Land Lease Validity

[Krub]

Hi,

Assuming I have a registerred 30 years pre-paid land lease contract, in case of the lessor's death, are the inheritants bound by the lease contract conditions to me, the lessee ?

How can this case be provided for ?

Thanks

[Sumitr Man]

Section 569 Civil and Commercial Code of Thailand

A contract of hire of immovable property [land] is not extinguished by the transfer of the ownership of the property hired.

The transferee is entitled to the rights and is subject to the duties of the transferor towards the hirer.

Ordinarily, relying on the above section of the CCC, the death of the owner of the land (the Lessor) doesn't terminate the lease agreement and the Lessor's estate are bound to the Lessee in the same way as the Lessor was; provided that the lease agreement exceeds 3 years and has been lawfully registered at the land registration department (which, from your post, I understand to have been done).

On the other hand, it is generally accepted (and provided for in the CCC) that the death of the Lessee will terminate the lease agreement and the immovable property will revert back to the Lessor; which is to say, the estate of the Lessee will not benefit from any residual period remaining in the lease agreement.

SM

[Sunbelt Asia]

SM is correct.

I would add, also a possible problem lies in the extension of the lease. If the owner of the land has died, then the estate may not be bound to honor any extension with the lessee.

As for the current 30 year period,if it was done as a superficies, then it can be both transferable and transmissible by the way of inheritance.– A superficiary has the right to own, on or under the land, buildings, structures or plantations, but not the land itself. A renewable 30 – year maximum term applies. Further, a superficies is not extinguished by the destruction of the buildings, structures or plantations. The superficiary has the right to remove buildings, structures or plantations upon the expiry of the superficies, provided the owner of the land is first given the opportunity purchase them at market value. The land otherwise must be restored to its former condition prior to it return to the owner.

www.sunbeltasia.com

[Krub]

Thank you both SM and Sunbelt Asia for their replies

Is it possible to reister a second concurrent pre-paid 30 years lease to make it safer (I am 50 and not looking at much possibility to go over 110 but wish for over 80....) ?

In this case would the inheritants also be bound to the second lease terms ?

Thanks

[Sumitr Man]

Yes and no.

Confussion reigns due to the first and second paragraphs of Section 540 of the CCC, which read:

The duration of a hire of immovable property cannot exceed thirty years.  If it is made for a longer period, such period is to be reduced to thirty years.

The aforesaid period may be renewed, but it must not exceed thirty years from the time of renewal.

Now, it is clear that any land lease you try to register at the releveant land registration dept. for 60 years will be reduced to 30 years - para. one. Where it becomes unclear is where you try to register 2 x 30 year back-to-back leases. Some have argued that this can be done (i.e. the registration of 2 x 30 year leases back-to-back), others that it cannot. What is clear is that the Thai Supreme Court has held that you can register an option over the land, but not the fully paid-up lease. Moreover, in the cases where the land dept has accepted 2 x 30 year leases, the Revenue Dept has generally held that income of the entire 60 year period cannot be amotorized over 60 years, but rather over 30 years, because the second 30 year period is an option to renew once the first 30 year period has expired - which is to say, you can extend for a further 30 year period, but you need to wait until the first 30 year period has expired before excerising an option to renew of 30 years; thus, the revenue you receive can only be determined over the intial 30 years, not the 60.

As a result of the long-winded explanation above, and in part because the monies paid up-front for a lease cannot be clawed-back in the event of the Lessee's untimely demise, along with the fact that the Revenue Dept doesn't accept the concept of peppercorn rental payments (applying "market rate"), all mean that most elect not to try to register 2x30 year leases but rather to register a 30 year lease with the option to renew for an additional 30 years.

Sorry for the long-winded answer. Also, keep-in-mind that many interpret Section 540 in different ways, so it would not surprise me if someone else told you something completely different!

SM

[Sunbelt Asia]

Sm,

VERY good explanation and how our lawyers interpret the laws as well. Spot on answer in my opinion.

www.sunbeltasia.com

[Krub]

Yes and no.

Confussion reigns due to the first and second paragraphs of Section 540 of the CCC, which read:

The duration of a hire of immovable property cannot exceed thirty years.  If it is made for a longer period, such period is to be reduced to thirty years.

The aforesaid period may be renewed, but it must not exceed thirty years from the time of renewal.

Now, it is clear that any land lease you try to register at the releveant land registration dept. for 60 years will be reduced to 30 years - para. one. Where it becomes unclear is where you try to register 2 x 30 year back-to-back leases. Some have argued that this can be done (i.e. the registration of 2 x 30 year leases back-to-back), others that it cannot. What is clear is that the Thai Supreme Court has held that you can register an option over the land, but not the fully paid-up lease. Moreover, in the cases where the land dept has accepted 2 x 30 year leases, the Revenue Dept has generally held that income of the entire 60 year period cannot be amotorized over 60 years, but rather over 30 years, because the second 30 year period is an option to renew once the first 30 year period has expired - which is to say, you can extend for a further 30 year period, but you need to wait until the first 30 year period has expired before excerising an option to renew of 30 years; thus, the revenue you receive can only be determined over the intial 30 years, not the 60.

As a result of the long-winded explanation above, and in part because the monies paid up-front for a lease cannot be clawed-back in the event of the Lessee's untimely demise, along with the fact that the Revenue Dept doesn't accept the concept of peppercorn rental payments (applying "market rate"), all mean that most elect not to try to register 2x30 year leases but rather to register a 30 year lease with the option to renew for an additional 30 years.

Sorry for the long-winded answer. Also, keep-in-mind that many interpret Section 540 in different ways, so it would not surprise me if someone else told you something completely different!

SM

<{POST_SNAPBACK}>

Hi SM

Thank you very much for such quick and precise reply.

Is there any requirement to show actual transfer of funds between the lessee and the lessor according to the montary terms of the pre-paid 30 years lease contract upon registaration or later ?

The 'deal' in my case is that the lessor (my partner) will have full usage of the house I plan to build on the leased land.

Will there be any income taxes implications for the lessor ?

rgds

[Sumitr Man]

Yes - unfortunately legally your partner is required to disclose the income earnt from the reantal of the land in their annual income tax return form.

As I mentioned, the Revenue Dept. does not accept the concept of peppercorn rent - so if you have a peppercorn rental agreement, the Revenue Dept will super impose prevail "market rate". No one, that I'm aware of, knows what this rate is - it is determined on a case-by-case basis and no publication of the rates has ever been made available to me (although, to be fair, they may exist as an internal document within the Revenue Dept.).

Moving away from legal and into the world of practial life. You need to register the land lease agreement at the land dept. You should make sure the lease amount is for a market rate. Whether or not your partner than declares that income - and exactly how the Revenue Dept can possbly have the manpower to check up that every Thai taxpayer has submitted a correct tax filing - I'll leave to you to decide. Let's just say, your partner wouldn't be the first person to have forgotten she owned some land she rented out to some crazy farang...

But, if you want to stay within the law,the answer to your question is yes.

SM