Leasing has become a popular option for foreign property buyers to acquire interest in Land or Apartment units due to legal restrictions applying to purchase of property in Thailand. Most of us may have heard that the maximum term under Thai law for residential leases a lessor and his lessee can agree to register with the land department is 30 years, whereby renew options are usually granted.
However, when it comes to protection of the lessee´s inheritance respectively beneficaries, most of us may not be aware of the fact that lease rights basically can not be passed on to our beloved one´s in case of the lessee´s death. Unfortuanetly, the Thai Civil and Commercial Code (CCC) does not provide for a transfer of lease rights by way of inheritance. This means that upon the lessee´s demise, a lease basically extinguishes and ceases to exist. This may have serious consequences in regard to your investment, particurarly in regard to your beneficaries who may not be entitled to use and enjoy your property anylonger. This seems to be even more draconian if you consider that long term lease which are usually used in order to acquire interest in land or apartment units must be fully paid up in advance by the lessee to its lessor.
In order to protect the inheritance of lease rights, lessor and lessee may agree under the lease that the agreement shall be binding upon and enure onto the parties heirs in case of either partys’ demise. However, such succession or inheritance clause may not be accepted by a court if it comes to dispute between lessor and the lessee´s heirs as it needs to be considered that a lease right is basically considered as a personal right of the lessee which can not be transferred upon the lessee´s demise. Therefore caution is advisable if such individual agreement shall be the only safeguard in regard to the inheritance of your lease rights.
However, courts have decided that under certain conditions a lease shall be inheritable. This shall be the case if structure such as a villa has been erected on the leased land and lessor and lessee agreed that such structure shall be conveyed into the lessor´s name upon expiration of the lease or its extensions. Nevertheless property buyers should be aware that courts from time to time may change their opinion and rule differently in the future.
Therefore, it would be surely helpful in order to increase investors confidence in buying property in Thailand if the inheritance of lease rights could be guaranteed by law requiring respective amendment of the CCC.
However, until such amendment comes into effect (if ever) the safest way of acquiring lease rights seems to be under the name of a corporate body as such ususally do not die, if property maintained, preferably off-shore company which are easy to maintain. In adition, acquisition of lease rights under the name of an off-shore company may offer further advantages, however, should be discussed with professional advisors in order to ensure that the chosen legal structure satisfies your personal requirements on a safe investment.
For those who do not feel comfortable with holding property under the name of company structure, it is advisable to enter into a lease together with your beneficaries as the longer living lessees are entitled to benefit from the property until their passing.
This article is written by International Law Office Patong Beach Co., Ltd. For enquiries, contact Michael Greth, Consultant, by email (michael@ilo-phuket.com) or phone (+66- (0) 76-222 191-5).
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