The Problem With The 30+30+30 Leasehold Agreement
Foreigners in Thailand have traditionally accepted leasehold contracts as an option to buying houses, villas, townhouses, land, or in extreme cases – small islands. Even “Thai freehold” condominium resort properties, which are exclusively offered as leaseholds to foreigners, are nevertheless in high demand. Is a Thailand leasehold, however, the ideal option for you? Most visitors to Thailand, and definitely everyone who resides here, are aware that foreign citizens are not permitted to own land in the country.
Sections 86 to 96 of the Land Code Promulgating Act, B.E. 2497, lay out Thailand’s laws on foreigners (or aliens) who own immovable property in in the Kingdom of Thailand.
Because a building can be dismantled or demolished, it is technically movable, but “immovable property” makes reference to the land it’s built on. A parcel of land cannot be transported from one location to another.
Land cannot be owned by a foreigner, according to Thai law (both implicitly and expressly). The house or villa that is built on that land is a different story. These can be moved, and that means that foreigners are permitted to own them.
Freehold Vs Leasehold Explained
For most individuals, freehold property is a simple idea. You will be given a title deed in your own name, which will be registered with the local Land Office. You own it for the rest of your life and and your children or grandkids can inherit it.
The term “freehold” refers to a straightforward kind of ownership with no ambiguity. The understanding of leasehold, on the other hand, differs from country to country.
Leaseholds in certain countries, much like the United Kingdom, can extend up to 999 years, which most people see as virtually perpetual. When a leasehold expires, renewing it is usually straightforward and inexpensive. China’s government, on the other hand, is only expected to renew 70-year leases when they come to an end.
It’s a little different in Thailand. In reality, rather than being a “leasehold,” it is only a lease. The lessee leases from the owner for a maximum of 30 years in this case.
So What Exactly Is A Leasehold?
In Thailand, the lessee of the 30+30+30 leasehold in Thailand never owns the land. While a Thai lease agreement gives you the permission to “exclusive possession,” it doesn’t give you the same feeling of ownership as in the China or the United Kingdom.
You are simply a tenant in Thailand, renting the land from the owner. You have no ownership rights, just like any tenant that pays their landlord monthly rent to live in a condo.
What Are The 30+30+30 Lease Periods For Thailand Villas?
If you’re thinking about buying a villa using the 30+30+30 Leasehold in Thailand, there are a few options available to you.
A number of people have chosen to form a Thai company to buy the land in the past, but if done incorrectly, the foreigner becomes criminally liable.
They might alternatively lease the land and own the building (movable property) (immovable property). The lease on the land, however, would be for a maximum of 30 years.
To compensate for the relatively short tenure, villa developments typically provide buyers with two 30-year renewal periods. These times have been pre-paid and are thus are included in the total sale price of the property.
Although the renewal for up to 60 years is paid in advance, it is not guaranteed. It would arguably be more sensible to base a villa’s sale price on a 30-year term. Prices would therefore be one-third of what they are now, and when the 30-year lease expires, the lessee may purchase a new lease from the developer/owner.
But over the last 20-30 years, it has become commonplace for developers to offer prepaid 30+30+30 leases at the full sales price. It has now become universally accepted that everything is above board with this method.
Even though an extra 30 years is not guaranteed, it is important to note that “Special Reciprocal Contracts” can be used to legally enforce villa renewals. However, this is only conceivable if substantial changes to the property are done, such as the construction of a villa on a parcel of land that has been leased for 30 years. Many Supreme Court decisions on the subject have stated that such upgrades or improvements on the property can aid in the enforcement of further renewals.
30+30+30 Leasehold For Condominiums In Thailand?
Foreign purchasers of condominiums in Phuket have the ability to chose a freehold title if available, which, as previously said, is eternal ownership and a simple concept to grasp.
Only 49% of any condominium complex development may be sold to foreigners as a freehold under the Condominium Act. Thai nationals must own the remaining 51% of the unit area in any condominium in Thailand. Developers have used a variety of strategies to use or sell the 51 percent quota set aside for Thais throughout the years.
Some people have simply kept ownership of these properties and rented them out to vacationers to make money. (They are able to do so since the development business must be based in Thailand.) Because of Phuket’s fast growing tourism industry, several developers have found this to be a good approach.
Some developments, particularly those from well-known Thai developers, were able to sell all of the units to Thai citizens. Thailand’s middle class is expanding, and many Thais are purchasing condominiums as an investment. But, for the most part, Thai people tend to only buy from Thai developers who are well-known and well-respected in the country.
On the other side, most foreign developers have struggled to sell “the 51 percent” to Thais. Instead, they’ve taken a different strategy. Finding additional ways to advertise them to foreigners is the simplest approach for them to sell the Thai percentage of units.
Using a Thai Company Limited, some foreigners have acquired “Thai freehold” units. This is especially true if the buyer has a respectable, well-established business in Thailand. As they are purchasing a Thai freehold, the company will be able to own the condo in complete perpetuity, just like a Thai national.
However, there is another option. These condos can be offered as a lease contract to foreigners under the Civil and Commercial Code (CCC).
Because, as previously stated, a developer must be a Thai Company Limited, this is permissible. Because they are a Thai company, they may sell a lease to a foreigner while keeping ownership. Developers continue to meet the 51%/49% condominium ownership ratio, while monetising the 51% they were unable to sell to Thais.
Similarly to how villa owners receive automatic renewals after the first 30 years, leasehold condo buyers often receive the same arrangement.
Similarly to how villa owners receive automatic renewals after the first 30 years, leasehold condo buyers often receive the same 30+30+30 lease arrangement.
Is It Legal In Thailand To Have A 30+30+30 Leasehold?
Buyers of these lease contracts should be informed that in Thailand, the maximum lease length is 30 years, and any renewal beyond that is at the landowner’s/freeholder’s discretion.
Renewals simply the landowner’s pledge and nothing more, and they cannot be specified formally in the purchase agreement sale. While the landlord’s desire to extend the lease may be placed into an amendment, the pre-payment does not guarantee it contractually or monetarily.
When a foreign national purchases a leasehold villa or condominium, the payment is legally limited to the first 30 years of the lease. Even if there are three equal payments to indicate three separate lease durations, a prepaid 30+30+30 leasehold contract is unlikely to hold up in court.
What If Your Case Goes All The Way To Court?
Unfortunately, the Phuket Provincial Court has found on several occasions that 30+30+30 contracts aren’t just invalid, but also unlawful.
Additionally, Supreme Court rulings in Bangkok have declared that a lease can only be renewed three years after the 30-year lease period has expired.
Judges have often stated that automatic renewals are unlawful and that such arrangements are similar to foreign ownership. Because it is prohibited to legally guarantee renewals, recent judgements have maintained that the contract for the first 30 years is also invalid.
Even though the 30+30+30 Leasehold in Thailand was properly filed with the Land Office, it is as if the lease never existed in the first place once it is deemed void. The leaseholder who believes he or she has acquired a property for the next 90 years ends up with nothing.
It must be emphasized once more that judicial judgments are based on the facts of the case, which way the political wind is blowing at the current time, and the specific judge assigned to the case.
However, based on recent court opinions, it becomes clear that if a judge notices any contractual arrangement or even an addition to extend a lease for a longer length of time from the outset, he will regard this de facto freehold ownership and might even dissolve the whole lease contract.
Summary
This is certainly quite concerning for foreign nationals who have acquired property in using the 30+30+30 Leasehold in Thailand and have a long-term leasing arrangement in place. These property owners (tenants) should do all possible to prevent any misunderstandings or problems with the developer, which might lead to a court of law and a judge at some point.
A solution to this would have been to add an arbitration provision in all sale and purchase contracts. This would allow any problems to be resolved through arbitration rather than a local court, as long as the developers are the same at the time the disagreement arises.
Before signing a 30+30+30 lease agreement, new purchasers should consider carefully. If you’re buying a condo, a foreign freehold unit is preferable over a leased property. While there is a premium for freehold, the fee is well worth the legal headaches avoided.
If you merely want to buy a property or a villa, you may consider forming a Thai company to do so. However, you must guarantee that your firm is fully legitimate, meaning that it functions as a business, follows all Thai corporate regulations, earns money, and pays taxes.
Anyone signing a leasehold agreement in Thailand must understand that they are not the owners of the property. They’re really just renting.
Any endeavor to convert a lease into a kind of illegitimate ownership is against the law’s spirit. When the spirit of the law is challenged, Thai courts will provide the same decisions. Every single time.
