Use Of Nominee Companies To Buy Property Is "against The Spirit Of The Law"

[churchill]

Even though it is not possible for a foreigner to secure direct freehold title of land in the Kingdom of Thailand, buying a property in the name of a shell company made up of nominee shareholders is a common way to make such an acquisition. Yet, the ease at which overseas buyers can apparently circumvent the law has always been contentious.

Kert Stavorn, managing partner, Siam Legal, told Property Report, “The question of using nominee companies for the purpose of buying property has been around for years. The practice appears to have been tolerated by the authorities, but technically, nominees aren´t recognized under the law.”

Most would-be foreign buyers are made aware of the situation, but with the practice so widespread, the method of using shell companies has virtually become the norm.

Dr. Sopon Pornchokchai, managing director, Agency for Real Estate Affairs, said, “Nominee companies have almost become quasi-legal; that is to say that although they clearly go against the spirit of the law, there has been such lax enforcement over the years, the situation has been allowed to persist.”

Still, there is growing concern that foreigners may use nominee companies to buy up large swathes of property in rural locations where land is currently very inexpensive. As the economy picks up and land prices start to appreciate, protecting locals from very sharp property price increases has come back onto the agenda again.

Stavorn said, “In a move to tighten up on the practice, the government last year required all shareholders to show that they have real funds. Although this is not a change in legislation par say, it essentially forms a land office notice that the law will be more strictly enforced.”

News has recently appeared that additional moves by the government could be on the way. The Bangkok Post reported in Oct 2009 that the Department of Business Development, in conjunction with the Department of Special Investigation, the Lands Department and Provincial Governors, was preparing to commence more widespread checks on suspected nominee companies following spot checks during 2008.

Stavorn said, “For those looking to buy a property, the best risk vs. reward scenario is to buy it leasehold, which will definitely secure 30 years.”

Leases are freely assignable and so a leasehold property can certainly be resold on the same basis.

“As for renewing a lease you certainly can write an option to renew for another 30 years into the contract. The only area requiring some attention is if the lessor passes away since, under civil law, the contract will have technically formed a personal obligation. There is growing acceptance that this obligation would be assignable to a successor but it is hard to find enough legal precedent currently.” Stavorn said.

Whilst a leasehold arrangement may seem less palatable as compared to apparent freehold ownership under a nominee company structure, it would certainly seem a much safer option given the scrutiny that these dormant entities are currently receiving.

“If you keep your expectations to the original 30 year period then this would be the best stance to take.” Stavorn added.

For foreign developers looking to purchase land or property for development using nominee companies the position could be more precarious since property development is not permitted under the FBA. Nominee status could be used as a supporting element or even the reason for initiating any action.

“For someone who simply holds a personal property already using a company with nominees, I think it would not be necessary to be overly concerned. Although there are reports from time to time that ultimately owners could face forced sale or even confiscation of their property, it would be difficult for the government to do this in practice, and simply would not be practical.” Stavorn said.

One way to proceed is to consider a restructuring of the company by replacing the nominees with real individuals and/or have the company engage in a business under the FBA so that it is active and not in place solely as a means to secure a property for the owner.

“The only problem of replacing nominees with real shareholders might be a co-mingling of assets with the legitimate partners, but otherwise this type of structure would be good in the eyes of the law.” Stavorn said.

Properties that are truly available to foreigners on a direct freehold basis are condominium units, but these must be within an allocated quota, which currently remains at 49 per cent of the space in a given project. Relaxing the quotas could reduce the need for nominee companies in these developments.

Stavorn said, “For condominiums, removing the limitation of foreign ownership of units wouldn’t encroach on the spirit of the land code. Condominiums are already at the mercy of the free market and there is no land ownership, only air space.”

Indeed the government did provide up to 100 per cent foreign ownership of condominium units in projects that were built within a qualifying land area under a temporary stimulus package after the Asian Financial Crisis.

Others have called for the government to be more creative to help owners and prospective buyers who are considering their options. At the end of October 2009, the Joint Foreign Chambers of Commerce in Thailand presented a paper to the government detailing reasons to extend current leasehold periods. The JFCCT also highlighted how simple the process could be.

“If the government does get serious they should offer an alternative such as changing the company structure into a long term lease of, for example, 50 years. It would also be a good move to reform the laws to provide leases of similar lengths for new buyers too.” Pornchokchai said.

A final option could be to allow freehold ownership of land, but only in certain designated zones such as those areas that have already been developed with foreigners in mind. This would legitimise foreign freehold ownership in those areas whilst at the same time help the local economies.

http://www.property-report.com/property-ne...amp;date=031209

[thaiwanderer]

Even a cursory consideration of most nominee structures would show they offend the letter of the law as well as the spirit.

That the practice of using nominee companies is widespread is not because the laws themselves are ineffecitive / easily circumvented its more to do with the lack of enforcement.

That points to much wider issues.

[trogers]

Even a cursory consideration of most nominee structures would show they offend the letter of the law as well as the spirit.

That the practice of using nominee companies is widespread is not because the laws themselves are ineffecitive / easily circumvented its more to do with the lack of enforcement.

That points to much wider issues.

Is an attempt to circumvent a law an unlawful act in itself?

[backsoon]

Even a cursory consideration of most nominee structures would show they offend the letter of the law as well as the spirit.

That the practice of using nominee companies is widespread is not because the laws themselves are ineffecitive / easily circumvented its more to do with the lack of enforcement.

That points to much wider issues.

Is an attempt to circumvent a law an unlawful act in itself?

Not if you use legally correct procedures. This is the difference between avoidance and evasion. But you must make sure that the person enforcing the law knows the difference.

Speaking of 'The Spirit of the Law',- there are good laws, bad laws and non enforsable laws. The one universal quality of any law in any country is that it is THE LATTER that counts. Laws have no SPIRIT, unless you live in a society where the laws are open to arbitrary interpretations.

[backsoon]

Beg your pardon, I meant LETTER, of course.