Note: this article is about the lease of a condo registered under the Condominium Act, and not unregistered leasehold apartment buildings. Unregistered condos look the same on the outside but have a totally different legal structure.
Buying a leasehold condominium in Thailand
Tourist resort condos are often sold leasehold and freehold to foreigners
The units in a condominium registered under the Thailand Condominium Act can be foreign owned for up to 49% of the units in floor space. Foreign ownership in a condominium in Thailand is limited and least 51% of a condo must be owned by Thai nationals. High-priced condos in Thailand's popular tourist resort areas are not much liked by Thai nationals and the units in the Thai ownership side of these condominiums are often sold to foreigners under a lease agreement between the developer and foreign lease buyer.
In the tourist areas such as Phuket and Pattaya condo developments usually have a mix of foreign leasehold and foreign freehold ownership. When buying an off-plan apartment in Thailand the sale and purchase should clearly state that the purchase concerns a foreign freehold purchase in a condominium project registered under the Condominium Act B.E. 2522.
What is condominium leasehold in Thailand
Lease in Thailand is more a normal tenancy than a true leaseholdLease of a unit in a condominium is governed by the Civil and Commercial Code (sections 537 - 574) and placed under contracts between gifts and hire of services. Buying a condominium leasehold means in essence buying a pre-paid rental (tenancy, hire of property) with a fixed time period. Lease is under Thai law in the first place a contract right of the lessee. Lease in Thailand is not a real property right, nor inheritable right and you cannot buy and sell a lease (rental) on the open market. As a contract it can only be assigned with approval and cooperation of the owner of the condominium.
The relation between the seller and buyer of a leasehold condominium is under Thai law basically one of a tenant and landlord governed by hire of property laws. Note that Thai laws governing hire of property are considered pro-landlord and Thailand does not know tenant protection laws as known in most Western countries.
Things to consider
Voting rights
Voting rights in the condominium meetings is a right of the owner and not the lessee. Unless agreed differently voting rights remain with the owner of the condominium. This is in an early stage of the life of the condominium often the developer and this could mean that the developer outvotes the other owners and controls the meetings and matters concerning management and maintenance of the condominium in which he has a financial interest. Selling leasehold condos could disturb the democratic voting right system in a condominium.
Selling and assigning the condo
The primary right of a leasehold purchaser of a condominium is the right of possession of the unit. Under hire of property law no other rights are given to the lessee. For example sub-rent is only allowed if this is agreed with the owner in the condominium lease contract, otherwise he may not let other persons use the condo. The right to transfer the lease to a new lessee and register the assignment at the land department's provincial or local branch office can only be done by the owner of the condominium. Lease is under Thai law in the first place a tenancy contract and not a real property asset.
Inheritance
A foreign freehold owner of a condominium can pass on a condominium by inheritance in Thailand to another foreigner.
Lease in Thailand is a rental contract and under Thai contract law this type of contract is terminated upon death of the lessee, as confirmed by the Thailand Supreme Court. As a lease agreement is not an asset but a contract it will not automatically pass on to the heirs of the lessee. The owner must register a new lease with the land office in the names of the heirs. The lease agreement could include a succession clause however this does not offer full guarantee.
Lease in Thailand is not an inheritable right, transfer of ownership of the condominium or death of the registered owner does not break rent under Thai law, death of the lessee does! read more...
Term of the contract
Real estate lease agreements in Thailand cannot exceed 30 years. A longer term will be reduced to 30 years pursuant Section 540 Civil CodeSection 540. The duration of a hire of immovable property cannot exceed thirty years. If it is made for a longer period, such period shall be reduced to thirty years. The aforesaid period may be renewed, but it must not exceed thirty years from the time of renewal.. Pre-agreed renewals suggesting a longer term are not enforceable under Thai hire of property laws and Supreme Court judgments.
Tax burden
As opposed to freehold owned properties, leasehold properties in Thailand are subject to a rental tax at a rate of 12.5% over the actual yearly lease price or annual assessed lease price, whichever is higher. This is often passed on to the leasehold buyer in the condominium lease agreement.
Transfer of ownership of a condominium is subject to conveyancing tax and fees, buying a condominium under a lease agreement is subject to a lease registration fee of 1.1% of the total lease price. Income from lease is taxed as personal or corporate income tax.
Thai holding limited company as an alternative for foreign ownership of a condominium
Before the 2006 land office regulations restricting the misuse of Thai companies for real estate by foreigners the condos in the Thai side of a tourist condominium were often sold under a Thai holding company structure. Since 2006 and a serie of new regulations this practice in less common. A special purpose company or condominium holding company is not allowed under Thai law and not considered a viable or secure vehicle for foreigners to purchase a condominium, but even though generally considered illegal this structure is often still pushed in the tourist areas to sell the remaining units in the Thai side of a condominium to foreigners.
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