Property Reservation Agreement Explained

If you’ve been looking for the perfect home in Phuket and have found it, the next step is to put down a deposit and sign the reservation agreement.

Although the process is quite similar in most real estate markets around the globe, each country has its unique set of processes, and Thailand is no exception. It, too, has its own set of practises that most attorneys will adhere to.

Reservations agreements are often only one page in length, however they should contain the most important aspects of the property transaction. A reservation agreement must “check all the boxes” to ensure that the client is safeguarded and that any deposit is refundable.

Essentially, this implies that if your lawyer discovers anything suspicious about the property that causes it to fail due diligence, the buyer is entitled get the whole deposit back from the developer or seller.

The reservation agreement is often issued by the seller or the seller’s lawyer and is frequently signed before the buyer retains the services of a lawyer. In fact, many people choose to go through the entire property acquisition process without the assistance of a skilled lawyer, but this might be a disaster in some situations.

Use A Lawyer To Draft Your Reservation Agreement

To protect your investment, you should ideally engage a lawyer before (or at the very least promptly after) signing the reservation agreement. If at all possible, you should consult with a lawyer before making any deposit payments for the property.

A competent and experienced lawyer can ensure that the deposit is paid with specific guarantees that it will be repaid if the due diligence reveals issues with the property. Your lawyer will also ensure that any future funds are only paid if the developer successfully completes the stages of building or development outlined in the agreement.

It is also worth noting that the many lawyers available to you on the island are already aware of the issues that some projects or the individual builders have had in the past and may advise you on the ones that should be avoided. By hiring a lawyer before signing the reservation agreement, you may spare yourself the time, trouble, and possible cost of putting down a reservation deposit on a development that the lawyer already knows would not stand up when exposed to due diligence.

Some attorneys will insist on a “cooling off period,” during which the buyer can back out of the contract without penalty and receive a full refund of the money.

As a result, the attorneys or agents representing the seller may try to mislead you and even claim that you do not need your own personal legal assistance. Any deposit made in such instances may not be refundable, and you should be wary of any seller’s agent who attempts to put such pressure on you.

Disputes in Thailand can take quite some time to settle, and purchasers must factor in the price of legal fees when attempting to recover a deposit from a developer or seller. Paying a lawyer to guarantee you have a sound reservation agreement is significantly less expensive than trying to recover your money if you don’t.

It is beneficial to hire a lawyer, although the developer may recommend one to you. If you do decide to hire a developer’s lawyer, you need at the very least be aware of what a reservation agreement should contain.

A reservation agreement should include the following crucial components, in addition to the full details of both the buyer and the seller:

The Contract Should Be Clear

It should state precisely what is being sold. Is the property, for example, a villa, a condominium, or an apartment? The reservation agreement should include specify the property’s size (in rai or square meters). It should define the legal framework.

Is it, for example, freehold or leasehold? Is there a Chanote freehold title, and what is the land title number, if it is a freehold? Is the property furnished, or is it sold “as is”? It may be important in some situations to include list all of the fixtures and furnishings included in the transaction.

Make Sure The Deposit Is Included

It should specify that the deposit is part of the overall transaction price and it will be taken as an advance payment after due diligence is complete and the sale appears likely to proceed. It should also include a payment schedule for the complete payment.

Make Time For Due Diligence

Buyers should ensure that they have enough time to undertake due diligence (anything from 7 to 30 days) and should also indicate exactly what the lawyer will need to complete the appropriate due diligence on your behalf. A well-drafted reservation agreement should allow the lawyer enough time to do the appropriate due diligence. It should also specify how much time must elapse before the more essential Sales & Purchase Agreement is executed.

A Clear And Concise Time Scale

If the property is being offered off-plan, the timetable for completion should be stated. However, it should also say that if extra time is required, a new completion plan may be developed with the mutual consent (in writing) from both the Buyer and Seller.

Make Sure The Deposit Is Refundable

It should state what happens to the deposit if either the buyer or the seller back out of the agreement. If the vendor breaches the contract, the deposit should be repaid in full. If the buyer violates the terms of the agreement, the deposit is usually lost.

Provide Resolutions Or Money Back

It should indicate unequivocally that any difficulties that surface as a consequence of due diligence – issues that would negatively influence the buyer of the property – would result in the buyer’s money being returned. In most cases, a lawyer must be able to demonstrate the reasons for the failure to perform due diligence. If a problem is detected that is reasonably simple to address, the buyer’s lawyer may also provide the developer or seller the option to resolve the issue within a certain deadline.

Work Out How Taxes Are Split

Most reservation agreements additionally specify how taxes are split between the buyer and seller, as well as the amount of those taxes.

Get The Law On Your Side

Finally, the agreement should declare that it is controlled by Thai law, making it simpler to demand a deposit refund if that becomes required.

Both parties should sign the reservation agreement, and the original documents should be stored in a secure location. If the buyer grants their lawyer Power of Attorney, the lawyer may sign on their behalf. Any agent signing on behalf of the developer should also submit the relevant legal documentation proving legal “signing power.” If they do not, the agreement will be null and void in a court of law. All documents must also be stamped with the developer’s official corporate stamp.

Conclusion

Using the checklist above, you can ensure that you have covered all of the necessary elements in the reservation agreement, ensuring that your entire purchase process is both quick and safe.

Also, by involving a knowledgeable lawyer early in the purchase process, you can guarantee that your reservation agreement is properly constructed from the start, giving you piece of mind.