Foreign Ownership Of Condominiums in Thailand
As provided in Section 19 of Thailand Condominium Act, non-Thai nationals, whether they are natural or juristic persons, may have absolute ownership of a condominium apartment unit in Thailand but this ownership is subject to terms and conditions stipulated in and provided for by this code. Moreover, as provided for in Section 19 of Condominium Act, aliens or foreigners are permitted to have residence in the country and are allowed also to enter into Thailand governed by Immigration Law and Investment Promotion Law, respectively.
Purchasing a condo must meet the requirements for foreign ownership as required under the law of Thailand. Pursuant to this provision, aliens (foreigners) are allowed to own not more than 49% of the total floor area of all condo units. Thus, the remaining 51% must be owned by Thai nationals.
Absolute Ownership Of A Condominium Unit
Absolute ownership over a condominium unit in Thailand must be registered and licensed as per the Condominium Act of 2008. The Act also states that a higher proportion of foreign ownership in a condo building is not allowable. This means a Thai national must own bigger proportion of the condominium unit.
On the other hand, tourist resort condos in Thailand are often sold leasehold and freehold to foreigners. This is tourist resort condos in the country do not have high demand. The lack of demand leads to many resort condos unable to sell enough units to Thai Nationals for them to have majority ownership. Even the Thai owned condominiums are traded to foreigners under leasehold agreement.
This trend prompted many foreign-owned companies to buy condominium units as an option to leasehold. However, this practice became less common when a series of new regulations were issued by the Land Department making land ownership of a partly foreign owned Thai company illegal.
Condominiums in a Leasehold Setup
Condominium Act does not govern condominiums that are sold in leasehold set up. These condominiums are not registered and have several drawbacks which include lack of ownership rights, lack of tenant and consumer protection laws. Also, the principle right of control over the building and common areas belong to the building owner and not by the unit owners. Condominiums registered under the Condominium Act gives the control over the building and common areas to unit owners.
In addition, leasehold of condos in Thailand is governed by the chapter Hire of Property stipulated in Sections 537-574 of Civil and Commercial Code. Under the Thai property law, lease is known as not a real property right but only as a hire of property contract.
In essence, leasehold ownership of a condominium under Thai law is a usual lease contract with a definite and fixed period of term which must not exceed thirty (30) years. Also, under Thai law, rights coupled with leasehold are limited and may be terminated even before the contracted term.
Termination of lease agreement may be due to failure of the lessee to comply with the terms stipulated in the lease agreement or when the lessee dies. The person renting the condominium cannot freely sell his leasehold during the period of the lease for it is not an asset. Thus, the lessee can only assign his contract right with the permission and cooperation of the registered owner of the condominium unit. With this, a lease is not automatically transferable by inheritance.
Acquiring leasehold apartments is not illegal under the law and generally these apartments are less expensive. However, being a buyer of a leasehold apartment, one should check the written agreement and the intention of the developer. This kind of arrangements does not propose the same protection under the law, unlike what is offered in a licensed condominium development project. The difference is that, real condominium offers government control, actual ownership and protection under the Thailand Condominium Act while the condominium acquired through lease agreement offers just possession under the Civil and Commercial Code and must further offer individual protection through private agreements.
Considerations When Buying A Condo Under A Lease Agreement
There are main considerations when a person buys a condominium under a lease agreement. These include voting rights, selling and assigning a leasehold condo, inheritance of leasehold condo, term of the lease in the contract, condominium lease contract content, the lessee’s additional property tax burden among others.
As to the case of voting rights, unless specifically arranged, connected with ownership of the condominium stays with the owner of the unit and are not automatically transferred to the leasehold purchaser. Usually, only a few owners attend the condominium joint owners meetings and give the developer a portion of voting rights on leasehold units control and some matters relating to organization and maintenance fees. Consequently, selling leasehold condos could disturb the democratic voting system in a condominium.
Moreover, the basic right of a leasehold buyer of a condominium is just a personal right of possession of the unit for a specified term. However, the leasehold purchaser does not possess any rights to sell or assigned the leased condo apartment during the lease term. Assignment of a lease is a three party agreement between the owner, the current tenant and new lessee/tenant. When formally registered with the Thailand Land Department, only a registered owner has the right to transfer ownership or to accept assignment of the lease to another person.
Inheritance of a Leasehold Condo
A foreign freehold owner of a condominium can pass on a condominium in Thailand to another foreigner. As earlier stated, lease in Thailand is a contract right and, under the hire of property provisions, is terminated upon death of the lessee. As a result, right of possession of the condo will not be automatically transferred to the heirs when the lessee dies. Succession clause must be included in the lease agreement. However this succession clause does not propose full guarantee on the transfer of the ownership.
The term of the lease of the contract cannot exceed 30 years and pursuant to Section 540 of Thailand Civil and Commercial Code, any longer term will be reduced to 30 years. This limit makes legal action under Thai contract law for pre-agreed renewals, pre-signed consecutive contracts or even registered contracts suggesting longer term not enforceable due to conflict with the provision of Section 540 of Thailand Civil and Commercial Code.
Further, the content of the condo sale contracts must meet the minimum standards and consumer protection laws. Condominiums acquired through lease agreement are subject to a rental tax at a rate of 12.5% over the actual yearly lease price or annual assessed lease price, whichever in these two is higher.
This is a yearly additional financial burden for the leasehold purchaser of a condominium for this is always passed on to the lessee in the lease agreement. More so that the transfer of ownership of a condominium is dependent on conveyancing tax and fees, and lastly, a lease registration fee of 1.1% of the total lease price is carried on buying a condominium under a lease agreement.