30 Year Lease Legal Issues

[phuketkenny]

I am new here so most likely this may have been covered before but I can not find the exact issue in the older forums.

I recently read this on the Hua Hin Black Mountain web site where they are selling new condos and homes:

"Today, most houses are being acquired with leasehold right, so-called land lease. A land lease means the buyer signs a lease contract with the owner of the land, through which the landowner grants leasehold right for 30 years to the person who is to build and utilize the house. Normally, extensions for two additional 30-year periods are promised at a predetermined price that is often paid at the time of signing the contract. The problem with this way of buying a home is that the extensions of the contract are not enforceable by a court in the case that the owner has passed away or gone bankrupt. Similarly, according to Thai law, it is not possible to pay in advance for the additional extensions of the contract. Yet another limitation is that the leasehold right will not be passed on to the heirs of the deceased."

What I would like to see confirmed or denied here; is all of this, or part of this, true or is it just part of their ( BMG) sales hype?

I own a place in Phuket and the sale contract had me paying for the two renewals as part of the sale price.

I doubt I would go to court over the payment and I am more concerned over the renewal, given no issues of death or bankruptcy since the lease holder is a very large Thai publicly traded Company.

The lawyers who checked out the deal, a reputable firm, McKelvey & Collins, assured me the contract could be renewed, ( this was in 2003 ), however I have since seen a statement in the press from Marcus Collins contradicting this issue and declaring the renewal can not be enforced.

I was also assured of the right of an heir to take the title, which is contradicted here.

Any insight from legal minds or experience is appreciated.

[donx]

My advise is for you to first read through the following thread:

30+30+30 Year Lease

I know it's a long thread, but I believe it has the information you are seeking.

My understanding of the situation is that only the first 30 years are legally binding. The first 30 year lease can be passed on to your heirs, but the extensions can't (since they aren't even legally binding in the first place). Again the extension "could" be adhered to by the leasor. It's just that they are not legally required to adhere to the agreement. And if the land is sold to someone else, only the first 30 year lease is enforceable. Once that time period is over, the current landlord doesn't have to abide by any agreements made by the original landlord.

[phuketkenny]

My advise is for you to first read through the following thread:

30+30+30 Year Lease

I know it's a long thread, but I believe it has the information you are seeking.

My understanding of the situation is that only the first 30 years are legally binding. The first 30 year lease can be passed on to your heirs, but the extensions can't (since they aren't even legally binding in the first place). Again the extension "could" be adhered to by the leasor. It's just that they are not legally required to adhere to the agreement. And if the land is sold to someone else, only the first 30 year lease is enforceable. Once that time period is over, the current landlord doesn't have to abide by any agreements made by the original landlord.

[jcowle]

On this subject, can some one explain what the cost are for setting up a lease and what sort of rent would have to be paid. Is this rental paid monthly, yearly or as a one off fee. If the the land is owned by your partner does an official rent still have to be shown to be paid.

Thank you up front for any answers.

Regards

JOHN

[Khun Jean]

The cost for setting up a lease can be anything starting from few thousand baht, depends strongly how much your lawyer charges.

When land is for sale and a lease is taken because you can not own directly it is normal practice to pay the price what you normally would have paid to buy it, thus full amount in 1 time.

When land is for lease often 3 year leases are used, this has the advantage for the owner that it does not need to be registered. Good for the owner, not so good for the one who leases!

If you lease land you would want a lease that is as long as possible. In Thailand that is 30 years. These 30 years has to be sufficient for what you want to do.

Renewals are difficult and i make it clear, very expensive, expect to pay at least the same amount you paid for the first 30 years, anything less is fooling yourself. And to be on the sure sidde calculate to pay at least 5-10 times as much. This means you should save at least 1/6 of what you paid for the first 30 years EVERY year. At the end of the first 30 year you will have money enough for the renewal.

The law does not allow to make a clause for a renewal with a low price. It should be a market price.

Considering this, in my opinion a lease of land is only interesting if you do business and can make money in those 30 years. Then it is just an investment with a return. If the return is high enough go for it.

When it is for residential purposes be sure to have a clause you can transfer the remainder of the lease. Transfering renewals is impossible and have to be negotiated between the new leaser and the owner.

Keep in mind that your lease is worth less and less every year to a buyer, maybe in a very good area the prices rises can keep up with the speed that the value of the lease deprecates.

A usufruct is interesting because you can actually have that for a possibly longer period, meaning as long as you live. Problem is that it is on your name and transfering it will be difficult. Meaning, you 'buy' it but you can't sell.

When you have a Thai spouse both a lease and usufruct are not 'safe'. Anything made between spouses after marriage can be dissolved. This does not always mean you loose everything but be prepared for a long battle and a good change you will not get your investment back.

So, what to do. Well you can rent or buy a condo. That way you know what you get and can not be taken to the cleaners so to say.

A usufruct opens some possibilities. For instance if you take a usufruct directly from the owner you are guaranteed for then length of your live. Be sure to have a clause you can sub lease otherwise you are stuck with it.

If you have a Thai spouse this would be difficult because you would be giving a lot of money to a stranger and when you die there will be nothing left for the spouse in the form of real ownership. 'Selling' this construction to your spouse will be difficult.

Another solution with a usufruct is to include somebody you trust and who preferably has a good change to outlive you. In that case the usufruct is not only to you but also to a 'third party'. If you and your spouse get into a bad relation the spouse can not dissolve the usufruct because of this 'third party'.

Now, to close it, be aware that people will not always agree with what i stated. challenge them to prove their reasoning. There is no precedence in Thailand so previous court orders are not binding.

In the last 6 years i did a lot of research on this subject and the above is what i found out requesting information from a lot of different lawyers. Unfortunately the options i stated are not really 'sellers'. So lawyers, agents and developers will continue to try to sell other options that have no legal backing and will leave you in great troubles when you are 30 years older than now.

For instance, this weekend there will be a large show in the Netherlands of owning second houses. I read some of the brochures about owning in Thailand and again these lease constructions are mentioned like they are legal, binding, guaranteed and tested. They of course are not but they sure sound good.

If you need something specific shoot me a pm. Experience tells me that if a topic gets to big the more nonsense is mentioned.

[jcowle]

[

Hi Khun Jean

Many thanks for the usefull feedback, I may well contact you later if that would be ok.

Regards

JOHN

[ballbreaker]

Rather than a 30 year lease my lawyer recommended "end of life" lease. Its recorded as such on the title deed.

[Burgernev]

Rather than a 30 year lease my lawyer recommended "end of life" lease. Its recorded as such on the title deed.

There's no such thing, maybe a 'lifetime Usufruct' ?

[Digger]

The cost for setting up a lease can be anything starting from few thousand baht, depends strongly how much your lawyer charges.

When land is for sale and a lease is taken because you can not own directly it is normal practice to pay the price what you normally would have paid to buy it, thus full amount in 1 time.

When land is for lease often 3 year leases are used, this has the advantage for the owner that it does not need to be registered. Good for the owner, not so good for the one who leases!

If you lease land you would want a lease that is as long as possible. In Thailand that is 30 years. These 30 years has to be sufficient for what you want to do.

Renewals are difficult and i make it clear, very expensive, expect to pay at least the same amount you paid for the first 30 years, anything less is fooling yourself. And to be on the sure sidde calculate to pay at least 5-10 times as much. This means you should save at least 1/6 of what you paid for the first 30 years EVERY year. At the end of the first 30 year you will have money enough for the renewal.

The law does not allow to make a clause for a renewal with a low price. It should be a market price.

Considering this, in my opinion a lease of land is only interesting if you do business and can make money in those 30 years. Then it is just an investment with a return. If the return is high enough go for it.

When it is for residential purposes be sure to have a clause you can transfer the remainder of the lease. Transfering renewals is impossible and have to be negotiated between the new leaser and the owner.

Keep in mind that your lease is worth less and less every year to a buyer, maybe in a very good area the prices rises can keep up with the speed that the value of the lease deprecates.

A usufruct is interesting because you can actually have that for a possibly longer period, meaning as long as you live. Problem is that it is on your name and transfering it will be difficult. Meaning, you 'buy' it but you can't sell.

When you have a Thai spouse both a lease and usufruct are not 'safe'. Anything made between spouses after marriage can be dissolved. This does not always mean you loose everything but be prepared for a long battle and a good change you will not get your investment back.

So, what to do. Well you can rent or buy a condo. That way you know what you get and can not be taken to the cleaners so to say.

A usufruct opens some possibilities. For instance if you take a usufruct directly from the owner you are guaranteed for then length of your live. Be sure to have a clause you can sub lease otherwise you are stuck with it.

If you have a Thai spouse this would be difficult because you would be giving a lot of money to a stranger and when you die there will be nothing left for the spouse in the form of real ownership. 'Selling' this construction to your spouse will be difficult.

Another solution with a usufruct is to include somebody you trust and who preferably has a good change to outlive you. In that case the usufruct is not only to you but also to a 'third party'. If you and your spouse get into a bad relation the spouse can not dissolve the usufruct because of this 'third party'.

Now, to close it, be aware that people will not always agree with what i stated. challenge them to prove their reasoning. There is no precedence in Thailand so previous court orders are not binding.

In the last 6 years i did a lot of research on this subject and the above is what i found out requesting information from a lot of different lawyers. Unfortunately the options i stated are not really 'sellers'. So lawyers, agents and developers will continue to try to sell other options that have no legal backing and will leave you in great troubles when you are 30 years older than now.

For instance, this weekend there will be a large show in the Netherlands of owning second houses. I read some of the brochures about owning in Thailand and again these lease constructions are mentioned like they are legal, binding, guaranteed and tested. They of course are not but they sure sound good.

If you need something specific shoot me a pm. Experience tells me that if a topic gets to big the more nonsense is mentioned.

Have you ever looked at contract law in Thailand as opposed to land law? A contract between 2 legal entities is I believe enforceable purely under contract law however that assumes the contracting company is still trading in 30 years I would guess. The idea being that two companies contract together for e.g. 3 X 30 year leases with caveats in place that cover costs of renewing leases etc. As I say though I have never done this just discussed it with some top end corporate lawyers (the $500 an hour guys) and they suggested it as the most watertight deal - however we all remember the Titanic so I remain somewhat cynical.

[johnnyk]

that assumes the contracting company is still trading in 30 years I would guess

pretty big assumption, don't you think? because people charge $500/hour doesn't change this.

all the owners have to do is sell/will the land to another party and its game over as the successor has no obligation to honour anything other than the first lease.

i also doubt anyone will agree to a selling price to be effective 30 years down the road, unless its payable in advance and factors in the possible prices 30 yrs from now. most likely you get the right to "negotiate" three decades from now and at market prices in the year 2038.

rather than trying to make silk purses i think falangs should simply count on 30 years and anything else is up in the air.

chok dee.

Edited October 10, 2008 by johnnyk

[Khun Jean]

i also doubt anyone will agree to a selling price to be effective 30 years down the road, unless its payable in advance and factors in the possible prices 30 yrs from now.

This will actually be ignored, as it is a clause that is not allowed.

You can actually write in a contract that the lease period is 90 years, but only 30 will be registered. People (laywers, agents and developers) are always finding ways to make this 30 years longer. It is impossible and they now very well that 30 years is not long enough for most people. Nobody want to be thrown out when they are in their 70's, 80's or 90's.

In Samui i have seen good running businesses varying from resorts to small restaurants closing down because their 3 year or even 10 year lease was finished and it was time to renew it. The new price and keymoney was so high that it was not feasable and most of the times the money was not even there to continue. Can you imagine the prise rise in the last 10 years in Samui? From 1 million keymoney and 10.000 a month (10 years ago) to 50 million keymoney and 150.000 baht a month now.

This renewal option is the biggest unknown and false feeling of safety and it can ruin your live it you don't know exactly what will happen once it is renewal time. And it is not only a problem for 'owning' a piece of land for your house but equally damaging for businesses.

Get the 30 years, do your thing and then move on, then you will be alright. If someone said the renewals are 'no ploblem' , he was actually meaning it is not his problem.

Edited October 11, 2008 by Khun Jean

[Burgernev]

I've always said the best policy may be to offer to buy a new 30 year lease term, every say 10 years, for an agreeable fee to both parties. People say they do not need to as they have 30+30+30

Take an average 3 bed pool villa in Hua Hin, cost 5M, 25k a month rent. After 10 years a Thai landowner would bite your hand off (rather than have to wait another 20 years) if offered 500k to issue a new 30 year lease. Those extra 10 years saves you 3M in rent at current rates.

No brainer to me, everyone's a winner.

Taking it on a step, a corporation comes into town and buys up all the leased land, then says to you "sorry your additional 30+30 is dead", you can have rolling renewals with us every 10 years for 500k or it's 10M to extend when your 30 years are up. What do you do ?

Burgernev

Edited October 11, 2008 by Burgernev