In recent times a further safeguard not only but also for property investors was implemented in Thailand through the enactment of the Escrow Act BE 2551.

Generally, escrow can be described as an arrangement between three parties, namely seller, buyer and escrow agent, whereby the agent would have to be a neutral third party with no connection to either seller or buyer. Such escrow agent can be authorized to hold funds, important documents (such as title deeds) or other legal documentation to be distributed and released subject to certains terms and conditions, particurarly the seller´s and the buyer´s instruction.

Typically, such esrow services are performed in relation to property transactions and are primarly designed to protect buyer´s interests until title transfer. However, it also needs to be understood that such escrow arrangement may also protect the seller´s or agent´s interests. Nevertheless property developer´s may argue that such escrow arrangements may cause additional problems in order to secure project financing which is often arranged through collection of buyers deposit payments, particurarly in these days of economical downturn where banks are extremely reluctant with providing funds required for payment of construction expense. However, ultimately developer´s would surely benefit from a widely acceped escrow system as it helps to strengthen buyer´s confidence in the Thai property market.

It also needs to be understood that a well and clearly drafted esrow agreement may ease and simplify a transaction significantly. It allows the parties to authorize an escrow agent to conduct certain instructions relating to a transaction such as release of funds, documents etc. on the parties behalf. At the same time both parties can perform simultaneously as agreed with peace of mind and the assurance that neither party will perform without the other party doing same.

An agent who intends to offer escrow services in Thailand is required by law to obtain a license from the relevant government body. Furthermore, such agent must be a financial instution or other juristic person as described in the relavant regulations. Unfortuanately, uncertainity seems to exist under what conditions such license can be obtained. Therefore, it remains to be seen to what extent such escrow arrangements will become a widely used and additional instrument to secure consumer protection in Thailand. This may also be the reason why off-shore escrow services subject to other legal jurisdiction providing clear escrow laws are still of high interest for property buyers.

In regard to escrow property agreements it is important to mention that the licensed escrow agent shall inform the relevant land department of such agreement, upon which the responsible offical records that this specific immovable property is subject to escrow. Once recorded, basically no registration of ownership transfer to any person other than the one designated under the escrow agreement subject to notification through the escrow agents, can be made. Further, no other right such as lease or mortgage, can be registered against such land, unless the escrow agreement allows to do so or the escrow agent gives its consent.

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).

Secured access – the key to your dream home

In the recent past the amendment of property laws including but not limited to the Condominium Act attracted notice of the general public and made buyers aware of a widely disregarded topic: secured access to a property.

Whenever buying property in Thailand, a buyer should verify as to whether secured access is given to his property before entering into a sale and purchase agreement and making payments thereunder. Ideally, access is given through a public road rather than privately owned land which may be sold or transferred to a new owner who may restrict you in entering your property.

As a matter of fact not every single property can be served with secured access by and through a public road. Particuarly in property developments access may be given through a road or land owned by the developer or its affiliates. In such event, the sales documentation should include a provision under which the developer guarantees secured access to your individual property. Additionally, further protection should be given to a property buyer through registration of an easement right, whenever legally possible, securing unrestricted access to its plot.

Such access right also called servitude or Para Jumyom and described under the Thai Civil and Commercial Code (CCC) would need to be registered with the relevant land department and mentioned on the title certificate of the servient land (the land giving access to other land) for the benefit of the land which lacks of access (dominant land).

Important to mention in this context is that the CCC stipulates that the owner of the servient land must refrain from any act which will tend to diminish the utitlity of the servitude or make it less convenient. Further, the CCC states that the owner of the dominant property is entitled, at his own expense, to do all that is necessary to preserve and make use of the servitude. Further, the servitude right always follows the dominant property in the event it is disposed of or made subject to other rights; also it cannot be transferred separately. The advantage of such recorded easement right as opposed to a simple contractual right giving access to a property is obvious when it comes to enforcement or defendance of such right. A contractual right may only be binding onto the parties to such agreement and may not be enforceable against third party landowner in the event the access giving land had been transferred to third party by sale or inheritance. However, a duly recorded servitude right can be defended against any third party landowner preventing the rightholder of the dominant land in passing the access giving servient land.

To summarize, the matter of secured access to a property is often disregarded and therefore bearing high conflict potential in case of a property investment. For the avoidance of future disputes and protection of buyer´s interests verification of secured access should form part of every due diligence to be carried out by your lawyer prior to purchasing property in Thailand to avoid a situation of owning a dream home with restricted access thereto.

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).

Last Will and Testament in Thailand

Estate planning including preparation of a Last Will and Testament may be an unpleasant matter to think about for most people, however, of highest importance when having acquired property with considerable value in a foreign country. For those who have purchased property in Thailand, draft of such Last Will and Testament is highly recommended in order to protect the interests of your beneficiaries. Even if a Last Will and Testament is not legally required in Thailand to pass on your assets to your heirs, such legal document may help to simplify the required procedures upon someone´s demise including but not limited to allocation of the assets to be passed on by clear, detailed and accurate description under such Will.

Whenever owning assets in different countries, each country may have different applicable laws and regulations describing the relevant formalities a Last Will needs to comply with. Therefore, it is advisable to prepare a separate Will for each jurisdiction governing your assets. A Will which is drafted in compliance with the laws of your country of origin might be conflicting with the relevant laws of Thailand and vice versa. Therefore it is of highest importance to understand that your Last Will and Testament which might be perfectly legal under the laws of your home jurisdiction may be deemed as null and void under the laws of your second home.

Further, it needs to be considered that a Will drafted by your lawyer in your home country may be written or include documentation issued in your native language, however, this language is not accepted as official language in Thailand. Therefore your heirs would need to prepare certified translations issued by official bodies such as Notary Public, embassy or other governmental authorties which is troublesome, time consuming and cost intensive.

In context of estate planning it is also recommendable to verify whether your property and beneficaries’ interests are sufficiently protected by and through a robust legal structure underlying the property to be passed on. Whenever buying property, especially in a foreign country, it needs to be considered that certain rights may not or only under certain conditions inheritable. This important question, should be discussed with your lawyer, ideally before choosing and buying a property, ensuring that it fulfils your requirments in this specific matter.

To summarize, whenever buying property, protection of your investment is of highest priority. Preparation of a Last Will can be an useful instrument in this context in order to protect the interests and minimize the risks of your heirs. Therefore, when investing significant amount of monies, especially in a foreign country, having different or even unknown laws, regulations and formalities, based on a different historical and cultural background, it requires to consultat a professional being familiar with the matter of estate planning and inheritance to secure your heirs interests and avoid unpleasant surprise.

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).

Fractional Ownership – What needs to be considered?

Especially in these days of global economical crisis, an investment concept like Fractional Ownership might benfit from buyers becoming more and more sensibel regarding the actual costs and the potential risks of their investment.

Whenever a buyer considers to invest in such fractional ownership structur, prior to signing of any legal document, understanding of the basic legal principles of this specific ownership structure is highly recommended.

Basically, fractional ownership is described as method of co-owning a single or several assets by more than one individual or entity – a group of investors. Usually a legal entity legally owns the asset, e.g. a residential holiday home, a leisure yacht or a private jet, wherby such legal entity is controlled through a number of investors who become shareholders and therefore indirect owners of the asset.

The costs and use of the asset is shared amongst the shareholders in relation to the percentage shareholding. The shareholders are the indirect owners of the asset, and therefore control all aspects of the property through a private company. Typically, the company grants its shareholders certain time periods to utilize the asset by means of a shareholders’ agreement.
Widely misunderstood is the difference between Fractional ownership and Time Share. Generally spoken, the major difference is that time share buyers buy time in an asset, whereby fractional owners actually indirectly own (a part) of the property, yacht or jet through their stake in the asset owning company.
A fractional owner may sell or bequeath its interest and even benefit from the appreciation of the asset´s value, whereby time share typicall does not offer the described advantages due to legal or market reasons. Basically time share buyers receive only a timely limited right to use a specific property which extinguishes after a certain period of time unless the buyer decides to „buy new time“.
Naturally, these considerable differences will be reflected in an higher price of fractional ownership compared to time share.
In regard to the legal documentation to be executed when buying fractional ownership interest, a buyer typically is required to sign a share sale and purchase agreement as well as a shareholders agreement under which important points as terms of payment for the shares in the asset owning company will be outlined as well as provisions stipulating under which conditions each and every shareholder shall be entitled to use the asset, what proportion of the occuring management and maintenance fees need to be paid and processing of a resale of individual share interest by single shareholders. In this context the agreements should also be carefully examined in regard to consequences which may occur in the event single shareholders are in default including but not limited to their payment obligations regarding management and maintenance of the company´s asset.
Summarizing, fractional ownership might gain in popularity as an economical way to enjoy and realize your personal dream also in times of a worldwide economic slowdown.

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

The importance of Foreign Exchange Transaction Forms

Thailand, the Land of Smiles, has become very popular among foreigners as their location of choice for the purchase of property outside their home country. More and more foreigners are choosing to buy property in Thailand for various reasons, which vary from the acquisition of an exotic holiday home to pure investment and the realization of sizeable appreciation and return on investment, or even both.

After having chosen the property of your dreams, your seller might ask you to sign a reservation under which you most likely be required to make a first down payment, often called Reservation Fee which will be followed by further payments under the main agreements to be entered into. In this context highest attention should be paid to the correct application and issuance of relevant documentation by and through the bank of your seller evidencing your money transfer of foreign currency equivalent to the respective Thai Baht amounts payable as agreed with your counterpart under the aforementioned documentation.

In the event you have decided to buy a condominium unit in Thailand, then correct application and accurate issuance of so called Foreign Exchange Transaction Forms (also known under FET or Thor Thor 3) is often required, if money transfer of at least USD 20,000 or other relevant documentation if remittance of an amount less than USD 20,000 is made, into a Thai Baht bank account in Thailand.

Such FET (or other relevant documentation) must be provided to the land department in the event of condominium unit purchase by a foreign buyer who has chosen the option of remittance of foreign funds into Thailand equalling the unit´s purchase price as instrument to qualify himself as freehold buyer in a condominium project.

The FET (or other relevant documentation) can also be used as evidence for actual payment of the purchase price if any kind of interest shall be registered against land with the relevant authorities or as evidence as to the original source of monies to be later repatriated out of Thailand in case of re-sale. Additionally, all taxes and regulatory requirements should be considered to ensure that all funds occurring from a re-sale could be taken out of Thailand and transferred back to country of origin.

The money receiving bank will supply the relevant and accurate FET or other document as described above always provided that the buyer as money transferor clearly disclosed and designated purpose of the transfer of funds into Thailand and his full name under the payment instructions when instructing his transferring bank (e.g. Condominium Unit purchase by Mr. XYZ).

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

Land Lease in Thailand – What needs to be considered ?

One of the most viable options for foreigners for property purchase in Thailand is a land lease. Under the current laws of Thailand a residential lease may have a maximum of 30 years term (commercial purposes up to 50 years), whereby renew options giving additional 30 years extension(s) of term are widely used in Thailand. Recent announcements by relevant government authorties stating that longer lease periods of even 90 years shall come into effect as part of a whole packet to prevent the expected proporty investment slow down in 2009 have turned further attention to land leases. Additionally, a purchase option (under seperate agreement) can be agreed between lessor and lessee providing the lessee with a right to demand title transfer upon change of the applicable laws allowing foreign national to hold freehold title to land.

Whenever entering into a lease arrangement, highest attention should be paid to proper registration of the lease against the land. Every long term lease (longer than 3 years) needs to be recorded with the relevant land department in order to be enforceable not only but also against a third party in the event of land transfer by inheritance or sale by your landlord.

Important to know that there is no „guarantee“ or automatism in regard to the renewal of a lease. A landowner may refuse to register a new lease agreement for the lease extension upon expiration of the previous lease period. Therefore especially the default provision under your lease should be carefully examined to protect your interests. It also needs to be considerd that such renew option may not be honoured by the beneficaries of the lessor not having signed the lease. In this context sophisticated developers have implemented legal structures which allow land lessees to acquire share interest in the company that owns the project land including your individual plot. Under these structures, the holder of a land lease together with the other lessees in the project, are in effect joint-lessors of themselves who can assure renewal of the lease terms for additional 30 year periods upon expiration of the first terms.

Every investment, especially a lease investment should be checked thoroughly in regard to its capability for a potential re-sale. Therefore, a long term lease subject to rental advance payments should be examined including but not limited to the following: fair termination clauses, unrestricted assignment and transfer rights for lessee, protected right of renewals and inheritance of lease rights.

Further attention should be paid to the correct application and submission of accepted documentation to be provided to the relevant land department as evidence for actual payment of the rental if any kind of (lease) interest shall be registered against land.

Simply put, a land lease may be an interesting option to acquire interest in land in Thailand, however, it is advisable to examine the provided leases agreement thoroughly and obtain legal advise from your law firm of trust to ensure that your interests and rights are protected.

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

New Buyer Friendly Laws on Condominiums

This past year major revisions to the Laws on Condominiums in Thailand have been enacted that are sure to pique the interest of all who may contemplate purchasing a Condominium Unit in the Land of Smiles. The highly anticipated and newly released Condominium Act, B.E. 2522, effective since last July, 2008, has proven to be a bonanza for Condominium purchasers providing consumer protections unseen prior to the passage of the new Act.

Although most developers in Phuket are fair and honest, gone are the days whereby a Condominium developer could entice a person to purchase a Condominium unit through the unsavory use of misleading sales brochures and pictures. Under the new laws, all advertising materials, brochures and pictures, used by a developer as part of its sales practice shall be considered as part of the signed sales contract, and the representations made in the brochures, pictures, etc. must not misrepresent the Condominium premises and unit being sold. If the developer fails to deliver as advertised, he may be liable for damages in a court of law.

Condominium sales contracts are now standardized in a buyer friendly fashion. Until now, some developers incorporated onerous conditions and terms into their sales contracts. In the past, buyers unaware of unscrupulous developers entered into agreements to purchase Condominium units that compromised their interests. However, under the new laws, all sales and purchase contracts are standardized and contain many buyer friendly provisions as a measure of consumer protection. Any provisions in a Condominium unit sales agreement that is not in compliance with the new standardized agreement and that is to the disadvantage of the buyer shall be null and void.

Among the chief consumer protections that appear in the new standardized contract are provisions relating to seller termination of contract due to breach by the buyer. In the past, it has been the practice of some developers to include unconscionable termination and forfeiture provisions in the event a condo buyer failed to remit payment pursuant to his purchase contract. Typically, these provisions called for termination of the contract by the developer, and forfeiture by the buyer of all payments made to the developer to date in the event the buyer missed any payment for any reason. Such draconian forfeiture provisions, which are nothing more than confiscation clauses pure and simple, are no longer allowed under the new law. Under the standardized contracts, in the event of buyer default, a buyer’s liability is capped not to exceed 10 percent of the contract purchase price. Additionally, the law imposes civil and possible criminal penalties against developers who run afoul of the mandates of the new laws.

Other notable changes to the law are provisions that allow a Condo unit contract purchaser the right to assign his contract to a third party without penalty, and provisions that require the developer and the buyer to equally share the expense of registration of the Condominium unit, and much more. The new laws on Condominiums offer much consumer protection to those inclined to sign on the line that is dotted.

This article is written by Philip M. Jacobson J.D., Consultant of the Phuket based law firm International Law Office Patong Beach Co., Ltd.
philip@ilo-phuket.com
+66-(0) 76-222 191-5

In a move to address numerous complaints from condominium buyers, the Thai government enacted Condominium Act No. 4 (2008) which significantly expanded the scope of consumer protection by amending several provisions of the original Condominium Act made thirty years previously. The original Act has been amended three times in attempts to keep the law up to date with new private sector developments and practices, however the 2008 amendment was one of the most comprehensive overhauls by extending buyer protection, enacting additional requirements and duties for developers, and modifying restrictions on foreign ownership.

Buyer Protection: Previously there were few legal provisions to protect buyers. Potential buyers risked exposure to developer bankruptcies, unfair contracts, unfinished or substandard construction, disputes over maintenance fees, and various other problems. An aggrieved buyer’s only options were to file a complaint with the Consumer Protection Board and hope that the Board would take action, or initiate a potentially lengthy and expensive legal case against the developer. Amendment No. 4 contained several provisions designed to protect condominium buyers.

Standardized Form Contract:  A key provision in the new armory is a requirement that purchase contracts between the developer and buyer conform to a standard format prescribed by the Ministry of the Interior. This format promotes a degree of uniformity and certainty in purchase contracts. Furthermore, any clauses in a purchase contract that deviate from the standard format and are not in favor of the buyer will not be enforceable. The required clauses include basic information such as the developer’s ownership in the land and the location, price, and size of the condominium and development complex. More importantly, one of the required clauses is a detailed objective of the usage of every area of the condominium including individual condominiums, common property and facilities. This provision addresses prior buyer complaints of developers who changed the common area for other uses or built additional units over common areas.

Accurate advertising:  Developers must also take careful steps to ensure that their advertisements to the public such as pictures, statements or brochures, truthfully and accurately represent the completed condominium. Since 2008 any advertisement for the sale of a condominium will be regarded as forming part of the purchase contract and any inconsistencies between the advertising and the actual purchase contract will be interpreted in favor of the buyer.

Additional duties and restrictions on developers:

Payment of monthly maintenance fees for unsold units: In the past disputes often arose between developers and buyers over payment of maintenance fees for units which had not been sold, resulting in a shortfall of maintenance funds. Since 2008 the developer is responsible for paying taxes, common services expenses, and common maintenance expenses for units to which ownership has not yet been transferred.

Operation of businesses within condominium: There are also new restrictions on the operation of businesses within the condominium. Specifically businesses are only allowed to operate in designated areas, and the developer must arrange for separate entrances and exits for these businesses in order to protect residents rom noise and disturbances.

Penalties for violations: The new amendment provided a comprehensive list of penalties for developers who violate any of the new provisions. The biggest penalties are for violations of the standard form contract or for violations of accurate advertising, with fines between THB 50,000 and THB 100,000. A violation of the provisions regulating business use within the condominium carries a slightly lesser fine but with a small addition for each day the violation is not fixed.

Changes in restrictions of foreign ownership: Under the original Condominium Act foreigners were explicitly granted the right to purchase and own condominiums as long as foreign ownership of the total units within a development did not exceed 49%. Condominium Act No. 3 (1999) liberalized these restrictions and allowed foreigners or their holding companies to hold in aggregate over 49% in certain developments but since 2008 the 49% ceiling was reinstated, but, as we told you last month, for those who were fortunate to purchase their condominium in excess of that percentage during that time ownership is still protected.

Viewed as a whole, Condominium Act No. 4 (2008) is part of a larger consumer rights movement in Thailand. Along with the Escrow Act 2008, more of which will be explained later, the Thai government has been moving to address complaints of consumer fraud and abuse. In general, the new law created some minor burdens for developers while extending significant protection to consumers.

In Thailand foreigners suffer almost a total prohibition on the ownership of land. There are a few exceptions but these do not apply to the ordinary investor. The source for this prohibition is section 97 the Land Code of 1954 which states that neither a foreigner nor a foreign “juristic person”, being a company regarded by the law as an alien, can own land. Curiously section 93 of the Land Code does provide that a foreigner is entitled to the inheritance of land (by section 87 a maximum one rai or slightly less than half an acre for residential purposes) as a statutory heir, but registration of the same must be approved by the Minister of Interior.

There are some further discrete areas under the Code where foreign ownership is recognized as a possibility but they are also subject to approval by the Minister and subject to significant investment. In particular under section 86 a foreigner can acquire land by virtue of an International Treaty, but Thailand currently has no such treaties with any countries entitling foreigners to own land.

However, although foreigners cannot own land in the freehold sense they can lease a plot of land and own freehold any building standing upon it. More of this later.

CONDOMINIUMS
The alternative to this is that a foreigner can purchase the outright freehold interest in a Condominium unit by virtue of the Condominium Act 1979 (as distinct from an apartment which is governed by general laws and can only be leased). Apartment units do not have individual unit title deeds and it is not possible to register individual ownership at the land department. Only registered Condominiums have unit title deeds and offer foreign freehold ownership together with co-ownership of the common areas including the land upon which the units are situated by a special Condominium Juristic Person set up for the co-owners’ benefit

Foreign freehold ownership in a condominium is however currently subject to the 49% quota rule which means that foreigners may only own freehold a maximum of 49% of the total space of units in a condominium building. For those who were fortunate to legally acquire freehold in excess of that quota in Bangkok or Pattaya City for five years post 1999 the law will still recognize their freehold ownership and those can be sold on, but otherwise we are back to 49% everywhere.

So if the 49% quota is already full then the foreigner’s only method is to purchase the lease of a condominium. Developers may or may not be willing to offer this and this may depend on locality. One has to remember the quota only relates to foreign ownership and in the cities and on the mainland the developer may have no trouble selling all his units both to foreigners and Thai nationals. This may not be the case in resort locations, particularly on the islands where Thai nationals are traditionally far less likely to buy. Consequently there is more likely to be a surfeit of unsold units on the island which will be available to foreigners to purchase leasehold. A freehold condominium will however always be a more valuable investment because of the cache of freehold ownership together with the strength of co-ownership management rights now prescribed by the latest Condominium Act No. 4 2008.

LEASEHOLD
The phrase Leasehold means the same whether it applies to land or to a condominium or apartment purchase. The concept of leasehold is described in the Thailand Civil and Commercial Code as the hire of immovable property. Such lease must be in writing and registered at the Land Office if the lease term is for more than three years. The duration of the lease term cannot exceed 30 years but the Code does provide that the term may be renewed and in practice it is commonly accepted by the Land Office that the original term may be renewed twice making a total of 90 years. On this basis, it is common for foreigners to lease land and then to construct a building (house/villa) on that land, which they may then own freehold.

The problem is that although the lease may last 90 years, only the original term of 30 years may be immediately registered at the land office. Renewal of the two further terms depends upon co-operation between the parties to the lease. The Thai Courts have held that renewal clauses are strictly “non-lease rights” and only therefore enforceable between the parties as a matter of contract. A way to protect against the possible non-performance by the Lessor of the renewal clauses is for the purchaser to acquire an indirect if minority stake in the land owning company coupled with effective minority management control to ensure that that renewal of the term does take place. It should also be noted that a lease is a personal form of contract and only actionable between the original contracting parties, so if the original Lessor dies the lessee may find himself with no security of tenure. Likewise as to the lessee’s mortality there is no clear law as to their ability to pass rights under the lease to the Lessee’s  heirs. Fortunately the Supreme Court has generally upheld the wishes of the Lessee testator in this regard, but security of tenure can be enhanced by the foreigner taking the lease in the name of an off-shore company. Such company will not pass away as with an individual.

With the number of options available it can be shown that while leasehold appears inferior to freehold, security of tenure may with a little thought and planning be strengthened sufficiently to provide an equal investment, however the likelihood of selling that investment on is diminished particularly in respect of a leasehold Condominium with no management rights.