40 year condo lease questions

[Mousehound]

This may be covered elsewhere but;

I am interested in a 40 year lease on a Condo. I am not living in Thailand at this stage but may retire there in the next three years.

1. Is a lease still subject to the rules of farang ownership in a condominium (49% rule)?

2. If the condo were rented out would I be subject to requiring a work visa if I retired to Thailand rather than a retirement visa? (That is I would live elsewhere in Thailand).

3. What taxes would be incurred on say a net return of 6k Bht?

Any comments please.

Thanks

[Delight]

Are you planning to be a leasee or a lessor? Your post in unclear

Thai Law only supports max 30 year leases.

The 49/51% split is not an issue here.

I think that the income that you refer to will not attract Thai taxation.

W P not required If you are just an investor and use an agent to carry out the work . That statement is just a guess on my part- I suspect that it is correct given the number of Farang who do rent out their condos

[innerspace]

1) applies to owner only not tenants.

2) renting no. Actively seeking tenants maybe.

3) Not certain. Will leave for someone who knows.

4) A 40 year lease is not valid. Maximum lease is 30 years. Any lease over 3 years must be registered at the land office. 30+option(s) to renew can be done but only the starting 30 is guaranteed. Death or sale can invalidate the renewal option.

[smutcakes]

A condo by its very nature is freehold not lease hold, are you sure you are not buying a lease in an apartment building?

You cannot buy a leasehold in a condominium. I suppose you could come to an agreement to rent a unit in a condo for 40 years, but this seems very odd.

I presume its an apartment building, so no it is not governed by the condo law on ownership.

[Mousehound]

A condo by its very nature is freehold not lease hold, are you sure you are not buying a lease in an apartment building?

You cannot buy a leasehold in a condominium. I suppose you could come to an agreement to rent a unit in a condo for 40 years, but this seems very odd.

I presume its an apartment building, so no it is not governed by the condo law on ownership.

Thank you for your replies - sorry. In fact it would be a lease on an apartment in a wholly Thai owned block of apartments. The block contains other units that are leased out to a variety of nationalities.

Interesting that 40 years is not an option. Ideally I would like a lease that covers 50 years.

I would like to pass the lease on to my son. Would this be possible if we jointly signed the lease? And if so would the lease be broken if I were to die?

Thanks

[AnotherOneAmerican]

Don't do it, sounds like a con.

[Gsxrnz]

I'm curious as to what country you come from to be interested in a 50 year lease that can be bequeathed to your son. I'm an advocate of leasing rather than buying, particularly in Thailand. However the logic of a 30/40/50 year lease escapes me.

Any right thinking landlord will ensure that the lease will increase according to a formula, with a ratchet clause prohibiting reductions, and a reset to market every 3 years or so. Therefore I see no real rental advantage for the tenant. The escape clause for the tenant will be horrendous also, probably a 2 or 3 year rent penalty.

Rent/lease by all means, but given the overabundance of condos in most popular tourist spots in Thailand, I see no advantage in a 30 year lease unless it's the MOST desirable condo/location in the Kingdom. And I don't really see the situation changing dramatically in the foreseeable future. There will be an oversupply of condos in these areas for a long, long time to come.

[Mousehound]

Don't do it, sounds like a con.

Could well be. That is what I need to find out. The idea of a lease appeals though. Owning a property outright can lead to a variety of financial complications in my case.

[smutcakes]

A condo by its very nature is freehold not lease hold, are you sure you are not buying a lease in an apartment building?

You cannot buy a leasehold in a condominium. I suppose you could come to an agreement to rent a unit in a condo for 40 years, but this seems very odd.

I presume its an apartment building, so no it is not governed by the condo law on ownership.

Thank you for your replies - sorry. In fact it would be a lease on an apartment in a wholly Thai owned block of apartments. The block contains other units that are leased out to a variety of nationalities.

Interesting that 40 years is not an option. Ideally I would like a lease that covers 50 years.

I would like to pass the lease on to my son. Would this be possible if we jointly signed the lease? And if so would the lease be broken if I were to die?

Thanks

You could only lease if for as long as there was on the head lease- whoever you are 'buying' the lease off is obviously aware how long is left on their lease so can only lease it to you until that expiry, at which case it reverts to the owner of the land and all leases will have to be renegotiated.

In terms of passing onto your son etc. The price you are going to be paying for 40-50 year lease would probably be comparable to buying a freehold condominium unit outright- where your son could also be the unit owner with you and you will never have to renegotiate a lease renewal. Does not make much sense to go leasehold over freehold in Thailand.

[Mousehound]

I'm curious as to what country you come from to be interested in a 50 year lease that can be bequeathed to your son. I'm an advocate of leasing rather than buying, particularly in Thailand. However the logic of a 30/40/50 year lease escapes me.

Any right thinking landlord will ensure that the lease will increase according to a formula, with a ratchet clause prohibiting reductions, and a reset to market every 3 years or so. Therefore I see no real rental advantage for the tenant. The escape clause for the tenant will be horrendous also, probably a 2 or 3 year rent penalty.

Rent/lease by all means, but given the overabundance of condos in most popular tourist spots in Thailand, I see no advantage in a 30 year lease unless it's the MOST desirable condo/location in the Kingdom. And I don't really see the situation changing dramatically in the foreseeable future. There will be an oversupply of condos in these areas for a long, long time to come.

Good points - thanks.

[Mousehound]

The cost of the lease would be about 30% less than buying outright.

[Gsxrnz]

The cost of the lease would be about 30% less than buying outright.

I fail to see how you can draw that conclusion given that we have no rental or valuation of the property in question. However, if you've assumed some generic type values I would be interested in your calculation methodology and variables.

Are you factoring in the residual value of the asset (for the notional purchaser comparative)?. The "cost" to the tenant would be the annual rent for 30 years, plus/minus lost investment opportunity on the property, plus/minus alternative investment earnings and values from surplus cash. The "cost" to a notional purchaser would be the purchase price, less the cost of money over the same time frame, plus capital gain/loss, less the notional value of rent, less ownership costs. And even that's a simplified way of calculating it without even considering the time value/cost of money.

To do it properly you'd have to do reasonably complex calculations of NPV and FPV on all the variables to calculate the cashflows over the 30 year period.

Edited July 21, 2013 by Gsxrnz

[Delight]

The cost of the lease would be about 30% less than buying outright.

You cannot buy an individual apartment -so your statement is not relevant.

An apartment has only one title deed for the entire block.

Whereas with a condo block each unit has its own title deed so as such each unit can be traded.

Edited July 21, 2013 by Delight

[Arkady]

I would think this is not a sensible proposition at all. As pointed out above, an apartment is legally quite different from a condo in Thailand and, as such, is not covered by the Condominium Act. Strata title (individual title deeds for each unit or floor) is only available in buildings that are registered as condominium blocks from the beginning. An apartment building has only one title deed and the owner rents the units out on short term leases of 3 years or (usually) less that are not registered at the Land Department. Theoretically a lease of more than 3 years should be registered at the Land Dept but I am not sure, if they will do this for an apartment. They will not have details of the individual units on record, as they do for condos, and therefore cannot record exactly what is being leased without doing a survey which they will only do for property they can issue a title deed for. If you pay for a 30 or 40 year lease on property that cannot be registered at the Land Department, you will have a real tough job enforcing it in court, since the courts rely on the Land Dept registration as prima facie evidence that the lease was legally executed.

If you go ahead, you have no protection from the Condominium Act. Therefore, if you are unhappy with the way the building is being managed by its sole owner or his plans to develop it, you have no legal recourse. If the building changes hands, your lease which will likely just be a unregistered civil law contract will in all likelihood be unenforceable on the new owner who can probably just evict you without compensation, since he would not be a party to the agreement. Even the present owner could probably decide to demolish the building and let you try to sue him for breach of contract after he has reduced your home to rubble.

As far as the tax is concerned, assuming that the lease allows you to sublet, it depends on whether you have other sources of income in Thailand. Bt 6,000 a month is below the threshhold for personal income tax and you would not have to file a tax return, if this were the only Thai income you had.

As far as passing the lease on to your son is concerned, it is not really an asset, if it can't be registered and, as such, there would not be much to pass on. If you are joint signatories to the agreement, the agreement would have to make very clear that it is a survivorship contract, i.e. it reverts solely to the surviving joint signatory. In the Civil and Commercial Code partnerships have to be dissolved, if one partner dies. So I would be very wary of this. In any event, your security of tenure is likely to be tenuous at best, even while both joint signatories are still alive.

Since your unit has no title deed or official house number, it will not be eligible for a tabian baan, if this is important to you. There can only be one tabian baan for the whole apartment building.

Investing in Thai property is a rather precarious venture for foreign individuals at the best of times but it should be clear by now that the proposed transaction is little short of insane or financial suicide. If you want to buy property buy a freehold condo that can be registered in your own name. Otherwise rent on short term leases. If you don't want the property for you or your family to live in, there is really little point in trying to be a landlord in Thailand even with a condo and proper title, given all the uncertainties in the legal situation. You will never win in court against a wealthy Thai opponent, no matter what the facts of the case may be.

[swissie]

Don't do it, sounds like a con.

It's more than a classical con. Promises of extending a lease to a son? (Son of the OP or the wife?)

I am afraid, that the OP's legal-brigade, will claim "no problem". Of course it's no problem for them, the problem will strictly be the problem of the Farang, down the road.

By the time, the Farang realizes that there is a "problem", the legal-firm will have re-located to Singapore or Vientiane or god knows where.

Cheers.

[Arkady]

A condo by its very nature is freehold not lease hold, are you sure you are not buying a lease in an apartment building?

You cannot buy a leasehold in a condominium.

Actually not so. Condos can be freehold or leasehold. There are a number of condos in central Bkk that were built on prime land owned by landlords such as the Crown Property Bureau or Chulalongkorn University that do not sell their land and the units were sold on 30 year leases, e.g. several condos in Rachadamri overlooking the Royal Bangkok Sports Club. The locations were so desirable that they sold out easily, despite the limited leases. There is very little freehold land available in these areas in Bkk.

[Delight]

A condo by its very nature is freehold not lease hold, are you sure you are not buying a lease in an apartment building?

You cannot buy a leasehold in a condominium.

Actually not so. Condos can be freehold or leasehold. There are a number of condos in central Bkk that were built on prime land owned by landlords such as the Crown Property Bureau or Chulalongkorn University that do not sell their land and the units were sold on 30 year leases, e.g. several condos in Rachadamri overlooking the Royal Bangkok Sports Club. The locations were so desirable that they sold out easily, despite the limited leases. There is very little freehold land available in these areas in Bkk.

Your post gives the impression that freehold or leasehold are options -they are not.

All condos are freehold . A lease,up to 30 years, can be negotiated from that basic status.They cannot start as leasehold.

[Arkady]

Post deleted by Arkady.

[Arkady]

A condo by its very nature is freehold not lease hold, are you sure you are not buying a lease in an apartment building?

You cannot buy a leasehold in a condominium.

Actually not so. Condos can be freehold or leasehold. There are a number of condos in central Bkk that were built on prime land owned by landlords such as the Crown Property Bureau or Chulalongkorn University that do not sell their land and the units were sold on 30 year leases, e.g. several condos in Rachadamri overlooking the Royal Bangkok Sports Club. The locations were so desirable that they sold out easily, despite the limited leases. There is very little freehold land available in these areas in Bkk.

Your post gives the impression that freehold or leasehold are options -they are not.

All condos are freehold . A lease,up to 30 years, can be negotiated from that basic status.They cannot start as leasehold.

I know that a lot of condo projects are being sold as 100% leasehold in tourist resorts like Samui and Phuket to get around the 49% foreign ownership limit and avoid getting stuck with the 51% Thai portion unsold. These projects' developers bought the freehold land but lease the units to foreigners which is basically a con, since the buyers don't really have full ownership and are not protected by the Condominium Act as these sales are counted as hire of immoveable property under the Civil and Commercial Code. However, the 30 leases are at least registerable at the Land Dept because the units are real condos with titles.

On the other hand I am not sure of the legal structure of the projects that have been built on land leased for 30 years from owners that refused to sell the freeholds. The Condominium Act states that the land is a common part that condo owners have a share in. I had assumed that this could also apply to a 30 year lease but perhaps this is not the case. If so, what is the structure of these "condos"? Are they also apartment buildings sold off like the OP's proposal? They were all marketed as condos on 30 year leases commencing on the date the developer leased the land and you can find loads of re-sale ads offering individual "condo" units with, say, 15 to 28 years left on the leases in these fancy projects overlooking RBSC. If they are not registered as condos, this must be a huge con.

Personally I would not consider an investment in residential property in Thailand that is not freehold given the lack of leases longer than 30 years and difficulties in enforcing even a properly registered 30 year lease. You can always invest your money in real estate investment trusts in Thailand or elsewhere that are obliged to pay out nearly out their earnings in dividends. That way you keep up with increases in capital values and rents and can use the dividends to pay for your rental property in Thailand. If the building management pisses you off, just move out.

[johnnyk]

Why lease/rent a condo for 40 years?

You are committing very very far ahead and there is no need to do that, remember things can turn on a dime in Thailand.

Personally, I would not rent for more than a year at a time. Keep your options open.

The building could be sold to new and unpleasant owners.

The buiding could be allowed to fall apart into a slum.

The neighbours could be noisy drunken dickheads and on and on.

[smutcakes]

A condo by its very nature is freehold not lease hold, are you sure you are not buying a lease in an apartment building?

You cannot buy a leasehold in a condominium.

Actually not so. Condos can be freehold or leasehold. There are a number of condos in central Bkk that were built on prime land owned by landlords such as the Crown Property Bureau or Chulalongkorn University that do not sell their land and the units were sold on 30 year leases, e.g. several condos in Rachadamri overlooking the Royal Bangkok Sports Club. The locations were so desirable that they sold out easily, despite the limited leases. There is very little freehold land available in these areas in Bkk.

Some of them are not condominiums eg St.Regis Residence and are not governed under the condo act- some of them are like 185 Rajdamri. A proper condominium Juristic person governed by the Condo act cannot be leasehold.

if you looked at the prices of similar sized units in the two buildings it is clear a premium for the fact 185 is a condo rather than leasehold like St.Regis is being paid by purchasers.

[Delight]

A condo by its very nature is freehold not lease hold, are you sure you are not buying a lease in an apartment building?

You cannot buy a leasehold in a condominium.

Actually not so. Condos can be freehold or leasehold. There are a number of condos in central Bkk that were built on prime land owned by landlords such as the Crown Property Bureau or Chulalongkorn University that do not sell their land and the units were sold on 30 year leases, e.g. several condos in Rachadamri overlooking the Royal Bangkok Sports Club. The locations were so desirable that they sold out easily, despite the limited leases. There is very little freehold land available in these areas in Bkk.

Your post gives the impression that freehold or leasehold are options -they are not.

All condos are freehold . A lease,up to 30 years, can be negotiated from that basic status.They cannot start as leasehold.

I know that a lot of condo projects are being sold as 100% leasehold in tourist resorts like Samui and Phuket to get around the 49% foreign ownership limit and avoid getting stuck with the 51% Thai portion unsold. These projects' developers bought the freehold land but lease the units to foreigners which is basically a con, since the buyers don't really have full ownership and are not protected by the Condominium Act as these sales are counted as hire of immoveable property under the Civil and Commercial Code. However, the 30 leases are at least registerable at the Land Dept because the units are real condos with titles.

On the other hand I am not sure of the legal structure of the projects that have been built on land leased for 30 years from owners that refused to sell the freeholds. The Condominium Act states that the land is a common part that condo owners have a share in. I had assumed that this could also apply to a 30 year lease but perhaps this is not the case. If so, what is the structure of these "condos"? Are they also apartment buildings sold off like the OP's proposal? They were all marketed as condos on 30 year leases commencing on the date the developer leased the land and you can find loads of re-sale ads offering individual "condo" units with, say, 15 to 28 years left on the leases in these fancy projects overlooking RBSC. If they are not registered as condos, this must be a huge con.

Personally I would not consider an investment in residential property in Thailand that is not freehold given the lack of leases longer than 30 years and difficulties in enforcing even a properly registered 30 year lease. You can always invest your money in real estate investment trusts in Thailand or elsewhere that are obliged to pay out nearly out their earnings in dividends. That way you keep up with increases in capital values and rents and can use the dividends to pay for your rental property in Thailand. If the building management pisses you off, just move out.

I see nothing legally wrong in a developer having the chanotes registered in their name and then offering 30 Year leases. If the developer figures that the building has a 60 year life -then in theory they can lease each unit twice.

To stay within the law 2 of the units must be in separate names since by law a committee must have minimum 3 co -owners.

It does,however ,have the potential to be a nightmare for the leaseholders. They have no 'say' on anything. The developer can legally increase the fees -not supply good maintenance . They cannot attend AGM's. They are all at the mercy of the developer.

[Arkady]

I see nothing legally wrong in a developer having the chanotes registered in their name and then offering 30 Year leases. If the developer figures that the building has a 60 year life -then in theory they can lease each unit twice.

To stay within the law 2 of the units must be in separate names since by law a committee must have minimum 3 co -owners.

The problem is that developers don't represent their projects to buyers like that, even though that is what is most likely to happen. Mainly they tell buyers that they, their heirs or other transferees will enjoy rights to renew the leases for a further 30 or 60 years, no sweat.

Condo projects I have seen in places like Phuket where all the units are offered on 30 year leases involve a fancy smoke and mirrors structure where it is made to look as if the unit buyers have control over the company set up to own the land through a minority holding in a BVI company that has majority voting control. That is supposed to guarantee the buyers that they will be able to extend the 30 year leases but the structure looks fairly dubious and, if it is really set up as claimed, it is vulnerable to prosecution under the Foreign Business Act and the Land Code.

A friend asked me for advice on one of these and I told him not to touch it with a barge pole but, if he insisted, at least do basic due diligence on the Thai company that owns the land and its nominee Thai shareholders and ask for audited accounts and other company information on the Thai and BVI companies. Soon afterwards I got a call from a farang shyster in Phuket demanding to know how dare I suggest to his client that he should do due diligence which this guy claimed would cost hundreds of thousands of baht, rather than the B500 or so the Commerce Ministry charges for company details and costs of photocopying etc. LOL. I suggested to the shyster that he might consider supplying potential buyers with a due dilgence kit and he told me I knew absolutely nothing about the Phuket property market. My friend didn't lease the condo.

[Mousehound]

Thanks everyone for some excellent thoughts.

I think you are mostly in agreement that it is not a good idea, and having read some of the excellent arguments I shall give it a miss.