A lease agreement in Thailand is not an inheritable property right but terminated upon death
Lease or hire of real estate in Thailand is governed by the chapter 'hire of property' in the Civil and Commercial Code and is in essence a personal right of the lessee. Lease in Thailand is a contract and not a real property right asset, therefore by law the remaining term of the lease will not transfer to the heirs of the lessee. Under Thai law the lessee (tenant) is the essence of a lease agreement, therefore if the lessee dies the lease agreement is terminated, irrespective the agreed lease term (note for example Supreme Court judgment 1108/ 1994).
If the owner of the property dies the contract of hire is not terminated and remains in force against the heirs of the owner, however, ONLY in so far it concerns true hire of property or true lease rights. Contractual rights in the lease that are not in essence lease rights (e.g. renewal option but also an inheritance clause) will not by law transfer to the new owner. The new owner must accept this clause in the agreement or he will not be bound by a renewal option or even a succession clause as agreed with the previous owner.
A succession and beneficiary clause in the lease agreement
To allow succession of the lease agreement to the heirs of the lessee the lease agreement should have specific clauses granting the right of succession. The transfer or assignment of the lease to the heirs of the lessee requires registration and assignment of the lease agreement at the land department and for that reason cooperation of the owner. In the event of premature death of the lessee his heirs have the right to claim such performance directly from the original lessor, if a valid succession clause has been included in the lease agreement. Otherwise the heirs have no rights to succession and the lease or rental agreement will be permanently terminated upon the lessee's death and the owner can take possession of the property.
Succession clause is a contract right
It should be noted that a succession clause in the lease agreement is a PERSONAL contractual promise between the parties to the contract and not a registered lease right. As a contract right under Thai law this obligation will not automatically follow the property when the property is transferred during the lease term. A transferee owner (e.g. the heirs of the owner), and in fact third party to this clause, is not bound by a succession promise made by the previous owner. If not accepted there is in principle no legal obligation on a transferee owner to assign the remaining term of the lease to the heirs of the lessee. The tenancy or lease agreement ends at death of the lessee. A succession clause is not considered true lease right under Thailand Supreme Court judgments and will not follow the lease with transfer of ownership under section 569.
Special protection in specific cases
The Supreme Court of Thailand has in some specific cases gone beyond the normal principles of the law to protect the rights of the lessee and the lessee's heirs in case the lessee has made a substantial investment in the improvement or development of the property that in the end of the lease will benefit the owner. In this case the lease will not be terminated upon the death of the lessee and the FULL contract of hire will transfer for the remaining term to the heirs of the lessee. It is however essential that the contract and leasehold structure is set up correctly and structured with ownership over the building by the lessee. (it cannot as easily be structured for a leasehold condominium).
A drawback of this structure is that it in fact must include that the lessor (owner of the land) becomes the owner of the house upon expiration of the 30 year lease term which is what most foreigners want to prevent.
You could say that with regards to succession of a lease there are 3 options:
- Nothing is arranged regarding succession and the lease is terminated upon the death of the lessee (e.g. only a standard land office lease agreement has been signed by the parties or the lease agreement between the parties is not registered on the title deed);
- A valid succession clause is included in the contract which is enforceable against the original owner party (lessor) of the agreement;
- Following the Supreme Court judgments in certain situations the contract for hire or lease goes beyond normal hire of property laws and the contract and its rights will in this case transfer to the heirs.Legal practical
In a normal lease or hire of property laws the normal principles under the above 1 and 2 above apply and in this case it is recommended to have MORE THAN 1 person as the lessee in the contract to prevent early termination upon the death of 1 of the lessees. In case of No. 3 above the lease agreement MUST be drafted according to the Supreme Court judgments by a legal professional familiar with hire of property laws and who is up to date with the Supreme Court judgment governing lease and hire of property in Thailand.
Tip: combine a land lease with a right of superficies, as a right of superficies is under Thai law a fixed real property asset and inheritable right.
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