Thailand Rules for Lease
Lease is defined as a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset. It is also referred to as rental.
Sections 537 to 571 of Thailand Civil and Commercial Code
Laws in Thailand do not have separate laws on leasehold. Lease is a real property right in Thailand. It is provided for in Sections 537 to 571 of Thailand Civil and Commercial Code that a property lease in Thailand is governed by this law particularly on the hire of property section which is placed under the rubric “Contracts” of Thailand Civil and Commercial Code.
Section 537 of Thailand Civil and Commercial Code provides that “A hire of property is a contract whereby a person, called the letter, agrees to let another person, called the hirer, have the use or benefit of a property for a limited period of time and the hirer agrees to pay rent therefore.”
As clearly stated, a lease in Thailand is a normal contract with a fixed term. This lease cannot be transferred and even sold as an asset. This is, however, can be assigned only as a hire of property contract thus requires permission and support from the owner of the property being leased.
There are several drawbacks which are associated with hire of property in Thailand. One this drawback is the termination of the lease agreement, as a personal contract right of the lessee, upon death of the lessee. Furthermore, law of Thailand does not give the heirs, heiresses or successors of the lessee a right to inherent the leased property.
Lease Contract as an Inheritable Right
According to Thai laws, a lease or a hire of property is not an inheritable right, however, it can only be assigned as a contract with formal acceptance of the other party in the lease agreement which is the owner and registration on the title deed. Under the Thai law, the heirs or successors are not automatically entitled to rights of success over the lease when the lessee or tenant dies.
In the first place, lease or rental is not a real asset but rather a contract and personal right of the lessee. This means, that the lease agreement as confirmed by the Supreme Court of Thailand is terminated upon death of the lessee because the lessee (tenant) is the core of a lease agreement.
Moreover, as stipulated under the provision of Section 569 of Thailand Civil and Commercial Code, if the owner of the property dies the contract of hire is not terminated. This will remain in force against the heirs or successors of the owner, however, only in so far as it concerns true hire of property or lease rights.
Additional contract rights in the lease are not considered true lease rights under Thai contract law. It will not transfer to the new owner and are terminated upon transfer of ownership in accordance with Section 569 of Thailand Civil and Commercial Code. Thus, the new owner must accept these clauses in the lease agreement or he will not be bound by a promise given by the previous owner to renew the lease or to assign, further, the lease to the lessee’s heirs.
Lastly, death of the owner or transfer of ownership of the property hired could lead to the lessee to end up with a lease contract that only partly enforceable by legal action against the transferee owner.
Under hire of property laws in Thailand, any property lease or rental with a fixed term exceeding three (3) years, as provided for in Section 538 Thailand Civil and Commercial Code, must be in writing and recorded on the ownership title deed – land or condominium title deed, as kept in the registers of the provincial or local land office.
Any lease agreement between the parties (lessee and owner) which is not registered with the Land Department of Thailand is enforceable by legal action for only a term of three (3) years. It is provided in Section 540 that the term of a registered lease agreement cannot exceed thirty (30) years and is automatically extinguished at the end of the registered term (Section 564).
On the other hand, a short term contract does not have to be registered but must be in writing for it to be enforceable by legal action. A lease, in practice, can only be registered over land with a confirmed right of possession or freehold ownership title deed or land with a title. In the case of a licensed condominium, a long term condominium apartment lease is registered with the local land office where the condominium is located and will be noted on the backside of condominium unit ownership title deed.
Payment of rent is one the essential element of a lease agreement under Thai Law as provided for by Section 537. In line with this, possession of a real property under a lease agreement in Thailand without payment of rent would not be enforceable as hire of property under the Thailand Civil and Commercial Code.
Also, a lease without a lease price would not be governed by the chapter hire of property but for example by right of habitation or usufruct laws and a different set of rules would apply. A rent will be required to be in included in the lease for the registration of a lease agreement. The registration of the lease agreement will be refused should the lease price or rental price is found to be unreasonable and not viable for the lease.
Contracts More Than 30 Years
The term of registration of a lease in Thailand must not exceed thirty (30) years. Consequently, when the fixed registered term runs out, the lease comes to an end automatically. Some real estate leasehold sale contracts aimed at foreigners (aliens) to create or suggest more rights than a 30-year lease.
However, this kind of contract between the seller and the leasehold buyer can be complex and must at least separate ownership over the house from the land and often include additional 30-year prepaid hire periods and the option in the contract (or addendum to the contract) to transfer the land to a freehold title. Legally, this is considered as a contract structure between two (2) or more parties only and binding only between the parties. This kind of contract structure is not protected by Thailand laws and could be considered void and illegal.
In 2008, under new land office regulations imposed by Thailand authorities, the land offices must not accept registration of a lease agreement with obvious or illegal provisions such as a foreigner’s right to transfer land to freehold title and pre-paid 30-year renewal terms. For this reason, these provisions are now often made in a separate addendum to the lease which is a part of the lease arrangement not registered with the Land Office, notwithstanding the fact that the Land Department of Thailand considers these sale methods void or illegal.