In Thailand foreigners suffer almost a total prohibition on the ownership of land. There are a few exceptions but these do not apply to the ordinary investor. The source for this prohibition is section 97 the Land Code of 1954 which states that neither a foreigner nor a foreign “juristic person”, being a company regarded by the law as an alien, can own land. Curiously section 93 of the Land Code does provide that a foreigner is entitled to the inheritance of land (by section 87 a maximum one rai or slightly less than half an acre for residential purposes) as a statutory heir, but registration of the same must be approved by the Minister of Interior.
There are some further discrete areas under the Code where foreign ownership is recognized as a possibility but they are also subject to approval by the Minister and subject to significant investment. In particular under section 86 a foreigner can acquire land by virtue of an International Treaty, but Thailand currently has no such treaties with any countries entitling foreigners to own land.
However, although foreigners cannot own land in the freehold sense they can lease a plot of land and own freehold any building standing upon it. More of this later.
CONDOMINIUMS
The alternative to this is that a foreigner can purchase the outright freehold interest in a Condominium unit by virtue of the Condominium Act 1979 (as distinct from an apartment which is governed by general laws and can only be leased). Apartment units do not have individual unit title deeds and it is not possible to register individual ownership at the land department. Only registered Condominiums have unit title deeds and offer foreign freehold ownership together with co-ownership of the common areas including the land upon which the units are situated by a special Condominium Juristic Person set up for the co-owners’ benefit
Foreign freehold ownership in a condominium is however currently subject to the 49% quota rule which means that foreigners may only own freehold a maximum of 49% of the total space of units in a condominium building. For those who were fortunate to legally acquire freehold in excess of that quota in Bangkok or Pattaya City for five years post 1999 the law will still recognize their freehold ownership and those can be sold on, but otherwise we are back to 49% everywhere.
So if the 49% quota is already full then the foreigner’s only method is to purchase the lease of a condominium. Developers may or may not be willing to offer this and this may depend on locality. One has to remember the quota only relates to foreign ownership and in the cities and on the mainland the developer may have no trouble selling all his units both to foreigners and Thai nationals. This may not be the case in resort locations, particularly on the islands where Thai nationals are traditionally far less likely to buy. Consequently there is more likely to be a surfeit of unsold units on the island which will be available to foreigners to purchase leasehold. A freehold condominium will however always be a more valuable investment because of the cache of freehold ownership together with the strength of co-ownership management rights now prescribed by the latest Condominium Act No. 4 2008.
LEASEHOLD
The phrase Leasehold means the same whether it applies to land or to a condominium or apartment purchase. The concept of leasehold is described in the Thailand Civil and Commercial Code as the hire of immovable property. Such lease must be in writing and registered at the Land Office if the lease term is for more than three years. The duration of the lease term cannot exceed 30 years but the Code does provide that the term may be renewed and in practice it is commonly accepted by the Land Office that the original term may be renewed twice making a total of 90 years. On this basis, it is common for foreigners to lease land and then to construct a building (house/villa) on that land, which they may then own freehold.
The problem is that although the lease may last 90 years, only the original term of 30 years may be immediately registered at the land office. Renewal of the two further terms depends upon co-operation between the parties to the lease. The Thai Courts have held that renewal clauses are strictly “non-lease rights” and only therefore enforceable between the parties as a matter of contract. A way to protect against the possible non-performance by the Lessor of the renewal clauses is for the purchaser to acquire an indirect if minority stake in the land owning company coupled with effective minority management control to ensure that that renewal of the term does take place. It should also be noted that a lease is a personal form of contract and only actionable between the original contracting parties, so if the original Lessor dies the lessee may find himself with no security of tenure. Likewise as to the lessee’s mortality there is no clear law as to their ability to pass rights under the lease to the Lessee’s heirs. Fortunately the Supreme Court has generally upheld the wishes of the Lessee testator in this regard, but security of tenure can be enhanced by the foreigner taking the lease in the name of an off-shore company. Such company will not pass away as with an individual.
With the number of options available it can be shown that while leasehold appears inferior to freehold, security of tenure may with a little thought and planning be strengthened sufficiently to provide an equal investment, however the likelihood of selling that investment on is diminished particularly in respect of a leasehold Condominium with no management rights.
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