Leasing Property
Leasing Property
For foreigners seeking a long-term interest in Thai property, leasehold agreements offer a viable alternative to freehold ownership. Since foreigners are prohibited from directly owning land in Thailand, leasehold serves as the preferred method for acquiring land rights.
Leasehold, or the hire of property, is a contractual arrangement where the lessor grants another party, the lessee, the right to use and enjoy a property for a predetermined period in exchange for rent payments. Foreigners renting properties or occupying real estate, whether it’s land, land with a house, a condominium unit, or an apartment, are governed by lease or rental agreements under Thai law.
Thai property rental and lease laws mandate that any lease of immovable property exceeding three years must be documented in writing, signed by both parties, and registered with the Land Department. Short-term contracts, while not requiring registration, must also be in writing to be enforceable.
Lease Term
The lease term for real properties in Thailand can be either fixed or periodic. Lease agreements typically guarantee an initial 30-year lease term, allowing foreigners to secure the right to use the land and register their right for a maximum of 30 years at the Land Department. As per Section 540 of the Civil and Commercial Code, the duration of a property lease cannot exceed thirty years. If the initial lease term exceeds this limit, it will be reduced to thirty years. However, the 30-year period can be renewed, provided the renewal is initiated before the lease’s expiration. Renewal of leases in Thailand is not perpetual; there is no automatic right to renewal. Parties must actively seek to renew the lease towards the end of the initial term.
While it’s possible to renew leases, success depends on carefully drafting the clause regarding renewal intentions, and it remains subject to the Registrar’s discretion. Renewal periods after the initial period cannot exceed 30 years. Under Thai law and Supreme Court rulings, the agreed term in the lease is considered a real right of the lessee, but an option to renew the lease is considered a contract option or contract obligation (not a real lease right) that needs to be enforced in the future. Consulting a lawyer for guidance on renewal clauses is highly recommended.
Drafting of Lease Agreements in Thailand
Lease agreements in Thailand typically include standard clauses based on the provisions of laws governing contracts and property hire. Both parties have the flexibility to incorporate specific clauses based on their terms, as long as they align with Thai laws. Lease contracts are typically drafted in Thai, but English versions can be provided upon request.
It is advisable to include family members, such as young adults, as co-lessees in the lease contract. In the event of the parents’ demise, the children can continue the lease for the full term.
Registration of Leases
Leases exceeding three years can be registered at the Land Office, further safeguarding the lessee’s interest in the house or real estate. Registration establishes an encumbrance on the property. Upon registration, the title deed will reflect the lessee’s name and lease details. The lease contract is then attached to the title deed and maintained at the Land Department. Lease agreements allow foreigners to construct houses on the leased land, provided the lease agreement permits it. The foreigner must apply for a construction permit in their name, and upon completion, they will own the structure in their own name.
Importantly, leases remain valid even upon the lessor’s demise or the sale of the land. However, leases can only be transferred to third parties with the guarantor’s consent. It’s crucial to note that unless otherwise specified in the lease contract, a lessee cannot sublet or transfer their rights in whole or in part of the property to third parties without the lessor’s permission, who may terminate the lease in such cases. A significant advantage of leasehold is the lower registration fee compared to freehold ownership. The registration fee for registering a lease is 1.1% of the rental value. In conclusion, leasehold agreements offer foreigners a secure and viable option for acquiring long-term property interests in Thailand. By carefully reviewing lease terms, ensuring proper registration, and consulting legal counsel, foreigners can establish a strong legal foundation for their property rights in Thailand.