LONG TERM LEASES IN THAILAND

Although Thailand is a popular retirement destination for foreigners, foreigners who decide to live in Thailand long-term have few ownership options available to them. The first ownership option is buying a condo. Thai law allows foreigners to buy up to half of the units in a condominium development if they pay for the condo with foreign currency. The only other legal way for foreigners to purchase property in Thailand is to invest at least 40,000,000 Baht in the Thai economy. Upon approval by the relevant authorities, major investors are allowed to buy a small lot, up to 1600 square meters or 0.4 acres, for private residence.

For many foreigners, securing a long term lease agreement may be preferable to buying a condo. This is your best option if you're looking for a single family home, or fall in love with a condo in a development that has already reached its foreign ownership limit. A long term lease can be a good investment under the right circumstances, but foreigners should never sign a long-term lease before consulting a competent local attorney. Your attorney will conduct a due diligence investigation to ensure that your landlord has the right to rent the property, and make sure your lease agreement is written in a way that gives you the maximum possible protection.

LEASE DURATION AND RENEWAL

Foreigners signing long term leases should know that leases are only valid for three years if they are not registered at the Land Department. The law allows leases of up to thirty years, longer lease agreements will only be registered for a 30 year period. If you sign a thirty year lease, make sure it is registered, or you will have no recourse if your landlord evicts you after five years.

Many leases contain renewal clauses which provide for a renewed 30 year lease at the end of the initial 30 years. Although many developers offer renewal clauses that call for 2 or more lease renewals, current interpretation only allows for one renewal. A renewal clause is a promise to renew a lease, but it is not an automatic renewal. Your lease is not renewable without your landlord's cooperation. If they fail to cooperate, your lease will end. Don't sign a long-term lease if renewal is absolutely essential to your plans.

"SELLING" YOUR LEASE

Imagine that you've "bought" a condo leasehold. You signed a 30 year lease and paid all of the rent up front. Ten years later, you decide its time to move on. The problem is, there are twenty years left on the lease. You'll have to "sell" your condo by subletting for the remainder. Thai law does not allow renters to sublet unless the right to sublet is specifically included in the original lease agreement.

Make sure your lease specifically allows you to sublet before you make a 30 year commitment. Another option is to assign the remaining lease period to a third party prior to the expiry of the lease term. Also make sure your lease agreement allows you to assign the lease freely. You should also ensure which parties will be responsible for the transfer taxes at this stage to save conflicts in the future.

LANDLORD SELLS THE PROPERTY

Thai law divides the provisions of your lease agreement into two categories. First there are "leased rights." These are the provisions of your lease that relate to the rent, duration of the lease, acceptable uses, right to sub-lease, who has to fix the roof if it falls in, etc. If your landlord dies or sells the property you are renting, these portions of the lease remain in force between you and the new landlord.

"Non-leased rights" are side promises between you and your landlord, such as a promise to renew your lease (renewal clause) or a promise to transfer the lease to your heirs in the event of your death (succession clause). These contractual terms are not binding on the new landlord.

PASSING YOUR LEASED CONDO ON TO YOUR HEIRS

Under Thai law, a lease ends when the tenant dies. If you purchase a thirty year lease, but die unexpectedly after 15 years, your heirs will not automatically inherit the right to use the property for the rest of the lease period. There are a few ways to solve this problem. One solution is to name both you and your heirs on the lease. If your heirs are parties to the lease, your death will not effect their right to continue leasing.

Another option is to include a "succession clause" in the lease agreement. This clause requires your landlord to transfer the lease to your heirs in the event of your death. Unfortunately, there are two problems with this approach. First off, a succession clause only binds your original landlord. If the property is sold before your death, the new landlord is under no obligation to transfer the lease. Secondly, only "real lease rights" will transfer to your heirs. Additional provisions of the lease, such as the renewal clause, will not transfer.

PURCHASING A CONDO OR APARTMENT LEASEHOLD

If you fall in love with a condo in a development that is already at maximum foreign ownership, you may choose to "buy" the condo by prepaying a 30 year lease with the developer. This is known as "leasehold ownership." Although buying leasehold can give you the condo of your dreams, be sure to study the contract carefully and take the developer's promises with a grain of salt.

Even if you pay all of the rent up front, the developer will most likely have you pay the applicable annual taxes, which amount to 12.5% of the actual or estimated yearly rent (whichever is higher). Make sure also that the developer transfers their rights in the management of the home owners committee over to you to ensure you have a rightful say in the management and operation of the condo building.

RENTING A SINGLE FAMILY HOME

Many retirees would rather live in a small house with a private garden than spend their golden years living in a high-rise. Foreigners who want to live in a single family home have the option to rent a small lot with a house already on it. This option is similar to renting an apartment or a condo. These properties can be rented long or short term.

THE RIGHT OF SUPERFICIES

Although foreigners cannot legally own land, they are allowed to own buildings. Renting land and building a house is an increasingly popular option for foreigners. First, you lease a piece of land and register a "right of superficies." Obtaining a right of superficies allows you to own a building on the rented land. The right of sueprficies works like a lease. You pay rent and register the agreement at the Land Department. A right of superficies can be registered for up to 30 years or for life and one renewal is allowed. One notable benefit: the right of superficies is automatically inheritable and can be easily transferred.

Once you have a right of superficies, you are free to apply for a construction permit and start building your dreamhouse. While you are relaxing in paradise, you will have the peace of mind that comes with knowing your lease is secure. If you own a building on the land, the land owner has an incentive to honor renewal clauses. It will be more difficult for the owner to sell the land while you own the house. When the lease and right of superficies end, the land owner has two options. One option is to let your lease expire and buy your house at fair market value. The landowner also has the option to request that you remove the house and restore the property to its former condition.