Thailand Real Estate law overview and introduction

The information is not intended to be comprehensive nor to provide specific legal advice. The information should not be used as a substitute for legal advice.

CONTENT

In Thailand foreigners may own condominium units and buildings (separate from the land) in their own name. Foreigners are not allowed to own freehold land in Thailand. To secure their rights in land foreigners have long term leasehold interests in land or land and houses and they may have registered property rights like the right of usufruct, right of superficies, right of habitation, or they have an interest in the property through a Thai company that owns the land and in which they own shares.

1 - Land ownership for foreign nationals

A - Foreign nationals are not allowed to own land
The Thai government created one exception to the rule in the Land Code Amendment Act B.E. 2542 (1999) (section 96 bis Land Code Act) allowing foreign individuals to acquire 1 Rai (approx 1600 sq.m) for residential purposes. Under the amendment Act granting permission is subject to the permission of the Minister of Interior and among other rules and restrictions (location) requires the foreigner to remit not less than 40 million Baht (approx 800,000 EURO) into Thailand for specific investment purposes approved by the Board of Investment (BOI approval) beneficial to Thai economy for a specific period of time (in addition to the investment in the real estate property). This is not a viable option for foreign individuals and the exception to the rule was invoked to enable foreign embassies and multi nationals to purchase large houses for their ambassadors and CEO's).

B - Foreign companies with substantial investments benefiting the Thai economy may have special privileges and exemptions for land ownership granted under section 27 of the Investment Promotion Act, Under section 44 of the Industrial Estate Authority of Thailand Act or section 65 of the Petroleum Act (generally only for the duration of their business in Thailand).

C – The foreign controlled Thai company with a majority Thai shareholding (in number of shareholders and percentage of shares) is the only vehicle available for foreigners to control their investment in land in Thailand. Even though land ownership by a partly foreign owned Thai company is as such not illegal under Thai law the Thai government is restricting and discouraging the misuse of Thai companies to circumvent foreign property ownership restrictions in Thailand. The Thai government has issued guidelines and regulation that must be applied by the local land offices when they are dealing with a partly foreign owned company, primarily aimed at preventing the misuse of Thai nominee shareholders by foreigners and Thai companies as a front for foreign land ownership.

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2 - Foreign freehold ownership of condos

Foreigners, natural and juristic persons, may own a condominium apartment unit in Thailand freehold in their own name. Keep in mind that freehold ownership of an apartment unit refers to ownership of a unit in a condominium building registered under the Condominium Act of Thailand. The main document of ownership of an apartment unit is the condominium unit title deed issued and administrated by the local Land Office.

The main restrictions or requirements for ownership of an apartment unit in the foreigner's name under the Condominium Act are:

a) Not more than 49% of the total floor area of all apartments added together in a condominium or apartment complex can be foreign owned. The remaining 51% must be owned by Thai (natural or juristic persons). In case of 100 equal apartments in a complex 49 can be foreign-owned.
b) The law stipulates that a foreigner who buys an apartment under the Condominium Act must bring foreign currency into Thailand. At least an amount equal to the total purchase price must have been brought into Thailand as foreign currency. The handling bank will issue a (FET-form) Foreign Exchange Transaction form or Credit Note and Letter of Confirmation for smaller amounts. Without proof of remittance of foreign currency into Thailand the Land Office will not register the apartment unit into the foreigner's name (unless you are a resident in Thailand). The foreign purchaser must be registered as the sender or receiver (or both) of the money.

In case the quota for foreign freehold ownership in a condominium project is 'sold out', the remaining units may be leased under a 30-year registered leasehold arrangement. Normal lease laws, as for land or house, apply on condominiums. There is no separate law issued regulating the lease of condominium units by foreigners as opposed to buying a condominium freehold in Thailand.

The Thai government may increase the foreign ownership quota allowing greater percentage of foreign ownership as was allowed in the period 1999 to 2004 when a separate Act allowed 100% foreign ownership in a condominium in certain areas and under certain conditions. Since then it is 49%.

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3 – Apartments not registered under the Condominium Act

Units in an apartment building NOT registered under the Condominium Act are generally sold under a leasehold structure, leased as part of the building. Any long term rent (over 3 years) over such unit must be registered with the Land Department and will be detailed in a plan of the building.

Differences between a condominium and apartment
a. Condo units have individual titles, apartments do not
b. In a condo, co-ownership of the land is shared by unit owners
c. Condos can only be built on land with a Chanote title

Apartment buildings not registered under the Condominium Act can also be jointly owned by all owners separate from the land. In this case the interest in the land is secured through a land leasehold or Thai company.

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4 – Leasehold interests in real estate

Hire of immovable property (land, house, condominium) for residential purpose by foreigners is governed by Civil and Commercial Code (sections 537 to 571) and further specified by the Thailand Supreme Court. Foreigners are under Thai law allowed to lease real estate property for up to 30 years and the law is applied in the same manner if the lessee is a foreign or Thai national. A contract for hire or lease is an important document that specifies the terms of the rental/ lease arrangement.
In the Civil and Commercial Code the fundamental principles of hire of property in Thailand are;

1. A written rental or lease agreement is enforceable by action (a verbal agreement not);
2. A rental or lease up to 3 years can be written in another language and does not need to be registered with the Land Department;
3. A rental or lease agreement exceeding 3 years must have a Thai script version registered with the Thai Land Department to be enforceable;
4. A registered leasehold cannot exceed 30 years. This period may be renewed upon expiration, but it must not exceed thirty years from the time of renewal;
5. A lease agreement can only be registered over titled property (land with a proper title deed)
6. A leaseholder can only sub-lease or sell (assign) his leasehold interest to another person if this is agreed in the lease agreement;
7. A lease registration fee (for registered leases exceeding 3 years) shall be collected at the rate of 1% of the total rental throughout the lease term and stamp duty shall be collected at the rate of 0.1%, also over the total rental throughout the lease term
8. A sublease, rental or lease income is subject to personal income tax.

We are Thailand's leading online legal service when it comes to preparing customized lease or rental agreements. A well-crafted lease agreement, and in case of undeveloped land, drafted in combination with an addittional right of superficies, reduces your liability, risks, and helps protect your investment. We offer our agreements online with a DIY registration or as part of a full real estate purchase service.

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5 – House ownership separate from the land

A house separate from its land is an immovable property under Thai law. Transfer of ownership of immovable property must be in writing and registered at the competent authority (i.e. the Land Department). Also a foreigner may own a building as distinct from its land in Thailand; however, the right to own a building upon someone else's land depends on the right to use and possess the land (e.g. the lease and/ or the right of superficies term). The transfer of a house starts at the local land office and requires a 30 day public notice, after which the transfer is completed at again the land office.

A Ta.Bian.Baan or Tabien Bahn is the document which gives the address of the house and states the persons who live in it (it could state the name of the owner but not necessarily). There are 2 types of Ta Bian Baan: 1 The blue Ta Bian Baan (Thor.Ror.14) for Thai nationals and 2 the yellow Ta Bian Baan (Thor.Ror.13) for foreigners.

Proof of ownership of the house can be either the official land office sale agreement, as signed at and issued by the land office, or the construction permit issued in the owner's name.

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6 – Land ownership by a Thai married to a foreigner

Foreigners married to a Thai national can't own land themselves but the Land Department will allow transfer of ownership of the land to the Thai national who is married to a foreigner after a joint statement 'letter of confirmation' by the couple stating that the money expended on the land is personal property of the Thai spouse and not a Sin Somros or matrimonial property between husband and wife. This procedural requirement is based on a regulation issued by the Ministry of Interior (March 1999). The regulation issued in 1999 is based on the principle of section 1472 of the Civil and Commercial Code that if personal property has been exchanged for other property (in this case land) that property becomes a personal property of that spouse, and not a joint marital property between husband and wife, therefore the foreigner spouse has no ownership rights in that land based on Thai family laws, ‘property between husband and wife’.

Note that only the land part is restricted for foreign ownership, and not land and house.

7 - Usufruct

Usufruct contract refers to the agreement and the right to use or occupy another's real property for one's life or up to 30 years. A right of usufruct in Thailand gives the right to use and manage a real estate property during a person’s life time. The right in the real estate property exists so long as the usufructuary (the holder of the usufruct right) is alive. After his or her death the real estate property reverts back to the owner. Often a usufruct is given to a family member such as a foreign spouse as a gift with the idea that a foreign spouse is protected in the event of death of the Thai spouse (owner) who then can remain in the property upon the death of the owner, his or her Thai spouse.
The usufruct interest in the real property in Thailand must be recorded in the official land registry of the local land office. By registering the usufruct agreement the public is put on notice of the recorded usufruct burden on the land and therefore is enforceable against any third parties such as a transferee owner. The right of usufruct is not complete unless registered with the Thailand land department.
The usufructuary is not allowed to sell the property during his right of usufruct without agreement of the registered owner of the property. The usufructuary under Thai Law has the obligation to maintain the property and take normal care of the property. If the usufructuary fails to do so and the property would lose value and become in a poor state of repair the owner has the right to terminate the right of usufruct. The usufructuary is liable for loss of value or destruction of the property unless he can proof that damages are not caused by his fault. The creation of a usufruct could in certain circumstances be an effective option to protect a foreign spouse during his marriage in Thailand and upon death of his or her Thai spouse, however in some case a usufruct is not the best option.

8 - Superficies

Right of superficies (sections 1410 to 1416 of the Thailand Civil and Commercial Code) in Thailand is a civil law real estate right. In France it is called 'droit de superficie', in Germany it is called 'Erbbaurecht' and in the Netherlands it is called 'recht van opstal'. The principle of the right of superficies is in these countries the same; it grants the superficiarius (meaning the person granted the right of superficies) the right to build and own buildings, structures or plantations upon land belonging to another person. Basically the right of superficies separates ownership over the land and ownership over the building.

The right of superficies in Thailand is limited to a period of time of up to 30 years or for the life of the owner of the land or the life of the superficiarius. The right of superficies must be registered on the land title deed to be complete and enforceable. A superficies can be registered as a separate right or as a supporting right (i.e. in combination with a land lease agreement). The person in the agreement granted the right of superficies obtains ownership over the building he builds upon the land, without obtaining or having ownership over the land. A superficies will be allowed before construction or during the construction of a building, generally not for an existing building.

9 - Habitation

The right of habitation under the civil and commercial law of Thailand refers to the right of a person to live in the house of another gratuitously. The right of habitation differs from a usufruct contract that the person granted a usufruct is allowed to transfer the exercise of his rights to a third person (not the actual usufruct), where the right of habitation grants only the use of a property for the residence of the grantee himself and family. A habitation contract refers to the right of dwelling in a house.

The right of habitation is granted gratuitously, otherwise the matter would become 'hire of property'. A right of habitation can be created by last will in Thailand (the owner grants the right of habitation in his last will or testament) or by gift from the owner to a third party. A right of habitation is complete upon registration and endorsement on the title deed at the land office where the property is located.

10 - Servitude

Servitude is the Thai legal equivalent of an English easement. It is s a non-possessory interest in land. Servitude is governed by the Civil and Commercial code sections 1387 to 1401. Section 1387: 'An immovable property may be subject to a servitude by virtue of which the owner of such property is bound, for the benefit of another immovable property, to suffer certain act affecting his property or to refrain from exercising certain rights inherent in his ownership'. Servitude usually involve two or more separate properties/ plots of land, one of which is burdened and the other benefited by the servitude. The burdened parcel is called the servient property and the benefited parcel the dominant property.
Servitude can involve several kinds of benefits and burdens, but usually it involves the use of neighboring well, the use of an access road over adjoining land plots, laying irrigation ditches, laying pipelines or utilities over neighboring plots. A registered right of servitude is an important right in case a plot of land is surrounded by other plots without direct access to a public road. In this case a right of servitude registered over adjoining plots guarantees uninterrupted access to dominant property.

11 – Partly foreign owned Thai company

Up to the May 2006 Land Office guidelines aimed at preventing the use of Thai nominee shareholders by foreigners, it was common practice for foreigners to purchase land or condominium beyond the foreign ownership quota through a majority Thai owned but foreign controlled Thai limited company. As long as the company had majority Thai shareholdings there were no restrictions when purchasing a property and the partly foreign owned company was treated as any other Thai company. Currently the government is restricting the misuse of Thai companies by foreigners by enforcing laws that previously were not enforced. Under these laws they specify the procedures for the officials to follow when dealing with partly foreign owned companies registering land or rights over land. In this case the Thai shareholders in the company will be investigated to determine if they are not acting as nominee shareholders on behalf of foreigners. Holding companies formed for property purchase by foreigners are currently much less common. In case a foreigner chooses to own property in Thailand through a Thai company the foreigner will generally not appear on the company formation documents (Memorandum of Association) or on the shareholder list when the land is transferred to the company. After the property has been transferred to the 100% Thai company up to 49% of the (preference) shares will be transferred to the foreigner.

A company that owns a real estate property must appear to be a normal company and file yearly balance sheets and correct accounting. It may not be a dormant property holding company.

12 – Land Titles

The first and most important part of a real estate investment and buying a house in Thailand is the land title deed. Does the land have a suitable and proper title deed. The land title deed is the official a document administrated by the Land Department which states and proves a person's legal right to own or possess a piece of land, its survey status, as well as rights, obligations, or mortgages on the property.

The only viable land titles for investment by foreigners, whether freehold through a company or through leasehold, are the Chanote (N.S.4.J) and the Nor Sor Sam Gor (N.S.4.G)

Also viable but less attractive is the Nor Sor Sam (N.S.3) This land title is not (yet) accurately surveyed and the area must be confirmed with neighboring land. The land may only be sold subject to a 30-days notice period. This type of land can be upgraded to a Nor.Sor.3.Gor or Chanote.

13 – Transfer fees

Condominium: In a sale and purchase of a new condominium unit or in an off the plan purchase of a condominium apartment unit under the Condominium Act (or a property in a official housing development) the law specifies that the developer may ONLY pass on the transfer fee for a percentage of 50% of the total transfer fee to the buyer.
Existing condominium: prior to buying or selling or signing a sale and purchase agreement for a condominium in Thailand, it is advisable for a purchaser of a condo in Thailand to confirm in writing with the seller who will be responsible or at what percentage the parties are responsible for transfer fees and taxes. The local custom in Thailand is generally to divide the taxes and fees involved with the transfer of a condominium as follows:

• Transfer fees at 2%; the buyer's duty or shared
• Specific Business Tax 3% + 10% local municipal tax over the amount of Specific Business Tax = total tax of 3,3%; the seller's duty
• Stamp duty; the seller's duty or shared between the seller and purchaser (does NOT have to be paid if Specific Business Tax is charged)
• Withholding tax; as this relates to seller's personal or corporate income tax this should be the seller's duty.

The above tax rates are the general tax rates that apply to land, land and house, or the transfer of a house separate from the land.

Sample tax and fees indication based on the transfer of a condominium apartment unit in Thailand with an appraised value of 5 million Thai Baht after 3 years of ownership by the current owner.

Transfer before March 29 2010 (under the temporary rate reduction):
1. Transfer fee 0.01% over 5,000,000 THB = 500 THB
2. Specific Business Tax & Local Tax 0.11% = 5,500 THB
3. Individual Withholding Tax approx 100,000 THB
4. Application fee and others approx 300 THB
Total: 106,300 THB

Transfer of a condo (value of 5 million) under the normal rates:
1. Transfer fee 2% over 5,000,000 THB = 100,000 THB
2. Specific Business Tax & Local Tax 3.3% = 165,000 THB
3. Individual Withholding Tax approx 100,000 THB
4. Application fee and others approx. 300 THB
Total: 365,300 THB

14 – Building and Construction

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15 – Sale and Purchase procedure

a- reservation

Before signing a contract for sale and purchase (condominium, land or house) and paying a deposit the process of buying real estate in Thailand could involve a reservation agreement. This is usually a simple document in which the seller and the purchaser expresses their intention to the sale and purchase. The reservation agreement will reserve the property for the buyer for a short period of time, usually between 7 to 30 days. The reservation agreement contains the details of the property, the agreed price and conditions of the reservation. It normally requires the potential buyer to pay a reservation fee of up to 100,000 thb, which is non-refundable or refundable under certain conditions depending on the agreement with the seller.

Often the seller and buyer will enter into a contract for sale and purchase of property without a reservation agreement.

b- Due diligence

The buyer should in this stage have obtained the service of an independent Thai property lawyer who will verify all legal facts affecting the value and use of the property and information given by the seller in detail (usually referred to as due diligence). Due diligence forms an important part of any freehold or leasehold property investment in Thailand. The due diligence process varies for different types of property, but includes an investigation at government departments, such as the land department, to confirm that the property has a proper title, is free of debts, liens and encumbrances, that the property really belongs to the seller and that the seller is free to dispose of the property, that the description of the property matches what the buyer has been told and the building is built according to the building permit and zoning regulations, access to a public road, etc.. We complete this process by a written advice outlining relevant legal information, potential risks and legal issues (if any) that are discovered and need attention by the buyer.
In case of and 'off the plan' development property (a property that is not yet completed or based only on the plans of a building) the due diligence process could include a check on the developer's background and track record, and verification with government departments that various development licenses have been granted or applied for and the construction can begin without issue.

c- Signing of sale agreement

The sales contracts for land, house or condominium should be drafted or checked carefully as it outlines the sales process and responsibilities of the parties under various scenarios. The sale contract establishes the respective rights and responsibilities of the parties. Upon signing the contract for sale and purchase of a real estate property the buyer is committed. A non-refundable deposit of up to 20 % of the purchase price is usually required upon signing the contract with a final payment on registration of transfer of ownership.
In an 'off the plan' purchase the purchase price is often paid in instalments following the completion of the development, with a final instalment on registration of transfer of ownership. Deposits and instalments could be paid to the seller or developer's account, or could be held in an escrow account, depending on the agreement with the seller. Deposit in escrow offer greater security for the buyer in the event of seller of developer's default.

Different sale structures of real estate (private or development):
• Sale of a condominium unit
• Sale of a leasehold condominium unit
• Sale of a leasehold apartment unit (not registered under the Condominium Act)
• Sale of land
• Sale of land and house
• Sale of leasehold land
• Sale of leasehold land and house
• Sale of leasehold land and sale of freehold house
• Sale of leasehold land and a construction contract
Other contracts that could be offered: construction permit for a house, maintenance service agreements, rules and regulations of the project.

d- Transfer and registration of property

The transfer of ownership of an immovable property (land, land and house, house, condominium) in Thailand is not complete unless the transfer of ownership is registered at the local land office. Also a long term land or ground lease, condominium or apartment unit must be registered at the local land office. Lawyer representation is not required, but recommended. The lawyer will make sure that the transfer or registration is properly registered and the property transfer fees and taxes are correctly calculated and paid by the responsible parties. We often save money for our clients and prevent costly mistakes when we represent them.

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