Thursday, 9 April 2009

Property Law in Thailand

It is very hard to get a clear and objective overview of property law in Thailand because often the people who put out the information have a vested interest in the topic, principally estate agents/developers and law companies. So, as a consequence developers usually stress that it is illegal for a foreigner to own land in Thailand and so a 30 year lease with the option of 2 further 30 year leases is the only legal available option. For the developer this means less legal fees and less hassle getting land from a land lord. Obviously if the landlord is allowed to maintain ownership of a piece of land he or she is happier.

On the other hand, if you go and see a lawyer firm they will often push you down the route of setting up a Thai company. At least 51% of the shares of the Thai company must be owned by Thai nationals. This Thai company then purchases the land in question. The trick is that in the memorandum setting up the company the foreign share holder(s) (who only have 49% of the company) are given preferential voting rights. Which means that although the foreigner owns less than half the company (and so less than half its assets) he/she has CONTROL of the company. Added to that a good lawyer firm will usually have a list of 'safe' Thai partners who are usually relatives of the people working at the law firm. Furthermore, they sign a waiver whereby they forego their rights to the dividends or assets of the company. The obvious advantage of this method of purchasing land in Thailand is that you get a freehold as opposed to a lease. Whatever developers tell you, a freehold is more valuable than a lease. However on the downside, setting up a Thai company involves quiet a few costs. First you have to pay a lawyer for the services involved; and then you have to pay for accounting for your Thai company. Also since it is a Thai company it is expected that sooner or later the company will do some sort of business. And if there is any profit then the company is liable to pay company taxes.

When deciding which path you should take it is worth bearing in mind these points:

1) Why are you buying the land? If you just want a retirement home and you are not concerned about selling in the future then obviously a lease is preferable.

2) Who is the landlord? Never forget that NO MATTER WHAT THE DEVELOPER TELLS YOU THE LEASE RENEWAL IS NOT AUTOMATIC. In order for a landlord to regain ownership of a piece of land all he or she has to do is fail to show up at the land office to register a new lease. There is nothing you can do about this. For example if the ownership of the land passes by inheritance to the first son then that person might not feel any obligation to honour the lease renewal agreement.

3) As a foreigner, the best legal right you have is that you are allowed to own a property. So you get the odd situation where you can own personally a property but not the land it is on. Owning the property means that even if the lease is not renewed you have some legal recourse to get compensation for the loss of your property.

4) A lawyer is very useful to check what sort of title a piece of land has and if the piece of land you are intending to buy has been registered separately. Too many people just accept the word of the developer/real estate agent about this issue.

5) Don't believe the developer when they show you a contract in English and Thai and say that it is the English version that is legally binding. It is a lie. In Thai courts it is the Thai version that takes precedent.

6) A foreigner may buy a condominium unit freehold as long as less than 49% of the residential space of the entire building is owned by foreigners. This means it is possible to own an apartment in Thailand without setting up a Thai company. It also means that it is theoretically possible for a foreigner to get a mortgage. Thus condos are very popular in Pattaya and Bangkok. How developers find the 51% of Thai national owners is a bit of a mystery.

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