How Safe Is 30 Year Lease And Is It An Option For Me

[OKF]

Hi @ all

I am foreigner and I own land via my company. Not to do things illegal I am now thinking of 'selling' the land from my company to a Thai person which is not a spouse or similar (I trust the person and do not want to discuss that issue here) and lease it it back so I can built a house on MY name on the land. From what I understand the 30 year lease would be fairly safe. Because I ma like to use the land after period what could I do to make more or less sure that that I cance continue the lease?

1. Is it a good idea accepting that the person is trustworthy

2. Is the thirty year lease safe?

3. If into the lease contract I incorporate that the building if the contract is not renewed will have to be paid for by the owner of the land at time value would that help to decrease my risk of looding to much or everything

4. In addition to 2. does i make sense to agree on a 60 or 90 year lease (which from what I understand makes only sense so after 30 years there is no further payment due but does not give you any rights)

I am asking that because the new owner may die and some family may inherrit and may have funny ideas about the property after the 30 years.

All I want to know how I can get max protection if give my property away. How do I do it right under the described scenario. Thank for your input and advice!

Edited February 8, 2010 by OKF

[bellagrego]

I have researched your issues as well as paid for legal advice on the same issues. My opinion, based on that is that any investment here in Thailand is a gamble and that there is no safe haven nor instruments of paper that will protect you, your property or your Thai company. The political system and the laws are in constant flux without clarity nor direction and not likely to change. As far as trust of a nominee, I think that is completely out of the question. My personal real estate, buildings and property here are a write off and I have accepted that should my relationship here deteriorate and I depart Thailand. Good luck, be prudent , be careful, and forget about recouping any money.

[chiangmaibruce]

As you have been a member of Thaivisa for 2 years I assume you have scanned the threads and have an understanding of just how complex this issue is, and just how much uncertainty remains regarding the various options now potentially open to you. If you haven't read the many and varied earlier threads then you really need to set aside some time to do that ... I would also suggest you consider getting hold of my book "Your Investment Guide to Thailand" by Silkworm Books as this provides a general overview of all the main options.

By this stage you will be in a position to have an informed discussion with a competent lawyer (plenty of recommendations to be found in various sections of Thaivisa).

There are certainly no easy or bullet-proof options, and the choice of the best available approach for you will depend on your specific personal circumstances so you can't proceed only on the basis of what others have done. You have a lot of reading and thinking ahead of you - good luck with your eventual decision.

[Naam]

"I am now thinking of 'selling' the land from my company to a Thai person which is not a spouse or similar (I trust the person and do not want to discuss that issue here) and lease it it back so I can built a house on MY name on the land."

no problem to have the house in your name even on company owned land. all what you have to do is apply for the building permit in YOUR name. that's in my [not so] humble opinion much safer than a 30-year lease (no matter what some smartàrses woll tell you).

[caf]

"I am now thinking of 'selling' the land from my company to a Thai person which is not a spouse or similar (I trust the person and do not want to discuss that issue here) and lease it it back so I can built a house on MY name on the land."

no problem to have the house in your name even on company owned land. all what you have to do is apply for the building permit in YOUR name. that's in my [not so] humble opinion much safer than a 30-year lease (no matter what some smartàrses woll tell you).

Unless written under a superficie, the house is part of the land (under the civil and commercial code)

The Thai legal system is unlike the western. I have seen legal documents drawn up by Thai lawyers which put in many clauses to safeguard the foreigner ( extention of leases etc).

At the end of the day the judges will look to the civil and commercial code and apply that where the clauses are in breach of it. The lawyers know that but they can cream off large fees by drafting these complex but worthless documents. In the Uk for example a lawyer would be de-barred for drafting clauses which would be invalid. They can and do exploit loopholes but they stay within the law. Not so in thailand.

I am probably going for a superficie using a free standard government form. All the clauses within it are consistent with the CCC. Any lawyer generated additions in their own drafted document would be worthless an expensive. I will stick woth documents that have the crest of the ministry of justice on the top.

Any comments???

[123ace]

30 year leases are a mature method and are well recongised by Thais companies (particularly in the retail sector) and foreigners. There are issues that need careful consideration, and having the lease registered at the land Departmnent is one of the most essantial steps (to make it legal) and does not cost much. The long term renewability should be seen as a relative unknowm (an option at best) until late in year 29, as there is very limited positive precident for what actually happens upon renewal. If there is any doubt now over what may happen after year 29 then expect the worst. Simply forget year 59.

In terms of the surviability of the lease upon the death of the Lessee or Lessor it is now common to cover this by including names of both parties sucessors in the lease document.

This probably not really an investment at the end of the day and should be seen as pre-paid rent, rather than ownership in a tradional property asset.

[quiksilva]

The 30 year term is as safe as a lease anywhere. However, extensions of the lease beyond that term is a different matter altogether.

Strictly speaking they can not be extended, however if consideration (money or good / services in kind but money is best]) has been paid for them within the initial lease term, then its becomes different matter.

That clause must worded carefully however, so as to ensure that this Lessor's Covenant survives any assignation of the contract, even in the event of death of bankruptcy, which takes you into a grey area of the law. However, it is my understanding that because consideration has changed hands in exchange for the right to renew the lease then the lessor (whoever that be) must honour that commitment, when that renewal clause becomes actionable.

I.e. At the commencement of the agreement you pay an additional amount specifically in exchange for the right to renew the lease at a set date in the future (eg. the expiry date, so you have a simultaneous expiry and renewal).

I am not a lawyer but my clients legals teams have suggested that this could work, but as always I welcome view points from TV's resident legal eagles.

[oracle]

The 30 year term is as safe as a lease anywhere. However, extensions of the lease beyond that term is a different matter altogether.

Strictly speaking they can not be extended, however if consideration (money or good / services in kind but money is best]) has been paid for them within the initial lease term, then its becomes different matter.

That clause must worded carefully however, so as to ensure that this Lessor's Covenant survives any assignation of the contract, even in the event of death of bankruptcy, which takes you into a grey area of the law. However, it is my understanding that because consideration has changed hands in exchange for the right to renew the lease then the lessor (whoever that be) must honour that commitment, when that renewal clause becomes actionable.

I.e. At the commencement of the agreement you pay an additional amount specifically in exchange for the right to renew the lease at a set date in the future (eg. the expiry date, so you have a simultaneous expiry and renewal).

I am not a lawyer but my clients legals teams have suggested that this could work, but as always I welcome view points from TV's resident legal eagles.

The 30 year lease in Thailand is not as safe as anywhere in the world as lease in Thailand is basically prepaid rent and if the lessee dies the lease is terminated. Lease is not an inheritable right in Thailand. It can be transferred to the heirs based on the lease agreement but unfortunately this is also based on a personal promise of the current lessor to the lease and does not transfer with ownership of the property. So you could lose this option.

The prepaid renewal specifically in exchange for the right to renew is only valid between you and the owner, and if registration of the lease is enforceable after 30 years against the current owner, you can’t enforce the prepaid renewal if the property is transferred during the term. Simply because it is not registered.

Also, if you would argue based on a nicely drafted clause that it is a valid renewal the total term exceeds 30 years and therefore it will be reduced to an enforceable lease of max 30 years based on section 540.

In case of land and separate ownership over the house it is possible to follow certain supreme court judgments principles making the contract enforceable for 30 years and you could argue that the renewal option will also follow the title of the property, but this is very specific and not tested. For a condo you would generally not be able to structure it like this and better include others in the 30 year lease.

The best option for your clients if they want more is still to include the prepaid 90 year lease, or 30 year lease with prepaid 2 renewal options giving the right in a separate agreement to transfer to freehold. at least they can go to court after 30 years

[quiksilva]

Its a misconception that the lease is terminated if the lessor dies or goes bankrupt. It does not. If the lessee (tenant) dies or goes bankrupt then, yes that is the end of it, the lessee's rights can not be inherited, and the tenant has bigger problems to worry about! The lessor gets his property back and is free to find a new tenant.

I am also not talking about a prepaid renewal, I am specifically stating that it is a payment for the right or option to renew. You may well be on to something in the case of 30 year leases and section 540, but such a structure should I think work to protect options to renew on registered lease terms shorter than the maximum enforceable term, which admittedly occurs more often in commercial real estate (where I spend most of my time) where 30 year commitments are not so commonplace.

A simple option to renew without any specific payment for that right, is as you say, just a promise. A promise however become a contract if consideration has changed hands.

Edited February 9, 2010 by quiksilva

[oracle]

Its a misconception that the lease is terminated if the lessor dies or goes bankrupt. It does not. If the lessee (tenant) dies or goes bankrupt then, yes that is the end of it, the lessee's rights can not be inherited, and the tenant has bigger problems to worry about! The lessor gets his property back and is free to find a new tenant.

I am also not talking about a prepaid renewal, I am specifically stating that it is a payment for the right or option to renew. You may well be on to something in the case of 30 year leases and section 540, but such a structure should I think work to protect options to renew on registered lease terms shorter than the maximum enforceable term, which admittedly occurs more often in commercial real estate (where I spend most of my time) where 30 year commitments are not so commonplace.

A simple option to renew without any specific payment for that right, is as you say, just a promise. A promise however become a contract if consideration has changed hands.

I'm not saying the lease agreement is terminated when the lessor dies or goes bankrupt, but as a property specialist you must be able to distinguish lease rights from contractual rights. A renewal options, as is the succession clause, is not a registered lease right but a contractual right therefore only enforceable against the person who gave it to you. If you want to create an enforceable renewal in a short term rental, this is a different area and it may or may not be able to do this.

[quiksilva]

I stand corrected, yes its a contractual right.

[123ace]

Problem is guys there is a lack of local precedent in this area and without the market experiencing a residential foreign Lessee coming up for expiry / renewal on a house / land lease with a private local Lessor (preferably in Phuket, Samui or Pattaya etc) we simply do not know what will happen. All this chit chat is supposition at this stage.

[Khun Jean]

Another way is for the company to become legal. You still can have control. Buy a few cheap condo's that the company rents out. Then build a house that you rent to yourself.

This way the capital stays in the company and later the company can sell shares or sell property.

Nothing complicated about that. It will cost you probably a few 100k baht more initially, but you will have the benefit that that money (although locked up in real estate) will stay yours.

This will only work if you are willing to fulfill the requirements like meetings, accounting etc. All that can be done for a few 10K baht.

[OKF]

Hallo @ all,

Thank you for sharing your thoughts. Yes, I have read here quite a few postings but my situation is slightly different to what I mainly read. I am clear what a lease means. The main question is whether it makes sense to give up the company, and sell the land to a trustworthy Thai person and lease it back and therefore not being involved in any illegal company construction and also saving the bookkeeping for 30 years for my 2 companies which is approx. 2.1. mio baht for the period at least. I am also clear that I can build in my name when I own the land via the company and also when I lease the land. I am also clear that I have to consider everything invested in Thailand as a write off but when I am lucky everything works out. The downside from what I understand here would be that:

1. when I die the lease contract is dissolved

2. no real extension possible, so 30 years and thats it

3. the house that I built sort of belongs to the owner of the land

But could I incorporate a second person into the leasing agreement, so if I die that person sort of steps in and the lease continues?

Regarding no. 3 above I was under the impression that a building in Thailand is a seperate issue to the land and although it is sort of connected to land it is treated seperately but some posters here say that is not the cas?

Somebody said there is a standrad form for a leasing agreement as it is not worth going through the trouble of a lawyer preparing something. Where can I find that form?

Thanks & regards

Oliver

[OKF]

Another way is for the company to become legal. You still can have control. Buy a few cheap condo's that the company rents out. Then build a house that you rent to yourself.

This way the capital stays in the company and later the company can sell shares or sell property.

Nothing complicated about that. It will cost you probably a few 100k baht more initially, but you will have the benefit that that money (although locked up in real estate) will stay yours.

This will only work if you are willing to fulfill the requirements like meetings, accounting etc. All that can be done for a few 10K baht.

Sorry I do not understand what you mean? I have control in my company but therefore it is illegal as I hold property in the company whcih I am not allowed to as a foreigner.

[123ace]

If in doubt - buy a condo.

[OKF]

just read about 'superficies'...would that solve the problem in case I die that the lease continues for the time it is still valid so I can pass my leasing rights on to someone that should inherrit my building and maybe belongings?

[thaiwanderer]

Superficies will not preserve a lease in the way you appear to suggest.

Superficies and lease are distinct concepts but can be used together.

Superficies can be transferred by way of inheritance.

If more hoops are jumped through a lease may also survive the death of the lessee.

In any case you may wish to hold your lease and or superficuary rights in an offshore company name if inheritance is an issue with which you are concerned.

[Abrak]

A few points....

1) In many Land Departments a +30 option can be registered - the Crown Property give 30 +30 leases. They are meaningless if there is no prepayment or agreed price. The +30 would also be problematic if the freeholder died/went bankrupt.

2) One of the problems about having the property without the land is that you may not have access to it.

3) You can gain far more control if you set up a 'Thai Company' to own the land. Physical transfer of freehold land between parties is difficult to control. Ownership of shares as a Thai corporate is much easier to control.

4) As a concept - if you put land in someone elses name you are giving them (and their heirs) considerable rights over that land (which can only be mitigated by a lease.) It is possible that he/she/their heirs will ultimately view the freehold as theirs. With a corporate and Thai shareholders at no point does ownership transfer to the shareholders (assuming it is set up in a vaguely sensible manner.) And therefore at no point will anyone ultimately get 'confused' about ownership.

5) Lease structures are pretty inefficient tax wise. (Let's say the leasehold period is extended to 99 years.)

6) Finally, given the trouble you have gone to, to set up a company, why not simply lease it from that company. If the company is blatantly linked to you, then simply transfer it to a BVI.

Edited February 9, 2010 by Abrak

[123ace]

Like I said, buy a freehold condo.

[LennyW]

Like I said, buy a freehold condo.

Did you actually read the opening post, or is that just your standard dumbass answer?

[123ace]

Like I said, buy a freehold condo.

Did you actually read the opening post, or is that just your standard dumbass answer?

Yes, I read it, I am trying to help others avoid getting in to this wholly avoidable situation.

[OKF]

@123ace: There is no freehold condos to buy in Samui and I have the Companies and the land already.

@Abrak: What difference does it make to have a Thai Company or a BVI Company. A BVI will add further cost to everythig and it would still mean that I as a foreigner own land in a more or less illegeal way. Or do I miss something here?

@thaiwanderer: You write: 'In any case you may wish to hold your lease and or superficuary rights in an offshore company name if inheritance is an issue with which you are concerned.' I do not know what you mean, to hold something in an offshore company.

@all: thank you so far

Going a bit further with my question or proposal to get rid of the 'illegal' situation I am automatically in:

1. I 'sell' the land to the trustworthy Thai person I was refering to

2. I lease the land from that Thai person

3. That Thai person would put a will in place leaving me the land as he can will property either freehold or leasehold to anyone he likes to.

4. To safe guard the next thirty years, the Thai person signs all sales documents over to me. It basically means that I would have a 30 year window to either wait and see what the Government does to change the law of foreign ownership or in year 29, I do re-open a Thai company and transfer the land and/or house into that.

Does that sound like a good and fairly 'safe' way or would there be objections to that.

The only thing I do not know is what can I do in case I die during the lease period, so my friend or heirs can continue to use it? Could I incorporate more people into the lease so if one dies the other can continue to have it? Also could such person be changed within a leasing period?

[Langsuan Man]

1. I 'sell' the land to the trustworthy Thai person I was refering to

Every time I bring up this "trustworthy Thai person" argument here on Thai Visa I get the old refrain that I cannot use a nominee to get around the legal restrictions

[123ace]

Ok, but Casavella is a freehold Samui condo and were you able to turn the clock back I would recommend a duplex at Infinty where the leasehold is robust.

My view is that you are taking a huge risk with your local friend (after year 30), irrespective of the personal details of your friendship etc this route as your already know will not hold to scrutiny (beyond year 30) if the Govt were to crack down in the short term (this has come close in recent years and samui is a hot spot), although at present all is quiet on this front.

Ultimately there will be approx 10 years of precident with 1000's of other foreigners's leases coming up for renewal / expiry in the years ahead of you in Phuket and a lesser extent in Samui.

I suggest that any diversion you make now to 'beat the system' will be either redundant by that time due to a softening on this issue, or a blanket crackdown on the entire principle may have happened as the Govt is forced to address the huge problem by the local heirs of land leased to foreigners (an earlier generation leased the family assets to non Thais for short term gain - on a questionable basis), and this will pre-determine your leases fate.

So, enter in to 30 years now with both Lessee and Lessor indicating multiple sucessors and then keep your fingers crosssed.

Is the house built already?

[oracle]

Sorry I do not understand what you mean? I have control in my company but therefore it is illegal as I hold property in the company whcih I am not allowed to as a foreigner.

It’s not illegal because you control a company that owns land. You may own up to 49% of the shares and you still allowed to control the company that owns land. If you think it's illegal because your shareholders are nominees go back to the accountant or lawyer who set it up and ask for an explanation or change them for others. You can also change your business purpose for something that is not in direct conflict with the foreign business act because this subject relates primarily to the foreign business act not to land ownership.

If you transfer the land from your company to a Thai there are taxes and fees involved, the Thai person who gives the lease back will also be taxed based on an assessed rental, housing tax and whatever, you have to dissolve the company. A recipe for trouble if you ask me.

Maybe read up on the responsibilities of running a company in Thailand, as you have a business, not a holding company, and take the lease and superficies from your own company.

[dsfbrit]

I am not up to speed with all this any more. I decided to keep the company in my name. However, when I looked into doing this about a year ago, I spent quite a lot of time getting advice from Sunbelt Asia. I paid for some of this advice so it was quite detailed.

Here is a 'snippet' from an email they sent me - which basically said that transferring land ONLY from my company - could not be done - well not in Chonburi anyway - mind you - it was to be transferred to my wife - so maybe its not the same.

From Sunbelt Asia

---------------------

In regarding to the ownership of the land which is to be owned by your wife

and the ownership of the house which would be owned by you. We have check

with the land office in Chonburi. I regret to say that they (Land Office)

will not register them on a separate owner. Therefore it should be the

land and house to your wife etc...

[OKF]

@langsuan man:

1. I 'sell' the land to the trustworthy Thai person I was refering to

Every time I bring up this "trustworthy Thai person" argument here on Thai Visa I get the old refrain that I cannot use a nominee to get around the legal restrictions

I do not quite understand what you mean? The person I would use is not a nominee?

@123ace:

You say: 'this route as your already know will not hold to scrutiny (beyond year 30)'

What do you mean with this?

I understand what you mean related to old leasing contracts but my case is a bit different. No house built yet. I am in the satge of deciding what to do therefore I am asking all these questions. Maybe I can avoid the one or the other problem.

Are you suggesting at the end of your posting that I should go the route of leasing as I described above?

@oracle:

From what I understand the fact that I control the company that holds land is illegal. I do have a cross share system with 2 companies so both hold shares in each other and the Thai persons are holding nearly no shares something like 5 of 10.000 so at least nobody there could turn funny. Also the companies are located in BKK and not in Samui. I am aware that some taxes maybe involved but have not loked into that in any detail. Where and what sort or trobe would you expect when I would go that rout? Is it a problem to close the companies?

The 'business' is another problem. The holding company does not do business and the company that holds the land does not either. So the original idea was to do an annual renting contract as I cannot see any logic in doing a 30 year lease with my own company? What do I gain from that? With some annual rent the company has some income and the taxman is happy. The 30 year lease may be works the same way, I do not know as this is a singel payment only. That problem of the company not generating any income apart from the above mentioned may need discussing as well? If that is a problem it could be another reason for going the route of sale and lease back.

[123ace]

If you have not built the house yet I would consider not putting more money in perhaps. I have long since stopped trying to navigate long lease structures and feel a lot better for it.

If the method for securing a long lease with security is found and talked about on a site like this it would possibly become common practice, possibly be discovered and the loop-hole possibly closed.

[OKF]

thanks but I do not get what you mean, Do you think is the lease is better or is it better to keep the company structure (referring to my original question)?