What Happens To Your Long Lease When You Die? Part Iii:

[george]

WHAT HAPPENS TO YOUR LONG LEASE WHEN YOU DIE? Part III:

Writer: By James Finch and Nilobon Tangprasit

This continues our discussion of what happens to long leases on land in Thailand when the tenant dies, and how the tenant should protect themselves against the tenancy being cut off when the tenant dies.

There are a few points that should be mentioned about long leases. First, you should make sure that the lease itself, and not just a synopsis, is registered at the land office. The short synopsis that is used when the lease is not registered does not include provisions such as the fact that the parties intend the tenants' heirs to succeed to the lease if the tenant dies.

If what you signed was in English only, it won't have been registered at the land office, and no lease is valid beyond three years unless it is registered there. Your lease can be registered in both Thai and your native language in alternating paragraphs, but the Thai paragraphs must be there for it to be registered.

If you already have a long lease, and only the synopsis was registered, you should go to your landlord and ask him or her to execute a complete lease in Thai and English that contains the above provision and then register it at the land office. You'll have to pay more taxes, but doing so will mean that your heirs will get your lease, not your landlord.

Second, you should have a will in Thailand, to designate who your heirs are. Although Thailand allows foreign-probated wills to be enforced here, we've found that in practice it isn't all that easy to get done. Better to execute a short will here covering only your assets in Thailand.

Third, since foreigners can own houses, only not land, you should not lease the house, just the land. You can and should register your ownership of the house separately.

Several readers have asked why long leases can only be for 30 years. Why not 50 or 99? The answer lies in Section 540 of the Civil and Commercial Code of Thailand, which provides that a lease for land cannot be longer than 30 years, and if it provides for more, it will be reduced to 30 years.

But there's another provision relating to leases, Section 541, which allows a lease to be for the life of the tenant. Could, in practice, this be longer than 30 years?

Of course. Let's look at the example we used last week. Let's say you and your wife are in your seventies and are not citizens of Thailand. Your three grandchildren are citizens of countries other than Thailand. The eldest is 21, and they're living all over the globe. You'll put the lease in your name, your wife's name and that of each of your grandchildren as joint tenants for the duration of the lives of each.

Statistically, it's practically certain that one of your grandchildren will live to be at least your age. This would mean that although the lease doesn't mention a finite period, it will last at least another 50 years. As one or more of the joint tenants die off, those remaining will simply take it over.

The small difficulties of having several tenants mentioned last week will also apply to a lease like this, but these can be worked out. Also, to our knowledge, using Section 541 in this manner has been, to date, seldom if ever used. We have had recent conversations with officials of the Office of Land Registry Standard, Department of Land, however, who have told us that doing so is acceptable under the laws of Thailand and applicable ministerial regulations.

So, this is an option you will want to consider having your lawyer do - include members of the next generation of your family in the long lease of your land in Thailand, and make the lease for the duration of the lives of all joint tenants. The lease will last as long as those in the next generation do, and this could be a lot longer than 30 years.

James Finch of Chavalit Finch and Partners ([email protected]) and Nilobon Tangprasit of Siam City Law Offices Ltd ([email protected])

For more information visit http://www.chavalitfinchlaw.com.

Comments? Questions? Contact us at the email addresses above.

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PREVIOUS ARTICLES IN SERIES:

Part 2: How to fix the problem

Writer: By James Finch & Nilobon Tangprasit

You'll recall that last time we concluded that to avoid losing a long lease on a house or a condominium you should do two things:

Have the lease provide that if the tenant dies the lease will go to his or her heirs; and,

have more than one tenant, so that if one tenant dies, there will be an additional tenant to continue with the lease.

Let's continue with our discussion of leases and succession. First, who should the additional tenants be?

For starters, if you are married, you might make your spouse a tenant. But what about those in the next generation? Since it is likely that they will die long after you, your children and grandchildren are good candidates for co-tenants.

We are talking here, by the way, about when you have a foreign spouse. If your spouse is Thai, this is a different matter, and it will be the subject of a future column.

Let's take an example. Let's say you and your spouse are both in your mid-seventies and have moved to Thailand to retire. You're considering entering into a 30-year lease for land in a development and building a house on it. You have two children, one living in Australia and the other in England. They are both married and you have three grandchildren, between the ages of 12 and 21.

You could have your spouse, your children and your grandchildren sign the lease as co-tenants. There are two advantages to this. First, if you die, the lease automatically goes to the others on the lease. Because of their ages and diverse geographical locations, it is likely that at least one of your family members will live for the entire 30 years of the lease, and that it therefore won't go back to the landlord.

Second, if your heirs inherit by being co-tenants, there won't be any property taxes and fees in Thailand, as there would if they weren't co-tenants but just inherited your interest and then had to register their names as tenants at the land office. To give you a rough idea, these fees and taxes would run about 1.1% of the calculated value of the annual rent multiplied by the number of years remaining on the lease.

There are a couple of things, though, to keep in mind if you are going to put all of these people on the lease:

You will need their signatures on the lease, either by having them in Thailand at the time the lease is registered at the land office, or by power of attorney, signed while they are in Thailand or at a Thai consulate outside. The power must be in the form used by the land office, in the Thai language only. The land office will, moreover, require the power of attorney to have been executed within a few months of the date of the execution of the lease, if it has been signed in Thailand. If the power of attorney is executed outside of Thailand at a consulate, the consular officials won't legalise it unless it is complete, including the date, in the Thai language. This may, of course, create logistical difficulties.

If any of your tenants are below the age of 20, the age of majority in Thailand, a court order will be required to transfer the lease if you wish to transfer the lease to another tenant. Although this is possible to get, it will involve time and expense. You should, therefore, only have children under 20 on the lease if you are reasonably sure there will not be a need to transfer the lease before they reach the age of majority.

In light of the above, you may want to limit those signing the lease to a few relatives only _ those such as your spouse who will really use it right after you die, and one or two youngsters who will ensure that the lease will continue for its full term.

Next time we'll discuss some refinements on your lease and the possibility of getting more than 30 years.

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Part I: How to prepare for the problem

Writer: By James Finch and Nilobon Tangprasit

Lately we have been contacted by a number of expats who are worried about the status of their long leases in Thailand, in connection with their estates. Although we've touched lightly on this subject before, we think it worthwhile for us to have a slightly more in-depth discussion of this issue.

Many foreigners in Thailand have built houses on leased land, because under Thai law only Thai citizens and Thai companies can own land. Also, some foreigners live in condominiums on a long-lease basis because only 49% of the usable space in a condo building can be owned by foreigners, and this may already have been taken at the time a foreign buyer acquires his or her interest. In other cases the developer may have wanted to save the 49% for later buyers, because freehold condos are easier to sell than leased ones. And foreign customers are not always aware that they can own condominiums rather than just lease.

What happens to one of these leases if the tenant dies, however, and what's the best way to make sure the tenant is protected?

Under Section 1600 of the Civil and Commercial Code of Thailand, certain rights are not automatically contained in the estate of someone who has died; they are purely personal to him or her. The rights of a tenant are an example of such a purely personal asset. Thus the Thai Supreme Court has ruled that if a tenant dies during the term of his or her lease, and the lease does not provide otherwise, the tenants rights are extinguished. If there's only one tenant, these rights revert to the landlord (Supreme Court decision No 100/2531).

Here's an example of how this would work. Let's say you are the sole lessee of land from a developer for 30 years, and the developer built a house on it for you. Most leases with foreigners in Thailand make no provision for the tenant's death, so let's say your lease doesn't. You die after two years of the lease of elapsed. What happens?

The lease goes back to the landlord.

Unfair? Maybe, but that's the law.

How do you prevent this from happening? There are two answers.

First, Section 544 of the Civil and Commercial Code provides that a lease may be assigned to another person if the lease itself contains a provision that it may be assigned. Of course, agreeing to assignment between living people is not exactly the same as agreeing that an interest may go to an estate. And this issue has not been decided by the Supreme Court. Most legal commentators believe, however, that if the lease contains a provision giving the rights under the lease to the tenant's heirs, if the tenant dies during the term of the lease, that this would be upheld in court.

And that's step one - make sure your lease contains language to the effect that your heirs succeed to the lease if you die during its term.

Second, have more than one person sign as tenant. The Supreme Court has ruled that if there is more than one tenant, the death of one of them doesn't terminate the lease. What is terminated is that mentioned above - the rights of the tenant who has died. This is because these rights are purely personal and don't automatically become part of the deceased's estate. The other tenant still has their own personal rights in the lease and can continue on with it.

So step two is that you should have more than one tenant.

People always ask us which of the above options is better. In fact, you should have both, to make sure the lease is not lost.

The above is the short version of answers to some common questions on the issue of long leases and estates. In the near future we will go into more depth on these questions and long-term solutions.

-- chavalitfinchlaw.com

[thaiwanderer]

Interesting articles, as one size rarely fits all.

Whilst the thread relates to 'what happens to the lease when you die' your own use and enjoyment of the land cannot be entirely discounted, if it were to avoid the problem just give the lease or better yet the money to your kids and not benefit yourself at all.

Whilst statistically having the lease in an offspring's name might be a better bet for enjoying the property for the remainder of your life and preserving the investment somewhat for them there is also a risk that the perhaps more immediate concern (of having a home in your own old age) could be endangered by their death or a family dispute. Of course there is no entirely attractive and risk free option.

IMHO the use of an offshore company would provide a more workable solution both for your own use and inheritance issues.

Presumably Section 541 applies only to the life of natural persons, if it aplied to the 'life' of a company then the golden key would have been found.

But using an offshore company as the lessee with the freehold (and the power to ensure lease renewals) held by an appropriate Thai company would IMHO offer the best protection in most situations.

Edited August 23, 2009 by thaiwanderer

[ThaiLawOnline]

With respect to my Colleague, I disagree with his interpretation of 540 and 541. It is perfectly normal for lawyers to disagree and what is more important, is to explain WHY and have arguments about it. Law can be complicated, especially when people are based in a country with a different culture, backgrounds and language. I do not answer often on forums and someone pointed at me that topic. I think it's important for people to be aware that most Lawyers working in that field, do believe the limit is 30 years, with an option to renew.

We believe at Isaan Lawyers that what our colleague wrote about 540 and 541 is against simple and basic "Interpretation rules" of Civil Law for the following reasons:

The first interpretation rule in civil law (an unwritten rule sometimes codified in some jurisdiction) is that if a text is CLEAR, you don't need to interpret it. A Court of Law will use the LITERAL MEANING.

Clause 540 refers to IMMOVABLE PROPERTY and clearly puts a "30 years" as maximum. In case of conflict with another article of the civil code, the first rule is to use the text.

Clause 541 is NOT restricted to immovable property. As you know, you can lease anything: a car, a chainsaw, etc.

Property is a large concept. In Civil Law, it refers to subdivisions like movable (a chair), immovable (land), or personal rights (over a person, like a loan), real rights (usufruct, ownership, emphyteusis leases, contracts following THINGS), intellectual rights, etc.

Another important rule of interpretation in Civil Law is that a SPECIFIC clause should supersede (be on top of) a GENERAL one. Clause 541 is general to all hire of property. Clause 540 is more specific and refers to “immovable property” only.

There are numerous Supreme Court judgments about leases and registration of them. If someone shows me a decision of the supreme Court validating a lease of more than 30 years on immovable property, then, I will change my mind!

I also do believe (can't remember exactly where I saw it) that Land for industrial or commercial purposes can be leased for up to 50 years by a foreign company but these are specific dispositions and used for only special occasions. Most important is to think about a renewal clause and how to draft it.

For more information, we made a website called www.thailawonline.com

Sebastian H. Brousseau, LLB, BSc.

Managing Director of Isaan Lawyers.

[stgrhe]

Its good of you Sebastien to clarify your view on the subject matter.

It seems there is an endless flow of 'smart' solutions in finding loop-holes in the law with regards to the ownership problem of land by foreigners here in Thailand. These 'inventions' might in the end of the day actually jeopardise the investments made by the foreigners rather than helping them to find a proper and safe way of protecting their investments.

We need more of your kinds here in Thailand Sebastien.

[quiksilva]

The 50 year commercial lease does indeed exist although is rarely used even in commercial practice.

The' lease for life' (which is quite distinct to an usufruct) has raised some eyebrows in local real estate circles. I agree with Sebastian's interpretation on the s541 clause, which seems to be related to personal property (aka chattels), as opposed to immovable property, which is sometimes known as real property. (from which real estate is derived).

Most importantly is that these types of interpretations has led to what could become a much bigger problem, see the Bangkok Post today, where the researchers have found that many leases are unusually long, and there are many leases for life.

http://www.bangkokpost.com/news/local/2257...uket-beach-land

In some land lease cases, the period of leasehold was unusually long, Ms Siriporn said. The study found that some lease contracts stated the leasehold was "for life".

An article which also questions the validity of Thai spouses buying land for foreign husbands, as well as questioning the US's financial support to the Hmong people who grow rice for sale to the US

[chiangmaibruce]

Isaan Lawyers - Ditto re: thanks for offering your valuable perspective on this issue

Quicksilva - Thanks for mentioned that Bangkok Post article. This issue (farang snatching land from thais) just goes on and on without a hint of tangible evidence. Particularly telling was the number (and intensity) of reader replies that have already been tacked onto the end of the story. Looks like a lot of foreigners are getting very fed up with this drivel being printed.

Edited August 24, 2009 by chiangmaibruce

[SHYTALK]

The answer to this mess is quite simple.

Go buy land and property in another country.

Leave it with em.