control over property by purchasing property in the names of their Thai spouses or through a long term lease.
Purchasing property in the name of the Thai spouse is a good idea until the couple decides to separate. Since the property is a gift from the foreign national, the Thai spouse will get to keep the property. Even if the couple were to be together until death, if the Thai spouse were to pass away, the foreign national would not be able to inherit the property. The foreign national would have to sell the property within 1 year of receiving the property (Section 1472 of the Thai Civil and Commercial Code).
The most common way for foreign nationals to obtain property is through a long term lease. Under Thai law, a lease is a contract between the property owner and the lessee. For a certain amount of funds, the property owner agrees to allow the lessee live on the property. The maximum term of a property lease is 30 years. If the lessee dies, the agreement is terminated. However if the property owner dies, the new owners have to continue to allow the lessee remain in the property.
Some foreign nationals attempt to ensure that they will be able to remain on the property beyond the maximum 30 year term by adding automatic 30 year renewal terms. These options to renew have been found to be contrary to Thai law which prohibit leases beyond 30 years land and therefore are not allowed in a property lease. Therefore, the renewal agreements are generally written as separate private agreements and are not filed with the lease agreement.
A drawback for the renewal agreement is that since it is a private personal agreement, the agreement does not bind the heirs of property if the property owner passes away.
Real estate developments have attempted to bypass the uncertainty of renewal options by marketing a “secured lease.” Under a secured lease, a majority Thai owned company will have ownership of a property unit. The foreign buyer will purchase shares in an offshore foreign company with voting rights.
The foreign company will own 49% but own controlling voting rights in the Thai owned company. The foreign company (which the buyer is a shareowner) will ensure that the option is renewed.
Thai courts have found “secured leases” to be fictitious agreements which were created to conceal the actual purpose of the agreement which is to ensure the renewal of the 30 year option. Under section 155 of the Thai Civil and Commercial Code, a fictitious intention in an agreement made to conceal another juristic act will make the agreement void against the third parties and the state.
Since the true nature of the agreement (the 30 year option renewal) is related to the sale of property, Section 456 of the CCC requires the agreement to be registered with the state. Since the agreement are not registered, the share purchase agreement and lease agreement is void. Therefore, the courts have found “secured leases” to be unenforceable and void in Thailand.
It is important to remember that foreign ownership of property in Thailand is strictly regulated. When a land or property developer promises a way around the strict regulations, the foreign national should be wary. A buyer of Thai property should seek the assistance of a knowledgeable and independent third party to review the terms of an agreement.
Our licensed Thai lawyers at Siam Legal International in Bangkok have valuable knowledge in dealing with government agencies in Thailand, and this experience is of great importance when dealing with Thai legal cases and investigative service.