Watertight Lease W Right To Transfer Ownership

[sleepyjohn]

I have in front of me the prospective lease a friend is about to use to "buy" his property.

It looks very professional, as if it were written by an Anglo-Siamese law firm, 12 pages long, and much better than two other local ones I inspected, which were only a page or two. Lots of detail and legalese.

It has the normal stuff about 30 yr with 2x 30 yr renewable.

Also right to freehold if law changes.

HERES THE CRUX

It also includes the right to require transfer of ownership at any time to anyone the lessee names.

If this holds up it would be very very attractive, and make the lease more attractive than the company route.

Any comments on it's validity? Would conditions like this amount in themselves to "ownership" which in itself is illegal?

(I might say that although I would of course listen I've decided not to trust individual lawyers' opinions on matters like this. Thai lawyers are undoubtedly "looser" in their comments. Get info from all possible sources is my motto on this).

Edited February 17, 2006 by sleepyjohn

[johnnyk]

I have in front of me the prospective lease a friend is about to use to "buy" his property.

It looks very professional, as if it were written by an Anglo-Siamese law firm, 12 pages long, and much better than two other local ones I inspected, which were only a page or two. Lots of detail and legalese.

It has the normal stuff about 30 yr with 2x 30 yr renewable.

Also right to freehold if law changes.

HERES THE CRUX

It also includes the right to require transfer of ownership at any time to anyone the lessee names.

If this holds up it would be very very attractive, and make the lease more attractive than the company route.

Any comments on it's validity? Would conditions like this amount in themselves to "ownership" which in itself is illegal?

(I might say that although I would of course listen I've decided not to trust individual lawyers' opinions on matters like this. Thai lawyers are undoubtedly "looser" in their comments. Get info from all possible sources is my motto on this).

Transfer right sounds ok on the surface but the big question is:

Validity of the 2 30-yr renewables. These can't be registered at the Land Office. They recognize only one 30-yr term. The extensions are a private agreement between the two parties. What if the lessor dies or sells the property. I would think the personal agreement dies with him and the buyer or inheritor is under no obligation to honour a contract made with aomeone else.

I would not want to find out the hard way and personally I would not consider it anything more than a 30-yr lease which is not only a diminishing asset but is only the right to use the land, not own it.

[sleepyjohn]

Transfer right sounds ok on the surface but the big question is:

Validity of the 2 30-yr renewables. These can't be registered at the Land Office. They recognize only one 30-yr term. The extensions are a private agreement between the two parties. What if the lessor dies or sells the property. I would think the personal agreement dies with him and the buyer or inheritor is under no obligation to honour a contract made with aomeone else.

I would not want to find out the hard way and personally I would not consider it anything more than a 30-yr lease which is not only a diminishing asset but is only the right to use the land, not own it.

Jonny I believe that is incorrect.

The heirs and assignees would surely be under the same obligations as the original lessor.

As far as the 30+30+30 etc, the great thing about the "transferable ownership" is that it removes all worry about this. You enjoy your land say five years....then you ask your (hopefully still) friend to renew the original agreement from that future date. Probably everything goes smoothly and you pay them handsomely in relation to their trouble. Any problems you request the transfer of ownership.

I think my question is on the deeper legal validity of this "transfer ownership" concept.

Don't forget if you end up taking the lessor to court to force that transfer they have to defend at considerable expense. IF they win they get the land in 25 years maybe! Would you spend your money like that? We all know the Thai tends to "live for today" ( I don't mean that disparagingly...I tend to envy that!)

[Nadia 2]

You are right - you should not trust your local lawyer advice becauseit is in their own interest. We just discussed the options in a lease in this forum - with a lease you have 30 years without hassle.

The most legal way for a foreigner to hold land in Thailand is leasehold, except for freehold under specific investment alternatives. A registered lease is uncomplicated and easy to setup, but in the way of legal fees it is not lucrative for the lawyers. There is a lot more profit in setting up a company, transfer land and doing the yearly auditing and accounting for such a company than to simply register a lease…..

No serious Thai or foreign lawyer with any integrity would advise a Thai limited company to a foreigner as a solution to own land in Thailand. The lawyers who do OWN 51% of your company and thus its assets (I do not like to bring in the risk of that under the Civil and Commercial code) but preference shares do not give a right to a preferential payment out of the capital in case of a winding up!

Leases also do not benefit the foreign developers because they want to sell theit property freehold as then they got their money and are free of any connection to the land and the responsibilities are with the foreign purchaser's company.

In the case of a lease the foreign developer will be required to incorporate a Thai company to hold the land and the developer (or the holding company) will be responsible for the administration of the 30 year leases. Also there is a building and land tax to be collected at the rate of 12.5% of the yearly rental according to the lease agreement or the annual value assessed by the Land Department, whichever is higher (Land and House tax Act B.E. 2475).

This is why (among other drawbacks) the developer prefers freehold (and the lawyers advice freehold because there is more money in it ).

Cheers

N

[GuestHouse]

The lawyers who do OWN 51% of your company and thus its assets (I do not like to bring in the risk of that under the Civil and Commercial code) but preference shares do not give a right to a preferential payment out of the capital in case of a winding up!

OUCH!

So let me get this right.

A foreigner buys land/property under a Thai company and adopts preferential shares as his means of controlling the company/property - but if the company is wound up then the Thai majority share holders collect the capital?

In the case you state this would be the lawyer, but might be the friends, partners, spouse and spouses family if they are the Thai share holders.

Surely nobody is that stupid?!

[johnnyk]

My comment was based on an advice from a BKK lawyer who said there was nothing in Thai law beyond the original 30-yr lease.

Maybe on a more practical note, I certainly don't want to be in court in Thailand when I am 80 yrs old.

I have several friends who are lawyers (not in Thailand but the idea is the same) and they all say the last thing as lawyers that they like to do is go to court because "you never know what will happen".

Second practical note is that its much more difficult to sell a leasehold property (IMO) if I decide to go back home.

None of it is crystal clear.

[Dragonman]

Transfer right sounds ok on the surface but the big question is:

Validity of the 2 30-yr renewables. These can't be registered at the Land Office. They recognize only one 30-yr term. The extensions are a private agreement between the two parties. What if the lessor dies or sells the property. I would think the personal agreement dies with him and the buyer or inheritor is under no obligation to honour a contract made with aomeone else.

I would not want to find out the hard way and personally I would not consider it anything more than a 30-yr lease which is not only a diminishing asset but is only the right to use the land, not own it.

Jonny I believe that is incorrect.

The heirs and assignees would surely be under the same obligations as the original lessor.

As far as the 30+30+30 etc, the great thing about the "transferable ownership" is that it removes all worry about this. You enjoy your land say five years....then you ask your (hopefully still) friend to renew the original agreement from that future date. Probably everything goes smoothly and you pay them handsomely in relation to their trouble. Any problems you request the transfer of ownership.

I think my question is on the deeper legal validity of this "transfer ownership" concept.

Don't forget if you end up taking the lessor to court to force that transfer they have to defend at considerable expense. IF they win they get the land in 25 years maybe! Would you spend your money like that? We all know the Thai tends to "live for today" ( I don't mean that disparagingly...I tend to envy that!)

sleepyjohn. You seem to be confusing the concepts of lease and "option"! Heirs and future freehold purchasers are obligated under the lease to the 30 year term, but the 2 extensions only mean something if ownership is the same. With regard to the question of the legal validity of the "transfer ownership" clause, I feel that a thai judge would look at it as a further "option" and therefore outside leasehold arrangements as in other countries in which I have drafted leases.

Do not be confused by good leases and long complicated leases. 2 pages is long enough. The longer and more complex a lease is, the easier I have found errors on which to challenge in Court.

[Nadia 2]

(Supreme Court judgment 1108/ 1994) 'The lessee is the essence of the lease agreement. Therefore, should the lessee die, the lease contract will be terminated and the lease rights WILL NOT transfer to the heirs of the lessee'.

In the event of death of the lessor the lease will not be terminated.

(Scj. 6763/ 1998)

'In case the lessor promises in the lease agreement to extent or renew the lease term, but has sold the leased land (or in the event of death of either party) before the lessee was entitled to accept, the Supreme Court judges that 'contractual rights' are not binding upon the new owner and only lease rights that are 'real rights' will transfer to the new owner'.

[Dragonman]

(Supreme Court judgment 1108/ 1994) 'The lessee is the essence of the lease agreement. Therefore, should the lessee die, the lease contract will be terminated and the lease rights WILL NOT transfer to the heirs of the lessee'.

In the event of death of the lessor the lease will not be terminated.

(Scj. 6763/ 1998)

'In case the lessor promises in the lease agreement to extent or renew the lease term, but has sold the leased land (or in the event of death of either party) before the lessee was entitled to accept, the Supreme Court judges that 'contractual rights' are not binding upon the new owner and only lease rights that are 'real rights' will transfer to the new owner'.

Doesn't, by implication, the revised Lease Laws now allow for the overturn of Scj 1108/1994 regarding lessee's rights on inheritance?

Or do you know of more recent case law? The previous judgement was a recipe for nasty accidents

[Nadia 2]

In my opinion and in general; a Supreme Court judgment in Thailand is a final and conclusive interpretation of the law (a subject, section, a word or sentence of that section of the law). It has the same status as any written law and cannot be overruled by another judge. There is no case law in Thailand. Most Supreme Court judgments will be included in the future written law.

Long term leases do not have a separate chapter in Thai law as in most western countries. That is why in my opinion most foreign purchasers/ lessees are fooled by these options suggested by the legal offices and real estate agents, as in their home country these options are legally secure, however, not in Thailand.

A lease agreement in Thailand is firstly an agreement between two parties and the lease rights that are not real rights, by law, do not transfer to the successors of the property. You cannot make a third party committed to an agreement without any form of signed contract. 'Real rights may be created only by the virtue of this code or other laws (section 1298 CCC)'.

Why do so many of the so called 'reptable' and mostly foreign law firms and legal advisors in the property business (who often work together with the real estate people) mention; 'the lease agreement can include two further 30-year renewals, giving a maximum term of 90 years'? Where can is this found in the Thai law? They can just as well say unlimited options…..

I stick with the Thai law and Supreme Court judgments mentioned previously and these options are legally insecure. It will merely be a contractual obligation (and shall be bound upon the parties concerned only) and if enforceable, difficult to enforce in Thailand..

Cheers

N

[sleepyjohn]

Thankyou all very much for your comments.

Thankyou for your specific referances to the law Nadia.

Dragonman, point taken about the length of the lease, although I must say the crux of the lease is quite short, and the extra space is taken up by stuff that looks quite useful.....some of the headings are "encumbrance, mortgage of the leased land, lease registration, serving notice, succession, arbitration, default or breach, default by lessor, subletting etc. etc.....

I am going to paste here the clause that to me could be a good catchall:

________________________________________________________________________________

Clause 5. OPTION TO PURCHASE THE LEASED LAND

If at any time during the lease terms according to this Agreement the law changes to entitle the Lessee to acquire conveyance of ownership to the Leased Land or if the Lessee desires to convey ownership of the Leased Land to another person or juristic entity of Thai nationality or otherwise entitled to acquire ownership of the same, the Lessor agrees to proceed to register such conveyance of ownership of the Leased Land to the Lessee or the Lessee’s hereinsaid assignee within thirty (30) days from the date of receiving written intention thereof from the Lessee whereby the consideration paid shall be as mutually agreed by the Lessor and the Lessee at the time of such conveyance but which shall not exceed the total amount of rent remaining to be paid according this Agreement. In regards to the leasehold registration according to Clause 8.1 herein, whether such shall be terminated or not at the time of conveying ownership of the Leased Land shall be as the Lessee sees fit.

________________________________________________________________________________

If this is legally valid, which is the deeper point I was enquiring about, it seems to cover any problems arising, however as you suggested Dragonman it is called an option, and from the feedback received it might seem that option obligations on the lessor don't pass to heirs. Correct? But do you think it might be binding on the original lessor. And if he sold the freehold would it be binding on the new lessor?

By the way, can he sell the freehold......does anyone know if one can hold liens over title...in other words as with the land registry at home can one hold power over the title to prevent transfer of ownership until conditions are discharged?

Any comments on all this from our distinguished members on the validity?

Again thankyou so much.

[Dragonman]

In my opinion and in general; a Supreme Court judgment in Thailand is a final and conclusive interpretation of the law (a subject, section, a word or sentence of that section of the law). It has the same status as any written law and cannot be overruled by another judge. There is no case law in Thailand. Most Supreme Court judgments will be included in the future written law.

Long term leases do not have a separate chapter in Thai law as in most western countries. That is why in my opinion most foreign purchasers/ lessees are fooled by these options suggested by the legal offices and real estate agents, as in their home country these options are legally secure, however, not in Thailand.

A lease agreement in Thailand is firstly an agreement between two parties and the lease rights that are not real rights, by law, do not transfer to the successors of the property. You cannot make a third party committed to an agreement without any form of signed contract. 'Real rights may be created only by the virtue of this code or other laws (section 1298 CCC)'.

Why do so many of the so called 'reptable' and mostly foreign law firms and legal advisors in the property business (who often work together with the real estate people) mention; 'the lease agreement can include two further 30-year renewals, giving a maximum term of 90 years'? Where can is this found in the Thai law? They can just as well say unlimited options…..

I stick with the Thai law and Supreme Court judgments mentioned previously and these options are legally insecure. It will merely be a contractual obligation (and shall be bound upon the parties concerned only) and if enforceable, difficult to enforce in Thailand..

Cheers

N

N. agree with most of your points. However I am not implying that Supreme Court rulings would not pretty much stand, but that the Revised Lease law, which also included the 50 year ruling for commercial properties, changed the implication of the ruling, as now leases can be inherited and are much stronger in law than previously. My understanding is that by implication this change would also relate to domestic properties.

My experience of most western countries is that the "option" is no more secure than in Thailand, and is excluded from Lease Law, but comes under Contract Law.

sleepyjohn. Option obligations don't pass to heirs or other future lessors. They would likely be an obligation on the present lessor, but it was part of my job for 25 years for this obligation never to happen, and it never did without the lessor wanting it

The registration of the 30 year lease would be enough to prevent any immediate sale, or a registered mortgage as a lien. Whichever way, it would be up to a judge to decide the validity even if the Land Department accepted. Don't hold much hope

[sleepyjohn]

Thankyou.

Well this discussion gets more and more interesting and I think despite the uncertainty in the law it is certainly very very useful, and worth extending.

I might add I am having to decide RIGHT NOW about the route to follow. It is more than a slight investment as well, so I want to do my absolute best to cover my rear end.

"sleepyjohn. Option obligations don't pass to heirs or other future lessors. They would likely be an obligation on the present lessor, but it was part of my job for 25 years for this obligation never to happen, and it never did without the lessor wanting it "

Dragonman does this mean that obligations such as "right to request transfer of ownership" might be breachable by a sharp lawyer even if they oblige the existing lessor?

Also contract law was mentioned. Are these options not binding on heirs and assignees under contract law?

"The registration of the 30 year lease would be enough to prevent any immediate sale, or a registered mortgage as a lien. Whichever way, it would be up to a judge to decide the validity even if the Land Department accepted. Don't hold much hope "

I'd rather not impose any onerous and potentially dangerous conditions on my "friend" the lessor, just include reasonable conditions that won't scare them away....so a mortgage with right to demand 30 day repayment is out I think.

So would there be another route to preventing the "owner" from selling. Otherwise the nominal owner can "sell" to his wife, and wouldn't she be free from the option obligations instantly?"

Can one "hold" the title, and would this mean anything worthwhile....ie can't it, the title, just be reproduced.

(Sorry about starting sentences with prepositions, but I think the "law" about prepositions should be changed....and I hereby abandon them and call them bunkum")

JohnnyK I notice on another thread you own via company.

I asked an aquaintance the other day if he could sell property owned by his company WITHOUT the signatures of Thai co-shareholders, and basically bank the cheque without their involvement. He said yes. Do you agree?

I notice that Nadia said the assets gets shared between the shareholders in th event of "winding up". Presumably sale of a property by the company has nothing to do with winding up Nadia?

Keep it coming!!

[Dragonman]

Thankyou.

Well this discussion gets more and more interesting and I think despite the uncertainty in the law it is certainly very very useful, and worth extending.

I might add I am having to decide RIGHT NOW about the route to follow. It is more than a slight investment as well, so I want to do my absolute best to cover my rear end.

"sleepyjohn. Option obligations don't pass to heirs or other future lessors. They would likely be an obligation on the present lessor, but it was part of my job for 25 years for this obligation never to happen, and it never did without the lessor wanting it "

Dragonman does this mean that obligations such as "right to request transfer of ownership" might be breachable by a sharp lawyer even if they oblige the existing lessor?

Also contract law was mentioned. Are these options not binding on heirs and assignees under contract law?

"The registration of the 30 year lease would be enough to prevent any immediate sale, or a registered mortgage as a lien. Whichever way, it would be up to a judge to decide the validity even if the Land Department accepted. Don't hold much hope "

I'd rather not impose any onerous and potentially dangerous conditions on my "friend" the lessor, just include reasonable conditions that won't scare them away....so a mortgage with right to demand 30 day repayment is out I think.

So would there be another route to preventing the "owner" from selling. Otherwise the nominal owner can "sell" to his wife, and wouldn't she be free from the option obligations instantly?"

Can one "hold" the title, and would this mean anything worthwhile....ie can't it, the title, just be reproduced.

(Sorry about starting sentences with prepositions, but I think the "law" about prepositions should be changed....and I hereby abandon them and call them bunkum")

JohnnyK I notice on another thread you own via company.

I asked an aquaintance the other day if he could sell property owned by his company WITHOUT the signatures of Thai co-shareholders, and basically bank the cheque without their involvement. He said yes. Do you agree?

I notice that Nadia said the assets gets shared between the shareholders in th event of "winding up". Presumably sale of a property by the company has nothing to do with winding up Nadia?

Keep it coming!!

Yes the rights to request transfer of ownership would be a private contract between the signatories, and thus if the lessor cannot sell, as he no longer has ownership, the contract is unenforceable. Depends how knowledgeable the lessor or his lawyer are. Contract obligations for options are not transferred to heirs.

Holding the title without a valid lien would be worthless, as an injunction would be awarded at Court.

With regard to transferring title to his wife and nullifying the contract one has to be carefull. It is not as straightforward as this, as a Court may find the contract has been signed by deception.

[lannarebirth]

"Depends how knowledgeable the lessor or his lawyer are."

The more I learn the more I think this might be important.

If it SAYS the lessor can't do something....well maybe they'll believe they are bound not to do it in law.

The other thing that would seem critical is the choice of "friend" and a look at the "friend's" likely heirs.

In fact couldn't one have a bit of control by asking one's friend to specify an heir to the piece of land that one chooses oneself....it might be a second "friend" rather than a family member one might not even know.

Another thing to be aware of....

(ps this is Sleepyjohn logged in on a friend's computer)

Edited February 23, 2006 by lannarebirth

[Nadia 2]

Freehold is only a temporary option and wont last in the long term, probably under this corrupt government (with even ministers speculating with land) nothing will change (and the Thais still making more money than the farangs).

Fact is that the use of Thai limited companies for the purpose of landholding is illegal within the letter and the spirit of Thai law and the foreigners who have set up limited companies to circumvent the law risk severe penalties and are very much at the mercy of the Thai government and how they will implement and enforce the law.

Despite the fact that these companies to purchase land are set up (without an explicit warning) by the property law firms it is illegal (including the nominee arrangement). The information supplied is not all correct and often in their own commercial interest. Not only are these legal firms methods improper and illegal, it also brings the foreigner in a position where he is liable for severe penalties.

There is no way around the law and there is not one lawyer in Thailand who can give a valid legal argumentation referring to Thai law why freehold through a Thai limited company is secure or allowed. It is very easy for me to give several valid arguments based on the Civil and Commercial Code, the Land Code and the Foreign Business Act why it is highly insecure and illegal. However, this is Thailand, and the law and law enforcement does not work in the same way as in most western developed countries where the law is used to prevent an illegal situation, where in Thailand the law is still used to correct an unwanted situation at any preferred time.

Cheers again

N

[david96]

If you lease the land from your Thai wife and register this with the Lands Dept what would happen if

1. Your wife were to die, what would happen to your lease.

2. You and your wife were to divorce, in this case the land and property would be community property under the CCC.

3. Is it possible for the Lands Dept to be the lessor and your lease would be between them and you

for 30 years, this would appear to be a lot more secure.

[Dragonman]

If you lease the land from your Thai wife and register this with the Lands Dept what would happen if

1. Your wife were to die, what would happen to your lease.

2. You and your wife were to divorce, in this case the land and property would be community property under the CCC.

3. Is it possible for the Lands Dept to be the lessor and your lease would be between them and you

for 30 years, this would appear to be a lot more secure.

1.The lease remains with the property, and her heirs would be obligated to 30 years, not any "option" extensions. It complicates the matter if through a legal will you are the statutory heir, as you will need to sell the property. Difficult with a sitting tenant.

2. A case which lawyers debate over and which judges can go either way. Some see that you are excluded from a claim under the requirement for signing away your interest at the Land Office. Others, including me, feel that community property laws take precedence.

3. This has been suggested by a Government minister, together with the possibility of obtaining a 99 year lease in such a way. No action as yet and who knows if there will be.

[sleepyjohn]

I quiver in my boots at the "letter of the law" I have read in the excellent posts above, but the fact remains that policymakers own land and local officials own land and more purchasing and building and farangs moving in keeps people in work. And all of these people will lose out if there is one publicised case that goes badly against a farang. Perhaps we westerners have come to expect too much security. This is only extant in a few countries and in recent years. Perhaps it would do us good to take a slight chance and ride the wave.

So if the people I mentioned above don't stand to gain from one's legal misfortune it almost certainly won't happen unless we give someone a personal opportunity to take advantage. Let's try not to do that.

On the other hand we might hope for more globalisation of law, with liberalisation here.

[Nadia 2]

These are a bit the arguments the agents are using - why you can own property. Their best selling point is of course the 'investment opportunity' and pointing out the recent profits made. Freehold through a Thai limited company is mainly created and used for the purpose of short term speculation with land - as long as the government allows it and does not start enforcing the law. But this does not change the fact that it is clearly illegal under present law.

With regards to leasehold

The lease should of course only include the land (not only for tax reasons) and the buildings should preferably be owned freehold by the lessee. If at the end of the 30 years the then lessee owns the building(s) which must be registered at the local land office, and should the then lessor refuse to renew the lease - then, in my opinion (it is still uncertain, what exactly would happen at the end of the 30-year lease term) the owner will most likely have (at his option) to pay to the lessee either the price of the building or the sum representing the increase of the land or he must allow the lessee to lease the whole or part of the land at the market price to the lessee. This based on the provisions of the Undue Enrichment Code (Title VI, Undue Enrichment Civil and Commercial Code) or in the alternative the 'Acquisition of Ownership' (Title II, Ownership, Chapter I 'Acquisition of ownership', Civil and Commercial Code). The lessee will not be left with nothing.

[sleepyjohn]

These are a bit the arguments the agents are using - why you can own property. Their best selling point is of course the 'investment opportunity' and pointing out the recent profits made. Freehold through a Thai limited company is mainly created and used for the purpose of short term speculation with land - as long as the government allows it and does not start enforcing the law. But this does not change the fact that it is clearly illegal under present law.

With regards to leasehold

The lease should of course only include the land (not only for tax reasons) and the buildings should preferably be owned freehold by the lessee. If at the end of the 30 years the then lessee owns the building(s) which must be registered at the local land office, and should the then lessor refuse to renew the lease - then, in my opinion (it is still uncertain, what exactly would happen at the end of the 30-year lease term) the owner will most likely have (at his option) to pay to the lessee either the price of the building or the sum representing the increase of the land or he must allow the lessee to lease the whole or part of the land at the market price to the lessee. This based on the provisions of the Undue Enrichment Code (Title VI, Undue Enrichment Civil and Commercial Code) or in the alternative the 'Acquisition of Ownership' (Title II, Ownership, Chapter I 'Acquisition of ownership', Civil and Commercial Code). The lessee will not be left with nothing.

Actually it seems rather strange to me that the lessor should be expected to pay for anything built on his land by a lessee....why should he? It would seem more reasonable that the lessee could be asked to remove the building if the lessor didn't want it.

On the other hand could there be an agreement factored into the lease that the lessor agrees to any construction and agrees to reimburse the lessee for it's value. In fact could this building be given a pre-arranged and very high re-imbursement value tied to inflation that might persuade the lessor to renew the lease?

Would this be an "option" that Dragonman points out dies with the lessor?

[Dragonman]

These are a bit the arguments the agents are using - why you can own property. Their best selling point is of course the 'investment opportunity' and pointing out the recent profits made. Freehold through a Thai limited company is mainly created and used for the purpose of short term speculation with land - as long as the government allows it and does not start enforcing the law. But this does not change the fact that it is clearly illegal under present law.

With regards to leasehold

The lease should of course only include the land (not only for tax reasons) and the buildings should preferably be owned freehold by the lessee. If at the end of the 30 years the then lessee owns the building(s) which must be registered at the local land office, and should the then lessor refuse to renew the lease - then, in my opinion (it is still uncertain, what exactly would happen at the end of the 30-year lease term) the owner will most likely have (at his option) to pay to the lessee either the price of the building or the sum representing the increase of the land or he must allow the lessee to lease the whole or part of the land at the market price to the lessee. This based on the provisions of the Undue Enrichment Code (Title VI, Undue Enrichment Civil and Commercial Code) or in the alternative the 'Acquisition of Ownership' (Title II, Ownership, Chapter I 'Acquisition of ownership', Civil and Commercial Code). The lessee will not be left with nothing.

Actually it seems rather strange to me that the lessor should be expected to pay for anything built on his land by a lessee....why should he? It would seem more reasonable that the lessee could be asked to remove the building if the lessor didn't want it.

On the other hand could there be an agreement factored into the lease that the lessor agrees to any construction and agrees to reimburse the lessee for it's value. In fact could this building be given a pre-arranged and very high re-imbursement value tied to inflation that might persuade the lessor to renew the lease?

Would this be an "option" that Dragonman points out dies with the lessor?

With regard to the whole concept it is relying on the wife signing a contract that really doesn't make sense. If you were looking at an arm's length transaction nobody in their right mind would sign away anything. "If you want to build a house up to you, but you don't get any cash from me" in contract form.

Unless the missus is given advice by an independent lawyer and she still decides to sign (get this confirmed in writing) I am sure a decent lawyer can get it nullified on grounds of "actual undue influence". A Civil Law term really meaning duress.

[sleepyjohn]

Thanx D'man but I'm not sure where the wife comes in....I don't have one.

I once met Winston Churchill's grandson, arch toff and scoffer Nicholas "Fatty" Soames. He made a marvellous reply to a question in the House of Commons. He was Agriculture Minister at the time. The French farmers had been blocking their ports because the British were exporting sheep or something. A Labour MP suggested Britain might boycott France and start drinking Australian "champagne".

"I don't think we need to go that far!" replied the outraged Soames.

I feel the same about wives.

So anyway I have been considering using a friend or friends as lessor or lessors. Is there any reason my suggestion might not work in this case? I think it might be rather useful.

Edited March 1, 2006 by sleepyjohn

[Dragonman]

Thanx D'man but I'm not sure where the wife comes in....I don't have one.

I once met Winston Churchill's grandson, arch toff and scoffer Nicholas "Fatty" Soames. He made a marvellous reply to a question in the House of Commons. He was Agriculture Minister at the time. The French farmers had been blocking their ports because the British were exporting sheep or something. A Labour MP suggested Britain might boycott France and start drinking Australian "champagne".

"I don't think we need to go that far!" replied the outraged Soames.

I feel the same about wives.

So anyway I have been considering using a friend or friends as lessor or lessors. Is there any reason my suggestion might not work in this case? I think it might be rather useful.

I was only paricularly relating to the wife as in the majority of cases this would be the only way you could persuade someone to sign a contract that would certainly disadvantage someone from legal protection. I have thai friends, but don't think any would enter into a contract which may lead to them expending 1 baht

The risks are therefore in such a case not as high as with a wife, but if the lessor died it would I am sure be determined a contractual clause. You therefore may get your money back, but unlikely to be awarded interest, purely cost. If it is just a friend who is to be the lessor surely a mortgage with interest deferred for say 25 years would be better. At the end of the 25 years you could get them to sign a 30 year lease if Land Laws have not changed, or pay you a lot of capital and interest.

I believe this is possible but have never actually arranged such.

[sleepyjohn]

I was only paricularly relating to the wife as in the majority of cases this would be the only way you could persuade someone to sign a contract that would certainly disadvantage someone from legal protection. I have thai friends, but don't think any would enter into a contract which may lead to them expending 1 baht

The risks are therefore in such a case not as high as with a wife, but if the lessor died it would I am sure be determined a contractual clause. You therefore may get your money back, but unlikely to be awarded interest, purely cost. If it is just a friend who is to be the lessor surely a mortgage with interest deferred for say 25 years would be better. At the end of the 25 years you could get them to sign a 30 year lease if Land Laws have not changed, or pay you a lot of capital and interest.

I believe this is possible but have never actually arranged such.

Thankyou for your thoughtful reply....SJ

[sleepyjohn]

If it is just a friend who is to be the lessor surely a mortgage with interest deferred for say 25 years would be better. At the end of the 25 years you could get them to sign a 30 year lease if Land Laws have not changed, or pay you a lot of capital and interest.

This "deferred interest" seems a possible goer. Presumably the capital sum would be added too.

It may be a reasonable safeguard to ask someone to sign, especially if you are reimbursing them for their trouble.

It is of course hard to judge what that sum will be worth in real terms in 25 years.

Is there any standard benchmark of inflation in Thailand so that this clause could be index linked?

Otherwise one might have to write the option in sacks of rice or hogs bellies.

[Dragonman]

If it is just a friend who is to be the lessor surely a mortgage with interest deferred for say 25 years would be better. At the end of the 25 years you could get them to sign a 30 year lease if Land Laws have not changed, or pay you a lot of capital and interest.

This "deferred interest" seems a possible goer. Presumably the capital sum would be added too.

It may be a reasonable safeguard to ask someone to sign, especially if you are reimbursing them for their trouble.

It is of course hard to judge what that sum will be worth in real terms in 25 years.

Is there any standard benchmark of inflation in Thailand so that this clause could be index linked?

Otherwise one might have to write the option in sacks of rice or hogs bellies.

With regard to you lending your friend the money under a mortgage to purchase the property, you can establish a mortgage rate based on current lending rates, but you can include in the mortgage reviews as per bank lending rates published in Bangkok Post. Would establish a more valid agreement than inflation links. Of course a 2million baht property in 25 years would then have a capital and interest debt of about 5 million.

Only as an individual can you make such a mortgage, non licenced companies cannot.

[sleepyjohn]

With regard to you lending your friend the money under a mortgage to purchase the property, you can establish a mortgage rate based on current lending rates, but you can include in the mortgage reviews as per bank lending rates published in Bangkok Post. Would establish a more valid agreement than inflation links. Of course a 2million baht property in 25 years would then have a capital and interest debt of about 5 million.

Thanx Dragonman...

I suppose the important thing is that the mortgage redemption value wants to "keep up" with the value of the property.

Any disparity with mortgage lower than property value increases the temptation to misdeeds. This is why I thought some appropriate measure of inflation such as a house price inflation index (if there is one) might be best.....but you are right in that a tie to bank mortgage rates would be easier and would in any case do somewhat the same job.

Thanx for the info about an individual being able to give a mortgage.

Sleepyjohn

Edited March 4, 2006 by sleepyjohn

[ben37]

With regard to you lending your friend the money under a mortgage to purchase the property, you can establish a mortgage rate based on current lending rates, but you can include in the mortgage reviews as per bank lending rates published in Bangkok Post. Would establish a more valid agreement than inflation links. Of course a 2million baht property in 25 years would then have a capital and interest debt of about 5 million.

Thanx Dragonman...

I suppose the important thing is that the mortgage redemption value wants to "keep up" with the value of the property.

Any disparity with mortgage lower than property value increases the temptation to misdeeds. This is why I thought some appropriate measure of inflation such as a house price inflation index (if there is one) might be best.....but you are right in that a tie to bank mortgage rates would be easier and would in any case do somewhat the same job.

Thanx for the info about an individual being able to give a mortgage.

Sleepyjohn

Hi Sleepyjohn,

I've posted the following a while ago. Hope it helps and you understand everything since I'm not native english speaking.

I made a purchasing contract with a housing project in Phuket and payed a 5 % reservation fee in advance. In 2 months the land & house has to be transferred and I will have to pay the full amount of 8.000.000,- Baht.

Since the last 6 months I was surfing in the internet, spoke to several Law Agencies, Thai friends and just about everybody I met, who bought a house or want to do so in the future.

I just want to make sure that my investment will be as secured as possible. Here is what I find out and what seems to me by far the best solution.

1. The land & house has to be purchased by a Thai national.

I have a Thai girl friend but I'm living long enough here to know that you should never ever just put everything on her name without any other agreements.

so

2. You give her a mortgage of 2 times the value of everything you bought. In my case 16.000.000,- Baht. Of course you give her the money only virtuell. Actually you let register this mortgage in the Land Title (in my case Chanote) on your name. The mortgage has to be paid back in 30 years. The interest rate of the mortgage will be an annual 6% which she has to pay to you. You have to pay 1.1% as a tax to the government. So everything will be very official.

For me this would be 176000,- Baht. A lot, yes, but I can sleep well at night.

3. Additional you make a lease agreement with her for 30 years for the usage of the Land and House. The fee for the lease will be also an annual 6% of the investment. So her interest rates and your lease rate are equalizing eachother.

The only thing which I don't like is that I could not sell the House and Land without her approval (of course, since she is actually the owner). But I know for sure that in 30 years she has to pay the mortgage of 16.000.000,- Baht back to me. If she can't then the Thai Law gives me the right to sell House and Land within a specified timeframe.

A lawyer told me (not sure if that is really possible) that you could also let her sign a paper where she is stating that she agrees to sell house and land. But this paper would only be valid as long as her identity card is valid. A thai identity card is valid for a period of 5 years. So make sure that she has an Identity card which just have been issued. Like this you will have the first 5 years of freedom to sell whenever you want. You could continue that as long as you want. She just has to sign everytime again.

Best regards

Ben

[sleepyjohn]

Thankyou Ben

may I suggest you make the mortgage repayable in 25 years as Dragonman suggested. That way if there are any problems getting a lease renewal you have 5 years to take action.

If I go the lease route I shall NOT be using a girlfriend....I am thinking of the most solid friend or aquaintance possible. There are several considerations here. One has to consider:

1) Who inherits title from your lessor if they die. You don't want someone unknown to you. An unknown distant relative would be very bad. A son or daughter who grows up near you and knowing you and calling you lung would be good.

2) 25 or 30 years is a long time so you need someone considerably younger than you so hopefully the options in your favour in the lease, which MAY die with the lessor, remain intact.

3) It would be very worrying to lose touch with your lessor. You need someone who is settled and likely to stay rather than disappear to Turkey to go into Purda for the rest of her life, impossible to contact. Also one needs to consider carefully HOW to stay in touch with someone who may well go in other directions to oneself....perhaps to formalise it with say monthly contacts in return for a small allowance if the person is on the poorer end of the spectrum. Or one might employ that type of person. In any case one needs to know family addresses of the lessor and all that.

So these are some thoughts that I have come up with....but it would be very interesting to hear anyone else's opinions.

I would also like to know about "power of attorney".

A friend of mine's wife sadly died and one of his young luk kreung sons is I believe the "owner" of his property. I believe my friend has power of attorney but he is not great with the law so i ask here. I wonder how far one could use this power. For instance if one has a "lessor" friend not relative could one have power of attorney for them? It would alleviate concern about them disappearing or simply forgetting about you for instance. Could be very useful indeed. Could one have power to act in the event of their death even? Like a partial executorship?

Anything useful welcomed!

Edited March 5, 2006 by sleepyjohn