Phuket court rules 'secured' or 'collective' leases are void

[webfact]

Phuket court rules 'secured' or 'collective' leases are void
The Phuket News


The terms may look tempting, but will the courts agree?

PHUKET: -- In a shock decision by the Phuket Civil Court, backed by the Region 8 Appellate Court, it has been ruled that the so-called “secured leases” offered by some real estate developers to allow foreigners to secure a cast-iron 90-year lease are not valid.

The case is now to go to the Supreme Court.

The Phuket News’ legal correspondent, Jerrold Kippen, has revealed that not only has the structure been ruled invalid but the courts’ decision may mean that the original underlying 30-year lease, even if registered with the Land Office, is now void – it never existed, leaving the buyer with two handfuls of nothing.

Mr Kippen explained, “As a general rule foreigners cannot own land and apartment units but it is possible for foreigners to lease them and that is the reason why these are commonly marketed to foreign buyers on a leasehold basis.

“Under Thai law the maximum lease term is 30 years, which may be renewed upon expiration of that term.

“The leases marketed to foreigners typically provide for an initial 30-year term plus two additional successive 30-year renewal terms.

“However, the renewal of a lease in Thailand is by no means assured even if it is provided for in the original lease agreement.”

He explained that in order to overcome this issue the “Secured” or “Collective” Lease was devised and marketed to foreigners. This is meant to ensure that the lease is renewed, twice, as originally agreed.

The way this “security” is supposedly provided is by the buyer not only entering into a lease agreement with the Thai company that owns the developer’s land/apartment, but also entering into a share-sale-and-purchase agreement for shares that control the Thai company that owns the developer’s land/apartment.

Now, however, two Thai courts have concluded that the “Secured” Lease is “void” as a matter of law.

A contract that is found to be void is considered never to have existed.

If other courts confirm these two courts’ opinions, then not only will any renewal term of “Secured” Leases be invalid but also the current lease terms.

“This would be the case regardless of whether such a lease was already registered,” Mr Kippen said.

“Why? Because a finding that a lease is void means that it never legally existed and, therefore, as far as the law is concerned, a void lease cannot be, nor ever could have been, registered.

“Even if the legally void lease went through the Land Office formalities of registration, with registration fees paid, papers signed and stamped by the land officials, it simply does not change the legal non-existence of the void lease because, legally, nothing happened by such acts.”

In the test case now headed for the Supreme Court, the buyers entered into the project’s “Secured” Lease structure. Leases, in this case for apartments, were registered several years ago.

The lessees filed a civil case against the developer of the project in the Civil Court to protect their leasehold rights. Neither the buyers nor the developer argued that the leases were not valid.

Quite the contrary: they both relied on provisions of the leases to support their respective arguments.

However, the court decided on its own that the leases – when considered in light of the share-sale-and-purchase agreement for the shares that control the Thai company that owns the developer’s land/apartments – were actually fictitious agreements made to conceal what the parties had actually agreed: to sell and buy the relevant real estate.

“Section 155 of the Civil and Commercial Code of Thailand (CCC) provides that if two parties enter a fictitious agreement in order to conceal their real agreement, the fictitious agreement is void.

“It goes on to state that although the fictitious agreement is void, the hidden agreement that the parties actually made must then be evaluated under the provisions applicable to it,” Mr Kippen explained.

“In this case, the courts ruled that the parties had entered into fictitious lease agreements through the “Secured” Lease structure and had done so in order to hide their actual agreement to sell and buy the properties.”

The court, he said, decided this meant that the leases were void and that the provisions of Section 456 of the CCC applied to the “real” sale and purchase agreements.

Section 456 provides, in pertinent part, that “a sale of immovable property is void unless it is made in writing and registered by the competent official.”

The court then concluded that since these sales were not made in writing nor registered with the competent official, they too were void.

This ruling, by a sole trial court judge, was then appealed to a three-judge appeal court panel. The Appellate Court confirmed the trial court’s decision on the very same factual and legal grounds as the trial court outlined above:

- The “Secured” Leases with their lease-plus-share-sale-purchase agreements were fictitious agreements meant to conceal actual sale-and-purchase agreements for the real estate; thus

- The leases and share-sale-purchase agreements were void; as were

- The actual concealed real estate sale-and-purchase agreements because they were not made in writing or registered with the competent official.

“Taking these new decisions into account the “Secured” Lease not only does little if anything to address the very real insecurity that your long-term lease will not be renewed, but it also could have the disastrous consequence that your current lease could be considered legally void,” Mr Kippen said.

“And according to these courts’ analysis, anyone who has already invested or is considering investing in such a structure is facing the immediate loss of the investment.”

The good news, he said, is that secured leases can be restructured to provide actual long-term lease security legally and without any downside to the developer by securing the pre-paid renewal terms with a mortgage over the land involved.

“It is a simple and straightforward legal structure that provides security for the investor. A current ‘Secured’ Lease can be restructured into this better and genuinely secure alternative, before it is too late.

“As always,” he added, “you should engage competent legal and tax counsel in order to implement this mortgage-based security structure successfully.”

Source: http://www.thephuketnews.com/phuket-court-rules-secured-or-collective-leases-are-void-51183.php


-- Phuket News 2015-02-27

[tif]

And why is this 'news'? Only the seriously stupid fell for this.

[Somtamnication]

Oops. That ruling sucks eggs big time!

[NeverSure]

And why is this 'news'? Only the seriously stupid fell for this.

There must be a lot of seriously stupid people then.

[steelepulse]

So all those who "bought" the 90 year lease now need to change it to the legal 30 year lease? That's the way I read the last couple of paragraphs, but I wonder how many original developers and sellers will just make a new lease contract without consideration?

[tif]

And why is this 'news'? Only the seriously stupid fell for this.

There must be a lot of seriously stupid people then.

Oh believe me, there are. A cursory glance through any expat forum will confirm this.

[scorecard]

<script type='text/javascript'>window.mod_pagespeed_start = Number(new Date());</script>

And why is this 'news'? Only the seriously stupid fell for this.

There must be a lot of seriously stupid people then.

They do indeed exist. Many many years back there was the case of a farang who agreed to 'temporarily' transfer his 49% share in a Thai company to his farang lawyer (office here in Thailand) so that the lawyer could use his lawyer status to maybe get a loan but with no guarantee and nothing documented and no witnesses. The said farang was my neighbor at the time, he had originally set up the Thai company to buy / gain control over a big piece of land and the expensive house on the land.

He did indeed effect the share transfer then of course the lawyer insisted it was a gift for past services. The case went to court, the judge decided the case within 5 minutes, the original farang lost.

Why? Simple, the original farang agreed that it was his signature on the share transfer documents and he agreed that he had not been harassed or coerced or whatever into signing. And he also had no evidence whatever that he was due any consideration (payment etc.) for the shares.

[alant]

Quote

"“It is a simple and straightforward legal structure that provides security for the investor. A current ‘Secured’ Lease can be restructured into this better and genuinely secure alternative, before it is too late.

“As always,” he added, “you should engage competent legal and tax counsel in order to implement this mortgage-based security structure successfully.”"

end quote

Any chance the lawyers said that before?

Any chance the lawyers that did the original deal are liable?

Any chance if you did a new "genuinely secure alternative" and a future court rules it bogus the lawyer would be liable? Please find me a lawyer that puts the value of the deal in a bond payable to the customer if it all goes tits up.

[Genericnic]

And why is this 'news'? Only the seriously stupid fell for this.

There must be a lot of seriously stupid people then.

God loves stupid people. That's why he made so many of them.

David

[bassman]

The whole issue stinks of serious corruption. If indeed the land was sold to the buyer from a corporation, which should know Thai law and a profit was made then there should be compensation from the seller to the buyer that was duped. In most democracies there are numerous consumer protection laws that would make the seller responsible. But alas this is Thailand and probably little consumer protection. Hope the homeowners the best.

[Suffinator]

Well I've said it before ... You'd have to be a complete and utter moron to buy property in Thailand. Who in their right mind would think about handing over 51% of their assets to what is little more than a nation of thieves?

It's a shame the UK, US and EU countries don't apply the same rules to Thais but of course we understand the importance of foreign investment and we also know that they can't dig it up and take it with them.

The other issue has for many years been pricing; in most cases the property market especially in areas such as Phuket, are so over the top it beggars belief anyone would think they are buying a home / villa or apartment of good investment value.

I honestly cannot understand how anyone could be stupid enough to buy property in Thailand ... there again the Nigerian 419 Scam continues to catch the very stupid and greedy and I can only conclude that the expats who brought property in Thailand fall into both categories.

[Suffinator]

And why is this 'news'? Only the seriously stupid fell for this.

There must be a lot of seriously stupid people then.

Oh yes!

[elgordo38]

And why is this 'news'? Only the seriously stupid fell for this.

My Cardinal rule never buy/lease property here even a condo. Rent a month at a time. The rules here on property are like the movie 50 Shades of Grey.

[rayongchelsea]

Well I've said it before ... You'd have to be a complete and utter moron to buy property in Thailand. Who in their right mind would think about handing over 51% of their assets to what is little more than a nation of thieves?

It's a shame the UK, US and EU countries don't apply the same rules to Thais but of course we understand the importance of foreign investment and we also know that they can't dig it up and take it with them.

The other issue has for many years been pricing; in most cases the property market especially in areas such as Phuket, are so over the top it beggars belief anyone would think they are buying a home / villa or apartment of good investment value.

I honestly cannot understand how anyone could be stupid enough to buy property in Thailand ... there again the Nigerian 419 Scam continues to catch the very stupid and greedy and I can only conclude that the expats who brought property in Thailand fall into both categories.

It depends when you bought, what the exchange rate was when you bought, where you bought and if the asset was in your name.

I have done very well out of it overall.

[BudRight]

This is not new. Some have been predicting this for years. Now that it's finally happened though I feel sad.

Edited February 27, 2015 by BudRight

[Thai Travel Bug]

Well I've said it before ... You'd have to be a complete and utter moron to buy property in Thailand. Who in their right mind would think about handing over 51% of their assets to what is little more than a nation of thieves?

It's a shame the UK, US and EU countries don't apply the same rules to Thais but of course we understand the importance of foreign investment and we also know that they can't dig it up and take it with them.

The other issue has for many years been pricing; in most cases the property market especially in areas such as Phuket, are so over the top it beggars belief anyone would think they are buying a home / villa or apartment of good investment value.

I honestly cannot understand how anyone could be stupid enough to buy property in Thailand ... there again the Nigerian 419 Scam continues to catch the very stupid and greedy and I can only conclude that the expats who brought property in Thailand fall into both categories.

Buy a condo, do it legally and securely in foreign name......that's the only way.....other than that, there may one day be an almighty pull on the rope that has allowed company purchases, and any lease agreements that has been entered into....... If I was a 25 year old lovely, I'd give you a thirty year lease no worries......But you would only get one lease...There would be no renewal...Then I'd own your house when I am 55.....In fact, I may own two or three........and God forbid if something tragic should happen to you in the next 3 or 4 years.....Then I'd own them all a lot sooner. As they say, make sure the door doesn't slam into your arse on the way out.

[mickeymouse22]

Don't worry. It's just another step to Thai Happiness

[realenglish1]

Well I've said it before ... You'd have to be a complete and utter moron to buy property in Thailand. Who in their right mind would think about handing over 51% of their assets to what is little more than a nation of thieves?

It's a shame the UK, US and EU countries don't apply the same rules to Thais but of course we understand the importance of foreign investment and we also know that they can't dig it up and take it with them.

The other issue has for many years been pricing; in most cases the property market especially in areas such as Phuket, are so over the top it beggars belief anyone would think they are buying a home / villa or apartment of good investment value.

I honestly cannot understand how anyone could be stupid enough to buy property in Thailand ... there again the Nigerian 419 Scam continues to catch the very stupid and greedy and I can only conclude that the expats who brought property in Thailand fall into both categories.

I totally agree with this. What needs to be done is reform of property rights. I do not see a problem if you allow legal residence to own property here in Thailand Restrict it to residential housing. This will not only boost real estate prices in Thailand but also level the playing field as well. Thais can own land in most other countries MR Prime Minister

Your land ownership laws are archaic. If you retire or work here then its known people who own their own place look after far better then renters. Thais can own in other countries

Although this is not the route problem with Thai society it is a branch problem that needs to be addressed. Heck even if you are not a resident in other countries you can still own a house.

This is the 21st century and a global community Its time Thailand stepped up to the plate

[cumgranosalum]

in line with the current admin's policy of excluding foreigners and setting the clocks back?

[BlackJack]

well the easy way out is for the Government to offer 90 years lease as many countries do

i think that if one has gone through this whole procedure legally with the 2 parties, Lawyers, banks, Land Office, etc., got the chanote and appropriate signed stamped documents and in the mind that they have entered in good faith a legal contract - only to be told that it didnt exist is opening the door to many civil and consumer court cases.

So i will be watching this one to see how it pans out.

But then again as the Thai's say "if you werent in Thailand then it would not have happened" - so I suppose this is the best legal strategy.

[Dukeleto]

Well I've said it before ... You'd have to be a complete and utter moron to buy property in Thailand. Who in their right mind would think about handing over 51% of their assets to what is little more than a nation of thieves?

It's a shame the UK, US and EU countries don't apply the same rules to Thais but of course we understand the importance of foreign investment and we also know that they can't dig it up and take it with them.

The other issue has for many years been pricing; in most cases the property market especially in areas such as Phuket, are so over the top it beggars belief anyone would think they are buying a home / villa or apartment of good investment value.

I honestly cannot understand how anyone could be stupid enough to buy property in Thailand ... there again the Nigerian 419 Scam continues to catch the very stupid and greedy and I can only conclude that the expats who brought property in Thailand fall into both categories.

Comments usually made by people who can't afford to buy a property. There are a lot of very high end villas owned by very wealthy and extremely investment savvy people.

[davidmann]

why buy in thailand ,go to place where you buy and get what you pay for lot places in the world got beaches/sun/girls/beer without all the problems

[gandalf12]

<script type='text/javascript'>window.mod_pagespeed_start = Number(new Date());</script>

Well I've said it before ... You'd have to be a complete and utter moron to buy property in Thailand. Who in their right mind would think about handing over 51% of their assets to what is little more than a nation of thieves?

It's a shame the UK, US and EU countries don't apply the same rules to Thais but of course we understand the importance of foreign investment and we also know that they can't dig it up and take it with them.

The other issue has for many years been pricing; in most cases the property market especially in areas such as Phuket, are so over the top it beggars belief anyone would think they are buying a home / villa or apartment of good investment value.

I honestly cannot understand how anyone could be stupid enough to buy property in Thailand ... there again the Nigerian 419 Scam continues to catch the very stupid and greedy and I can only conclude that the expats who brought property in Thailand fall into both categories.

[/quote

It depends when you bought, what the exchange rate was when you bought, where you bought and if the asset was in your name.

I have done very well out of it overall.

Totally agree with you. The UK should enforce the same rules but then of course Thais would be complaining of unfair treatment

[thhMan]

For a Thai to own land here and overseas may seem like a wonderful prospect for them, but not allowing a foreigner to do the same may have consequences at some time for Thailand...

[Dukeleto]

I can just imagine the all the old farts renting a 2,000 baht bedsit in some dump gleefully rubbing there hands together. Must be feeling very good about themselves today.

[kinmaew]

No surprise too bad for the farang who has invested his life savings. As Stickman said once just RENT

At the end of the day if you cant own land 100% in your name essentially all you are doing is buying the right to live somewhere so you may as well rent its not that expensive and the best thing about it you can "Flee the scene" if there are any major problems that the owner should be taking care of but does not.

[gk10002000]

I read it as the worse case is any 90 year lease that starts with the 30 year lease, the entire contract could be voided and even the initial 30 year lease could be void. This sounds possibly like the beginnings of a "nationalization" of Thai properties. See Venezuala and recent company and company asset siezures.

[Valentine]

Don't worry. It's just another step to Thai Happiness

I don't think so. Some might be happy to get their land back with a nice home already built on it but any developer trying to sell now has even less chance considering this & the fact the Russians are basically out of the market. I went to a development this morning built by Thai owner. Construction standard was not good & I could not believe the asking price of 12 million for a 2 bedroom pool villa that was on not more than 250m2 of land with living area about 120m2. Unless they were laundering money it would be sheer lunacy to buy.

[Valentine]

I read it as the worse case is any 90 year lease that starts with the 30 year lease, the entire contract could be voided and even the initial 30 year lease could be void. This sounds possibly like the beginnings of a "nationalization" of Thai properties. See Venezuala and recent company and company asset siezures.

That's the way I read it too.

[shirtless]

Just reciprocate this treatment to Thai people in western countries and see them lose their houses , its about time western governments protected westerners.