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Protected Lease Investments- same same but different

A widely used option for foreigners for property purchase in Thailand is a Land or Apartment lease. Under the current laws of Thailand a lease of residential property may have a maximum of 30 years term and legally be registered with the relevant authorities. Therefore renew options giving additional 30 years plus eventual further extension(s) of term are offered and widely used in Thailand. This provides a 30 year lease term and two 30 years right of renewal to the property always required that lessor and lessee prepare a new lease agreement for the extension periods and register in compliance with the laws and regulations applicable with the competent land department at that time.

A property buyer may recognize that the renew options are based on a contractual agreement between lessor and lessee and therefore are not binding towards third parties such as the parties beneficaries or new property owner in case that the lessor would transfer or loose title to the property. In such case a lessee may face serious difficulties to enforce its right to renew its lease when it comes to the renewal upon expiration of the initial lease terms.

In order to provide additional protection, sophisticated developers have implemented legal structures which allow lessees not only to acquire a contractual lease right to a specific property but also (indirect) interest in the Thai company which owns the project land and structure and from which the leasehold investors lease from. This protected leasehold structure offers the advantage that the holder of a lease to a specific property together with the other lessees in a project can participate and will be given a say in the management of the project including control of common properites and the renewal of the lease terms for additional 30 year periods upon expiration of the initial terms.

Important regarding this structure is that all participants have the same interest, for example, renewing of their leases or provision of professional project management. Therefore, no one should acquire (indirect) interest in the Thai company which owns the project land and structure and provides management services who is not also leasing a specific property in same project and vice versa. This is to ensure that everybody sits in the same boat and has same interests from which ultimately each individual leashold investor shall benefit.

Set up of such protected leasehold structure requires incorporation of well thought through corporate structure and carefully drafted set of agreements in order to provide a legal set up which is in compliance with the applicable laws and also provides the required peace of mind to its prospective leasehold buyers.

Buyers should diligently review with their advisors the entire legal set up of the project as well as pertaining legal documentation in order to ensure that the proposed structure fully complies with the applicable laws.

This article is written by International Law Office Patong Beach Co., Ltd., a Phuket based law firm. In case of enquiries, please contact Michael Greth, Consulant, by email (michael@ilo-phuket.com) or phone (+66-(0) 76-222 191-5).