The In-validity Of A 90 Year Lease (30-30-30)

[thai thai]

I am looking for comments and opinions regarding purchasing a property through a 90-year lease...which is 'sold' as a 30-year lease with an additional 30-year renewal, and then another 30-year renewal.

It seems that here in Thailand, al lot of Lawyers have not passed the Thai Bar exam. Secondly, for every Thai lawyer I talk to...there is a different opinion or answer to the same question.

A pretty reputable Thai Lawyer told me that, for example...if a 50 year old Thai gentleman sells (leases) his property to you for 90 years (30-30-30), and dies before the expiration of the first 30 year period...is remaining family IS NOT OBLIGATED to honor the lease terms. That the man you had the agreement with is dead.

So, if one were to build a US$1,000,000-plus villa in Phuket with this arrangement...the surviving family of the lessor could take the land back...and your lovely beautiful house (if they wanted to).

THat the only thing solid is the initial 30 year lease, and anything after that is going to be like Las Vegas.

Comments

[Nadia 2]

I am looking for comments and opinions regarding purchasing a property through a 90-year lease...which is 'sold' as a 30-year lease with an additional 30-year renewal, and then another 30-year renewal.

It seems that here in Thailand, al lot of Lawyers have not passed the Thai Bar exam. Secondly, for every Thai lawyer I talk to...there is a different opinion or answer to the same question.

A pretty reputable Thai Lawyer told me that, for example...if a 50 year old Thai gentleman sells (leases) his property to you for 90 years (30-30-30), and dies before the expiration of the first 30 year period...is remaining family IS NOT OBLIGATED to honor the lease terms. That the man you had the agreement with is dead.

So, if one were to build a US$1,000,000-plus villa in Phuket with this arrangement...the surviving family of the lessor could take the land back...and your lovely beautiful house (if they wanted to).

THat the only thing solid is the initial 30 year lease, and anything after that is going to be like Las Vegas.

Comments

It's discussed a few times already, and I'vge posted this answer a few days ago;

The options in a lease agreement

Under present law the renewal options in the lease agreement do not pass to heirs or future lessors.

Supreme Court Judgment 6763/ 1998; 'In case the lessor promises in the lease agreement to extent or renew the lease term, but has sold the leased land before the lessee was entitled to accept, the 'contractual rights' are not binding upon the new owner and only lease rights that are 'real rights' will transfer to the new owner'.

A lease agreement in Thailand is in the first place an agreement between two parties and the lease rights that are not 'real rights' (though these are included in the lease agreement registered at the Land Office) do not transfer to the successors of the property. 'Real rights may be created only by the virtue of this code or other laws' (section 1298 CCC). Renewal options are not real rights.

The new owner must explicitly accept the lease and the contractual options or he or she will not automatically be bound by the option obligations. This could be effected in the form of an additional clause in the Sale and Purchase agreement between the lessor and future lessor;

CLAUSE: The Land is encumbered with a Lease dated the <> day of <> 2006 and made between the Seller of the one part and <> of the other part for an initial term of 30 years with an option to renew for a further 30 year term. (Copy attached hereto and marked Schedule <>) CLAUSE: 'The Purchaser hereby warrants and guarantees that he has read and fully understands the content of the Lease and is ready and willing and does hereby purchase the Land subject to the Lease and subject to all the terms and conditions contained therein as if he were the Seller and to indemnify the Seller against all and any claim or claims, dispute or disputes arising from any breach of the terms or conditions agreed to by the Seller contained in the said Lease and to indemnify the Seller in respect of any Government taxes that may be due or in due course fall due in respect of the said Lease'.

Without such a clause (it would be up to the lessor to include this in a sale and purchase agreement) the option obligations will under present law not pass to future lessors and the future lessor will again be bound by the 'real rights' only. Then again, these options will merely be a contractual obligation and if enforceable, difficult to enforce in Thailand (and cannot be enforced by the heirs of the lessee).

Only the first 30-years lease term is secure, regardless what the developer, seller, or registered lease say otherwise.

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'.

As a general rule, in the event of death of the lessee the lease will be terminated and the lessor (assuming the lessor has concrete proof in the form of a death certificate) could ask the Land Office to remove the lease from the title or in case of a short-term lease the lease will simply be terminated. In practice problems will in most cases arise at the expiry date of the lease between heirs and the then lessor.

Section 544 Civil and Commercial Code; 'Unless otherwise provided by the contract of hire, a hirer cannot sublet or transfer his rights in the whole or part of the property hired to a third person'. The lessee should ask the lessor to include a clause that allows sublet and transfer of lease rights, and that in the event of death of the lessee prior to the expiration of the lease term, his or her heirs shall continue to lease the land etc… Such a clause will (in my opinion) be a lease right that will be bound upon future lessors and the transfer of the lease (on proper evidence produced) cannot unreasonably withheld by the lessor (the lease won't transfer automatically). Though, without such a clause in the lease agreement will be automatically terminated (section 544 Civil and Commercial Code).

One could also include others as co-lessees or party in the lease agreement who each could independently continue to lease. This would prevent the necessity of re-registering or transferring the lease in the event of death of the lessee.

In the event of death of the lessor the lease will not be terminated. Section 569 Civil and Commercial Code; 'A contract of hire of immovable property is not extinguished by the transfer of ownership of the property hired. The transferee is entitled to the rights and is subjected to the duties of the transferor towards the hirer'.

Again, the 30-year renewal options are not secure (as these are not real rights) and these will not pass on to the heirs or future lessors.

Buildings can be owned freehold by the foreigner

The building(s) on the leased land can be owned freehold by the lessee (Scj. 301/2538 (1995)). The lease should only include the land (not only for tax reasons) and the buildings should preferably be owned freehold.

The house will not be a component part of the land under the Civil Law and the lessor cannot seize the house upon expiration the lease.

Buildings as distinct from its land can be owned freehold and transferred (to the heirs), though, buildings (apart from condominiums) do not have any form of title document, but their sale or long lease can be registered at the local land office. Proof of ownership, must be established either from proof of construction (construction permit) or documents showing previous sale-purchase. Transfer of a building as distinct from its land requires a posting of 30 days public notice (to see if anyone wishes to contest the ownership).

In this construction the lessee would not be left with nothing at the end of the lease term. However, it is still uncertain, given the fact that the concept of leases is still new in Thailand, what exactly would happen at the end of the 30-year lease term. Should the lease not be renewed the then owner must (most likely) pay at his option either the price of the building or the sum representing the increase of value accruing to the land by reason of the building or the owner must allow the lessee to lease the whole or part of the land at the market price.

This most likely option is within the system of the law and based on the provisions of the Undue Enrichment Code (Title VI, Undue Enrichment Civil and Commercial Code) and in the alternative the 'Acquisition of Ownership' (Title II, Ownership, Chapter I 'Acquisition of ownership', Civil and Commercial Code). Whichever way, if the parties cannot agree it would be up to a judge to decide what will happen at the end of the 30-year lease term.

Section 1310; 'If a person has, in good faith, constructed a building upon another person's land, the owner of the land becomes the owner of the building, but he must pay the constructor for any increase of value accruing to the land by reason of the building.

However, if the owner of the land can show that there was negligence on his part, he may refuse to take the building and require that it be removed by the constructor and the land put in its former condition, unless this cannot be done at reasonable costs, in which case he may require the constructor to buy the whole or part of the land at the market price'.

Section 1313; 'If the conditional owner of a piece of land has constructed a building on it and the land becomes afterwards the property of another person by effect of the condition, the provisions of this Code concerning Undue Enrichment shall apply'.

The lease should of course not include clauses like;

Clause; All things constructed or repaired shall not be removed from the Property or destroyed when the Lessee vacates the Property; all such things shall become the property of the Lessor.

Clause; Upon expiration of the lease, the Lessee shall not claim any damages or removal costs from the Lessor.

[Dragonman]

I am looking for comments and opinions regarding purchasing a property through a 90-year lease...which is 'sold' as a 30-year lease with an additional 30-year renewal, and then another 30-year renewal.

It seems that here in Thailand, al lot of Lawyers have not passed the Thai Bar exam. Secondly, for every Thai lawyer I talk to...there is a different opinion or answer to the same question.

A pretty reputable Thai Lawyer told me that, for example...if a 50 year old Thai gentleman sells (leases) his property to you for 90 years (30-30-30), and dies before the expiration of the first 30 year period...is remaining family IS NOT OBLIGATED to honor the lease terms. That the man you had the agreement with is dead.

So, if one were to build a US$1,000,000-plus villa in Phuket with this arrangement...the surviving family of the lessor could take the land back...and your lovely beautiful house (if they wanted to).

THat the only thing solid is the initial 30 year lease, and anything after that is going to be like Las Vegas.

Comments

The basic answers are as follows:-

30-30-30 leases are not legal! 30 year lease followed by 30 year "option" is legal, but if ownership changed for any reason the "option" would not be enforceable.

If a clause is placed in the lease, it will be enforceable even against relatives for 30 years.

[thai thai]

[/i][b]"Without such a clause (it would be up to the lessor to include this in a sale and purchase agreement) the option obligations will under present law not pass to future lessors and the future lessor will again be bound by the 'real rights' only. Then again, these options will merely be a contractual obligation and if enforceable, difficult to enforce in Thailand (and cannot be enforced by the heirs of the lessee).

Only the first 30-years lease term is secure, regardless what the developer, seller, or registered lease say otherwise."[/b]

So, how I am reading this is...that you can put a 'special' clause' into the agreement to sort of protect yourself...however, it may not be that enforcable.

Here is a quote from a 'reputable' foreign real estate firm that is selling their luxury villas in Thailand at at prices of 23 - 60 million baht...

"The villa estates will be sold as three continuous 30-year leases (90 years), automatically renewable at the lessee’s cost of re-registration."

Should I go ahead with my purchase...?

[Nadia 2]

[/i][b]"Without such a clause (it would be up to the lessor to include this in a sale and purchase agreement) the option obligations will under present law not pass to future lessors and the future lessor will again be bound by the 'real rights' only. Then again, these options will merely be a contractual obligation and if enforceable, difficult to enforce in Thailand (and cannot be enforced by the heirs of the lessee).

Only the first 30-years lease term is secure, regardless what the developer, seller, or registered lease say otherwise."[/b]

So, how I am reading this is...that you can put a 'special' clause' into the agreement to sort of protect yourself...however, it may not be that enforcable.

Here is a quote from a 'reputable' foreign real estate firm that is selling their luxury villas in Thailand at at prices of 23 - 60 million baht...

"The villa estates will be sold as three continuous 30-year leases (90 years), automatically renewable at the lessee’s cost of re-registration."

Should I go ahead with my purchase...?

Should there be a transfer of ownership of the land you will lose the options in the lease that are not real rights (like the renewal option). MAYBE the new owner is bound by the options in the lease if the previous land owner has put such a clause in the SPA.

'The villa estates will be sold as three continuous 30-year leases (90 years), automatically renewable at the lessee's cost of re-registration'.

This clause is not according to Thai law and has no value. Section 540 Civil and Commercial Code: 'The duration of a hire of immovable property cannot exceed thirty years. If it is made for a longer period, such period shall be reduced to thirty years. The aforesaid period may be renewed, but it must not exceed thirty years from the time of renewal'.

After 30 years you have to in fact enter in to a new lease agreement and a new lease has to be registered. As for the automatical renewal; Besides that you can easily lose this option (Supreme Court judgement mentioned previously) it's difficult to enforce (if enforceable), it could be seen as an avoidance of section 540 CCC and therefore not enforceable - or - the renewal promise could be seen as a gift (not supported by a consideration) and therefore unenforceable. The lessor/ giver would be in my opinion under a moral duty rather than a legal obligation.

Forget about the renewal options. They could just as well say 10 renewals or 1 renewal. It's all the same and in my opinion not enforceable.

Should you go ahead with your purchase? If you are happy with 30 years.

How is the lease drafted? Who is the reputable real estate agent? Who will be the landowner after 30 years? Is the reputable real estate agent not involved in an illegal nominee structured ownership? What is the history of the land title? Access? Vague maintenance fees for the development? Are you allowed to choose your own builder? What are the building restrictions, zone restrictions and development plans for that area?

[thai thai]

Nadia 2,

Thank you for your detailed answers. I hope to be in Phuket in the next 10 or so days to find out more details regarding this commercial project. As for the name of the developers, in fairness to them, I would rather not say just yet until I have more details.

Are you a practcing attorney here in LOS, or are you just very experienced...as I tend to probably agree with your observations, however, there are many 'professionals' who would contradict your observations. However, I would want to be on the conservative and cautionary side of things.

[rockytimeshere]

Nadia 2,

Very informative stuff, thank you.

Can you advise the legal situation of whether or not the initial lease can include a clause that states that if the lessor sells the land to a new lessor during the initial 30 year period, then the extension option must be accepted by the new buyer otherwise the land can not be sold ?

Cheers,

[Dragonman]

Nadia 2,

Thank you for your detailed answers. I hope to be in Phuket in the next 10 or so days to find out more details regarding this commercial project. As for the name of the developers, in fairness to them, I would rather not say just yet until I have more details.

Are you a practcing attorney here in LOS, or are you just very experienced...as I tend to probably agree with your observations, however, there are many 'professionals' who would contradict your observations. However, I would want to be on the conservative and cautionary side of things.

I agree 100% with Nadia 2's findings. If there is any contradictions to be made they are unlikely to come from "professionals", but more likely from people with a considerable interest in expanding the Property Market at the expense of foreigners. With 30 years in International Property Law, I thought I'd seen every deception possible, until I came to live in Thailand.

rocky, you are talking about a contract within the lease. It would not be illegal to place such a condition, but enforcement is a different matter. You would need to sue the landowner and there are many defences he/she could take.

If you are talking about a lease with a developer the circumstances will be different to a lease with your wife. If you paid 2 million for the original lease what are you going to give for the renewal? If you expect to give zero the defence could be "unjust enrichment" under Civil Law. If you are signing a zero rental agreement with your wife the defence will be "undue influence" in the signing of the contract! The lease could even be voidable under"unconscionability" or purely being unfair to the landowner.

Contract Law is very lucrative for lawyers.