Many of the foreigners in Thailand who have decided to buy a residential property in Thailand are required to use funds which are held in a foreign currency account in their country of origin. Property transactions in Thailand utilize myriad ways in which a buyer pays the purchase price to the seller. For instance, a buyer may be required to make payments to the seller upon signing of the sale and purchase agreement to be followed by instalment payments in accordance with constructions progress, and then remit a final payment on completion. Or in some cases, full payment against registration of title transfer. No matter what the terms of payment may have been agreed upon between the parties, one important issue applies to most of the purchases of property in Thailand. Whenever a buyer is keeping the funds for his purchase of the property in a foreign currency in an offshore bank, and the parties agree to a sale and purchase price in Thai Baht (which is the usual case), the buyer is required to remit his foreign currency into Thailand in an amount equivalent to the stated Thai baht purchase price.

A crucial issue to consider is that currency exchange rates experience volatile fluctuations; therefore, the foreign currency equivalent to the stated Thai baht purchase price may vary considerably from the date the contract was signed until the time payments are made. This may result in a buyer paying far higher (in foreign currency) that he originally contemplated. For a buyer who may not have sufficient monetary reserves, this increase may result in an inability to pay leading to his default of the sale and purchase contract. Such a scenario should be considered by a risk aware buyer particularly in these days of economic uncertainty, as it could cause a total loss of all monies paid to a seller in the case where the purchase contract may provide for forfeiture of the deposit paid by the purchaser if final payment is not timely made.

Another relevant factor to consider when buying a property with foreign currency is the place and time of the currency exchange into Thai baht. Exchange rates may significantly differ depending on where you initiate the money exchange. Usually, there is a material difference between an off-shore exchange rate set by a bank outside of Thailand and the on-shore exchange rates quoted by Thai banks. Therefore, a buyer may find it problematic to try to determine in advance the exact amount of his foreign currency required to be transferred to the Thai bank account of his seller.

Furthermore, buyers should investigate if their property purchase is subject to certain regulations applicable to the remittance of foreign currency into Thailand and its conversion to Thai baht. In some cases a property buyer should instruct his foreign bank to transfer foreign currency into Thailand (where the purchased property is located) but not affect a conversion into Thai baht, the receiving Thai bank would then make the applicable conversion. Because in some case if he converts his foreign funds offshore into Thai baht and then remits the monies into Thailand it may result in the buyer being unable to take on legal title to the property, or it may present him great difficulties on a resale when applying for repatriation of funds received upon his subsequent resale of the property.

To summarize, before entering into a legal agreement for the purchase of property in Thailand, all potential buyers should conduct a careful investigation into all legalities and risks involved in purchasing a property with funds held offshore and which requires payment in foreign currency. To avoid pitfalls and traps for the unwary, a buyer would be well advised to consult with his attorneys or legal representatives prior to the time he signs any contracts for the purchase of property in Thailand.

This article is written by International Law Office Patong Beach Co., Ltd., a Phuket based law firm. For enquiries, please contact Michael Greth, Consultant of the Phuket based law firm, by email (michael@ilo-phuket.com) or phone (+66-(0) 76-222 191-5).

Many foreign property buyers in Thailand decide to purchase a villa either in managed estate or on single plot rather than apartment or condominium as such usually do not provide circuitousness and privacy as villas do. Due to legal restrictions, prohibiting land ownership by foreign person in Thailand, it is common for foreign purchaser when buying a villa, to enter into set of agreements comprising of villa sale and purchase and land lease agreement providing a buyer with purchase rights to the building, and lease rights to the underlying land. Alternatively, a construction agreement, beside the land lease, might be executed in relation to construction of a residential building.

With regards to the building, a property buyer should carefully examine how his ownership rights to the building shall be constituted and secured. Unfortunately, land departments in Thailand do not issue title deeds for buildings as they do for land. However, a government policy has been established which considers other documentation as relevant and acceptable when it comes to determination whether someone legally owns a building or not. Usually, such documentation is a valid Construction permit referring to a specific building mentioning the buyer as the owner of the building for which permission to construct has been granted. Alternatively, an official building sale and purchase agreement issued by competent land department at the time of registering the transfer of a building from the seller to its buyer is recognized by the authorities if someone wishes to demonstrate its ownership rights to a building.

Important to understand is that the right of habitation is required to be registered at the competent land department and creates an encumbrance over a building for the benfit of its specified beneficiary, as opposed to servitude created over land, providing secured access thereto, which usually burdens a specific land plot in favor of another but not necessarily a specific person holding rights to such land. This means that such personal right, as the right of habitation, is not transferrable even by way of inheritance as stated under Section 1404 of the CCC. Therefore, in the event of the grantee´s demise, it can not be passed on to heirs but simply ceases to exist and the property must be returned to the grantor pursuant to Section 1408 of the CCC. Furthermore, the fact that the right of habitation can not be transferred, means that it does not provide a property with a marketable title which would qualify a property for a resale.

Sometimes developers or sellers do not wish to register transfer of a building to a buyer at the land department which may result from tax reasons. In such cases the only remaining and by the land departments generally accepted evidence of ownership to a building is the construction permit and this is very usually the problem starts. Typically, the construction permits are obtained in the name of the developer or its builder who is, from the point of view of the land department, regarded as the owner of the building. In case that the person who is mentioned in the permit as owner does not apply for a change of the permit into the name of the buyer with the relevant authorities upon completion and full payment, this person, from the point of view of the land department, remains the owner of the building despite the fact that the buyer may have entered into a construction agreement, paid for the construction works and moved into the completed building. Issues regarding change of construction permit may also occur in case that a permit was issued for several buildings which have been sold to different buyers. In such case the change of the owner´s name on the permit would ultimately provide one of the buyers with rights to all buildings which obviously does not reflect the intentions and interest of the effected parties.

Unfortunately, buyers of residential buildings often live several years in their property not knowing that the land department may not recognize them as the owner of their homes. Typically, at the time when a buyer decides to offer his property for (re)sale and a due diligence in the property is performed by the lawyer of the new buyer verifying the ownership rights of a seller to its property, the issue comes up with often drastic consequences for the seller as his buyer may loose confidence in the deal, withdraws and just walks away from the deal.

In summary, it is of paramount importance to understand that ownership rights to a building need to be secured and potentially demonstrated in the event a third party would try to challenge or such shall be transferred, i.e. in connection with a sale or inheritance of a property. Therefore, it is highly recommended to consult with your lawyer or advisor what options are available to secure your rights to your property before making any down payments or signing of sales documentation.

This article is written by International Law Office Patong Beach Co., Ltd., a Phuket based law firm. For enquiries, please contact Michael Greth, Consulant, by email (michael@ilo-phuket.com) or phone (+66-(0) 76-222 191-5).

The Thai Civil and Commercial Code (CCC) provides various rights which can be acquired in relation to property by both Thai and foreign person subject to restrictions particularly applying to foreign land ownership which is basically prohibited except very few exemptions.

One of these rights is the right of habitation which is often overlooked and less known than its far more popular opponent, the lease right. The right of habitation, which is regulated under Section 1402 et seq. of the CCC, can be granted to a person as a right to occupy a building as a dwelling place for either certain period provided that such is not in excess of thirty years or for lifetime of the grantee. In case that a specified time period has been granted, grantor and grantee may agree on a renewal which again must not exceed a period of thirty years.

The right of habitation, as opposed to a lease, is not required to be subject to payment of consideration such as the rent payable from a tenant to its landlord. In addition, the right of habitation shall provide the grantee with a right to have its family and household dwelling with him unless the parties agreed expressly on specific limitation that it shall be only for the grantee. This, together with the fact that the right of habitation can be granted without payment in return, makes the right of habitation an interesting alternative to a lease whenever the parties intention is to provide a right of use and occupation to a property without causing a financial burden on the occupant. Admittedly, such scenario where the owner of a building wishes to grant a right to use and occupy a building without the requirement of payment may only apply in very limited cases, i.e. familial or similiar relationships.

Important to understand is that the right of habitation is required to be registered at the competent land department and creates an encumbrance over a building for the benfit of its specified beneficiary, as opposed to servitude created over land, providing secured access thereto, which usually burdens a specific land plot in favor of another but not necessarily a specific person holding rights to such land. This means that such personal right, as the right of habitation, is not transferrable even by way of inheritance as stated under Section 1404 of the CCC. Therefore, in the event of the grantee´s demise, it can not be passed on to heirs but simply ceases to exist and the property must be returned to the grantor pursuant to Section 1408 of the CCC. Furthermore, the fact that the right of habitation can not be transferred, means that it does not provide a property with a marketable title which would qualify a property for a resale.

Referring to the above, it appears that the right of habitation can be an interesting option for the specific case where a property owner wishes to provide a person with a secured right of use and occupation to a building without causing a financial burden on the occupant, however, its use seems to be very limited and generally will not qualify as basis for a conventional property investment. A legal advisor should be consulted prior to the purchase in order to determine what legal structure is suitable for someones individual requirements.
This article is written by International Law Office Patong Beach Co., Ltd., a Phuket based law firm. In case of enquiries, please contact Michael Greth, Consulant, by email (michael@ilo-phuket.com) or phone (+66-(0) 76-222 191-5).

A widely used option for foreigners for property purchase in Thailand is a Land or Apartment lease. Under the current laws of Thailand a lease of residential property may have a maximum of 30 years term and legally be registered with the relevant authorities. Therefore renew options giving additional 30 years plus eventual further extension(s) of term are offered and widely used in Thailand. This provides a 30 year lease term and two 30 years right of renewal to the property always required that lessor and lessee prepare a new lease agreement for the extension periods and register in compliance with the laws and regulations applicable with the competent land department at that time.

A property buyer may recognize that the renew options are based on a contractual agreement between lessor and lessee and therefore are not binding towards third parties such as the parties beneficaries or new property owner in case that the lessor would transfer or loose title to the property. In such case a lessee may face serious difficulties to enforce its right to renew its lease when it comes to the renewal upon expiration of the initial lease terms.

In order to provide additional protection, sophisticated developers have implemented legal structures which allow lessees not only to acquire a contractual lease right to a specific property but also (indirect) interest in the Thai company which owns the project land and structure and from which the leasehold investors lease from. This protected leasehold structure offers the advantage that the holder of a lease to a specific property together with the other lessees in a project can participate and will be given a say in the management of the project including control of common properites and the renewal of the lease terms for additional 30 year periods upon expiration of the initial terms.

Important regarding this structure is that all participants have the same interest, for example, renewing of their leases or provision of professional project management. Therefore, no one should acquire (indirect) interest in the Thai company which owns the project land and structure and provides management services who is not also leasing a specific property in same project and vice versa. This is to ensure that everybody sits in the same boat and has same interests from which ultimately each individual leashold investor shall benefit.

Set up of such protected leasehold structure requires incorporation of well thought through corporate structure and carefully drafted set of agreements in order to provide a legal set up which is in compliance with the applicable laws and also provides the required peace of mind to its prospective leasehold buyers.

Buyers should diligently review with their advisors the entire legal set up of the project as well as pertaining legal documentation in order to ensure that the proposed structure fully complies with the applicable laws.

This article is written by International Law Office Patong Beach Co., Ltd., a Phuket based law firm. In case of enquiries, please contact Michael Greth, Consulant, by email (michael@ilo-phuket.com) or phone (+66-(0) 76-222 191-5).

Leasing has become a popular option for foreign property buyers to acquire interest in Land or Apartment units due to legal restrictions applying to purchase of property in Thailand.  Most of us may have heard that the maximum term under Thai law for residential leases a lessor and his lessee can agree to register with the land department is 30 years, whereby renew options are usually granted.

However, when it comes to protection of the lessee´s inheritance respectively beneficiaries, most of us may not be aware of the fact that lease rights basically can not be passed on to our beloved one´s in case of the lessee´s death.  Unfortunately, the Thai Civil and Commercial Code (CCC) does not provide for a transfer of lease rights by way of inheritance.  This means that upon the lessee´s demise, a lease basically extinguishes and ceases to exist.  This may have serious consequences in regard to your investment, particularly in regard to your beneficiaries who may not be entitled to use and enjoy your property any longer.  This seems to be even more draconian if you consider that long term lease which are usually used in order to acquire interest in land or apartment units must be fully paid up in advance by the lessee to its lessor.

In order to protect the inheritance of lease rights, lessor and lessee may agree under the lease that the agreement shall be binding upon and enure onto the parties heirs in case of either partys’ demise.  However, such succession or inheritance clause may not be accepted by a court if it comes to dispute between lessor and the lessee´s heirs as it needs to be considered that a lease right is basically considered as a personal right of the lessee which can not be transferred upon the lessee´s demise.  Therefore caution is advisable if such individual agreement shall be the only safeguard in regard to the inheritance of your lease rights.

However, courts have decided that under certain conditions a lease shall be inheritable. This shall be the case if structure such as a villa has been erected on the leased land and lessor and lessee agreed that such structure shall be conveyed into the lessor´s name upon expiration of the lease or its extensions.  Nevertheless property buyers should be aware that courts from time to time may change their opinion and rule differently in the future.

Therefore, it would be surely helpful in order to increase investors confidence in buying property in Thailand if the inheritance of lease rights could be guaranteed by law requiring respective amendment of the CCC.

However, until such amendment comes into effect (if ever) the safest way of acquiring lease rights seems to be under the name of a corporate body as such usually do not die, if property maintained, preferably off-shore company which are easy to maintain.  In addition, acquisition of lease rights under the name of an off-shore company may offer further advantages, however, should be discussed with professional advisors in order to ensure that the chosen legal structure satisfies your personal requirements on a safe investment.

For those who do not feel comfortable with holding property under the name of company structure, it is advisable to enter into a lease together with your beneficaries as the longer living lessees are entitled to benefit from the property until their passing.

This article is written by International Law Office Patong Beach Co., Ltd. For enquiries, contact Michael Greth, Consultant, by email (michael@ilo-phuket.com) or phone (+66- (0) 76-222 191-5).

When setting up a business in Thailand, you may consider to rent a property in a  prestigious location anticipating that this helps to guarantee high rate of return on your investment.

In such case, you might be asked by the owner of the property to pay a premium on top of the rent which is usually called „key money“.

You may wonder why you shall make such additional payment to your future landlord and for what these monies will be used.  Usually, such key money is a gratuity paid by a prospective tenant to a landlord on signing of a lease.  It is important to understand that such payment will not be used as a security deposit and usually not refunded on expiration of the lease.  Ultimately, it is nothing else than an additional payment, a premium, on top of the rent.  Landlords justify their demand for such payment often by referring to the location of the premises for rent which is often advertised as a guarantee for a successful business.

The actual amount of the key money to be paid may vary and typically depends on the location of the building. It further depends on the amount of rent to be paid. The lower the rent, the higher the key money and vice versa. This means that key money could also be seen as a rental advance payment which needs to be paid up when signing the lease. Therefore, when verifying whether the rent to be paid reflects the actual market value of such rental property, the amount key money to be paid can be divided by the amount of months rental period, in order to determine the actual rental amount to be spent per month. Having understood this and in addition knowing that any such key money payment is obviously subject to negotiation, you may agree with your landlord that a reasonably higher rent shall be paid instead of payment of key money in case you do not have sufficient funds available to arrange a one time off payment.

However, it needs to be understood that a landlord has no statutory right to demand payment of such premium, however, it can be contractually agreed between landlord and tenant.

Whenever paying such key money it is advisable to request issuance of a proper receipt as in case of a business resale such receipt can be shown to your buyer when trying to recover these monies.

Addionally, it is recommended to actually report such payment to the relevant authorties as expense in order to demonstrate that you do not intend to take part in any attempt of money laundering or tax evasion.

In summary, payment of premiums such as key money „on top“ of the agreed terms of payment are subject to negotiation and should only be requested and subsequently paid when it can be commercially justified by high demand for space or existing goodwill in a business.

This article is written by International Law Office Patong Beach Co., Ltd. For enquiries, contact Michael Greth, Consultant, by email (michael@ilo-phuket.com) or phone (+66- (0) 76-222 191-5).

Managed property developments have become popular for property buyers as they often include useful management services such as security, gardening, pool keeping etc. which allow buyers to fully enjoy their property.

Whenever buying a unit in a managed property development, a buyer should not only but also turn its attention to the management agreements to be executed by the manager of a project and its buyers. Careful review of such management agreements is unfortuantely often disregarded as most buyers usually focus on the sale and purchase or lease agreements giving onwership or lease rights to the chosen unit. Unfortuantely, this mistake my have serious impact on an investment as proper management and transparency regarding use of occuring management fees is of highest importance not only in regard to succesful operation of a project but also when it comes to resale of a property.

Typically, a management agreement should include a provision clearly describing the services which shall provided by the management of a project. Furthermore, not only the services itself but also the scope of such services which are included should be outlined. This should help to prevent a dispute between buyers and the management at later date.

In addition, a sound management agreement should provide transparent fee structure applying to the management fees payable for the management of a project including the servies to be provided. Typically, each buyer has to pay a proportionate split of the total expense calculated on a pro-ratio sqm unit basis. In this regard, it should also be clarfied that the manager must have a right to reasonably increase the management fees in order to ensure that suffient funds are available required to cope with increasing costs for the services to be provided.

Furthermore, a management agreement should include provisions giving the manager the right to collect funds to be paid into a sinking fund. Such sinking fund is required to provide the management with sufficient monies which shall be exclusively used to pay for major repair works and upkeep of the common areas in a development. In this context buyers need to understand that maintenance of such fund is necessary to ensure long term enjoyment of a project. In addtion, it also needs to be considered that a unit which forms part of a poorly managed project with neglected common areas hardly qualifies for a resale. However, transperency regarding use of funds paid into a sinking fund is of highest importance and therefore the management agreement should oblige the management to maintain accounts and keep records in accordance with generally accepted audit principles and provide annual statements to the buyers documenting actual expenses and use of funds paid by the buyers.

Finally, a management agreement should provide a strong instrument to the buyers in case the management is in material breach of contract. Such instrument should be part of a carefully drafted default provision, whereunder the buyers should have a right to terminate the appointed management of a project and/or appoint a third party management company to provide the required services.

In summary, whenever investing in a managed property development, a buyer should carefully review all provided sales and marketing documentation including all agreements to be signed, whereby diligent perusal of the management agreements is highly recommended in order to minimize potential risks and susequent damages occuring from poor management of a project.

This article is written by International Law Office Patong Beach Co., Ltd., a Phuket based law firm. For enquiries, please contact Michael Greth, Consulant, by email (michael@ilo-phuket.com) or phone (+66-(0) 76-222 191-5).

More and more foreigners decide to purchase property in Thailand for various reasons which vary from buying a holiday home, a place for retirement or pure investment. In order to attract the attention of such potential buyers many developers offer different rental schemes such as rental pools or guaranteed rental returns.

Especially, guaranteed rental return programs become more and more popular in Thailand as a marketing tool in order to angle for buyers attention and to stand out from the crowd. Many buyers feel safe with investing in such properties as they appreciate the fact that they are promised to receive a fixed income for an agreed period of time. It seems to offer an hassle-free opportunity to generated income, whereby all responsibilities can be left with the developer or its management company.

Whenever a buyer considers to invest in such property, it is of highest importance that he carefully reviews the entire sales documentation provided by the developer including, but not limited to, the legal agreements to be executed. Review of nicely designed marketing materials and brochures might be satisfying in order to get a first impression of the property, however, surely will not suffice in order to provide a comprehensive description of the applying terms and conditions including rental guarantee.

In regard to guaranteed rental returns a buyer may consider the following major points:

      i) First of all, the legal structure of such guaranteed rental return scheme needs to be carefully examined in order to determine if such guarantee is subject to certain terms and conditions further describing if, when, and how such rental payments shall be paid. It may appear that such guaranteed rental payments are actually not guaranteed at all.  In addition thereto, it should be verified under what conditions a buyer may occupy the property for private use during the guaranteed rental period, „opt-out“ from a rental scheme, whether the guarantee is assignable in case of a property resale, what remedy is available in the event the guarantee is breached and what tax liabilities are imposed on rental income. Furthermore, a buyer should verify the financial stability of its contractual party who promises guaranteed rental payments. It needs to be considered that a guarantee is only as stable as your contractual party is. In this context a developer´s financial background and proven record of success (in rental management) should be examined.

ii) In addition thereto, it needs to be understood that a rental guarantee might not be genuine and is nothing else than a partial repayment of the purchase price of an overprized property in instalments from the developer to the purchaser. In other words, the payments under the guaranteed scheme are simply priced into the price of the property. Therefore it seems to be advisable to compare the purchase price of your property of choice with properties of same or similar design, construction quality and location in order to determine whether the price of your property reflects the true market value. If such guaranteed rental return is not of interest for a buyer, then a developer could be approached in order to request a price reduction equaling the amount paid under the rental program.

      iii) Finally a buyer should realize that every guarantee has a price. If the risks shall be lower, the return will be lower. This means that a developer will only agree to provide a guaranteed rental return if the promised return to be paid to a buyer is low enough that it still allows him to rent out the property for a significantly higher amount and keep the balance.

To summarize it, rental programs such as rental schemes, guaranteed rental programs or rental pools might be an interesting investment, however, be aware that careful due diligence should be performed in order to determine whether the investment represents a genuine investment satisfying your personal requirements.

     This article is written by International Law Office Patong Beach Co., Ltd., a Phuket based law firm. For enquiries, please contact Michael Greth, Consultant, by email (michael@ilo-phuket.com) or phone (+66-(0) 76-222 191-5).