Lease Agreements

[andy capp]

Hello to you all,ive been browsing this excellant site for a few months now,im wondering if i can have your thoughts and comments,thanks in advance,Andy.Im negotiating a lease agreement for a restaurant/bar on Samui.Its for six years in total but the landlord will only make a three year plus three year contract,I have to pay 60% keymoney now and the other 40% in two years.The contract clearly states i will remain as leesee for the following three years with no furthur payment required.My lawyer tells me this is to save on tax for the landlord and there will be no problem.Samui being a small island im sure he knows my potential landlord better than i do!.I understand i cant registor this lease with the land office as its less than five years.Has anybody been through this?I will be in Bangkok next week and am considering getting a second opinion with a different lawyer, I appreciate all your replies.

[Sumitr Man]

Andy:

I suggest you ask your lawyer to talk you through the implications/ramifications of Section 538 of the Civil and Commercial Code of Thailand.

For your information, Section 538 reads as follows:

A hire of immovable property [restaurant]is not enforceable by action unless there be some written evidence signed by the party liable.  If the hire is for more than three years, or for the life of the letter or hirer, it is only enforceable for three years unless it is made in writing and registered with the competent official.

So, my guess is that your landlord won't be paying any tax

Notwithstanding this, important to the deal is Section 544, which reads as follows:

Unless otherwise provided by the contract of hire, a hirer cannot sublet or transfer his rights in whole or part of the property hired to a third person.

If a hirer acts contrary to this provision, the letter may terminate the contract.

Therefore, in any contract you sign with the landlord, you should insist that an undertaking and representation be given to you that the person renting the property to you is the lawful owner of the property; or, if they are themselves a tenant, that the lease agreement they have allows them the right to sub-lease the property, failing which, you may find the lease agreement is terminated.

Do keep in mind though that even if the agreements says it is for 6 years, split over two 3 years periods, if it is not registered with the competent official, it may not be enforceable (at least, the second part may not be). This would certainly be something I would want to double-check with a reputable lawyer (preferably someone who did not know the landlord well ).

Tehrefore, subject to discussions you have with your lawyer, it may be advisable to negotiate that you only pay for the first 3 years - with payment for the second 3 years being on the day of renewal of the contract (with, possibly, an option fee of 10% included in the intial contract).

SM

Edited April 12, 2005 by Sumitr Man

[andy capp]

Thanks for your thoughts Sumitr man.The property is a sub let but ive spoken to the land owner and theres no problem sub letting.Ive also seen the contract which allows my potential landlord to sub let.Unfortunetly ive had all the negotiations and this is the best i can get,half now,half later would be great but i dont think i have a chance,its a prime location and i know hes had other offers,im not going to rush things but i think i will get a second opinion from a different lawyer.Any recommendations??As i said i will be in Bangkok next week,do sunbelt have farang lawyers?Anyone else got any opinions?Thanks fellas.

[Sumitr Man]

Sunbelt would be a VERY GOOD option/idea. I know from talking with them that they recently had dealings down your way (around New Year), so they not only have expertise, but independent expert local expertise.

If I were you, I'd give them a call when you're up here. After all, the most you can lose is the 3B phone charge

Anyhow, feel free to PM (I don't access the email) me if you think I might be able to help you with anything and Happy Songkran to you and your loved ones.

SM

[Khun Jean]

As sumitrman says, if it is not registered it is not enforcable.

Go in with the mindset that you rent it for 3 years, after that new negotiations.

If the owner is true to his word all the better.

Keymoney is a form of rent in advance, get a receipt. I doubt you'll get one, so it goes straight into his pocket, no taxes paid. Any lease longer than 3 years should be registered. That is why everybody offer only 3 years, again no tax to be paid.

You can write whatever you want in a contract for an extension of the lease, if push comes to shove, you'll loose. Unfortunately everybody excepts this.

btw there are prime locations without keymoney and longer official registered leases. If you are going to invest a large sum of money it is a much more comforting situation.

If you are very successful in 3 years, expect a raise in the rent price and a large increase in keymoney. After all, the owner wants all your profit without taking the risks. (Except the good ones of course).

[andy capp]

Thanks alot for your advice Sumitr man and Khun Jean,i appreciate your time.I will give sunbelt a call after the holiday.Best wishes to you both for songkran.Andy.