Leasing land, owner wants 5 year renewable leases

[rwdrwdrwd]

We're in the early stages of considering renting some land, it's a decent enough price and we'd like to rent for 15 - 30 years. The owner says they will do this, but they want to officially have 5 year terms (am assuming with registration at land office) and have a private contract for 30 years that guarantees renewal every 5 years a fixed price.

This seems pretty odd, since I though leases could be registered for up to 30 years - probably won't even be in a foreigner's name, but a Thai - Thai lease.

Is there some obvious reason they would wish to do this? Maybe tax benefits, or more worryingly, to be able to easily get out of the contract after 5 years?

They also mentioned the price would be fixed for the entire 30 year term, is this standard or would there usually be potential lease raises built into a contract?

Input appreciated, just trying to work out why they might be approaching the contracts in this manner.

[Farma]

A couple of years back Tesco and AIS approached the wife about long term rental on a piece of land she owns.

They basically proposed the same. A 30 year contract with lease periods of x number of years with rental increases at each renewal.

[blackcab]

If this deal went through, the first 5 year lease would be registered at the land office. This would be enforceable under the hire of property laws.

The subsequent leases, however, would be viewed as options, and would only be enforceable under general contract law. Which as I'm sure you know, is a long and expensive process to prosecute.

The biggest problem with the proposed 5+5+5 deal is that if the owner sells the land within the first five years, the new owner is not in any way obliged or bound to continue the subsequent 5+5 options.

If you have built something expensive and immovable on the land you could be forced to walk away from it. Especially if nobody told you the owner sold the land to another family member and at the 5 year and 1 day mark everyone turns up enough masse with the police in attendance.

Or if the owner got into debt and sold the land in the first 5 years then the new (loan shark) owner could just sit back and wait until the first 5 years expires. After that you're little more than a trespasser.

To be secure you need the full duration of the lease to be written onto the chanote.

Don't, however, automatically assume the owner thinks this way. 3+3+3 are very common leases in Thailand and the same rules apply to those too. The company I work for recently rented a shop to a well known convenience store on a 3+3+3 lease. The company ripped the entire premises out and fitted new everything. We could sell the land/building in the first 3 years and the new owner could kick them out just the same.

It's a gamble. The thing is it would make no commercial sense for anyone to kick out our commercial tenant. Would it make commercial sense to kick you off the land?

The final thing is that the owner could be thinking about rent increases after each 5 years, which would be written into the contract. With one lease period all increases would have to be agreed and calculated first. You (or they) would also have to pay 1.1% of this amount to the land office.

Edited November 21, 2015 by blackcab

[manarak]

OP - if I read your post right, you want to be the lessee, leasing the property from a lessor, correct?

The reason why Tesco offers renewable 5 year terms is because they don't want to be captive in a registered lease for 30 years.

If the lessor offers 5 year renewable leases it is usually because he wants to be able to reconsider the lease every 5 years.

Every private law contract can be broken in Thailand, and if the counterparty of a private contract dies or, in the case of a company, disappears, the heirs are not bound by the previous contract. So if you would be leasing from a company or from an elderly person, chances are you won't reach 30 years with your lease. If you build anything on that land, you might have to destroy it after 5 years, worst case. If the private contract offered any guarantees, these can be fought in court and it could take years, not to mention possible out-of-court intimidation that could go until death of one of the parties (you) if really nasty people get involved.

I would do it the other way around: register the lease for 30 years at the land office and make a private contract allowing the lessor some margin to adjust the rent.

[manarak]

If this deal went through, the first 5 year lease would be registered at the land office. This would be enforceable under the hire of property laws.

The subsequent leases, however, would be viewed as options, and would only be enforceable under general contact law. Which as I'm sure you know, is a long and expensive process to prosecute.

The biggest problem with the proposed 5+5+5 deal is that if the owner sells the land within the first five years, the new owner is not in any way obliged or bound to continue the subsequent 5+5 options.

If you have built something expensive and immovable on the land you could be forced to walk away from it. Especially if nobody told you the owner sold the land to another family member and at the 5 year and 1 day mark everyone turns up enough masse with the police in attendance.

Or if the owner got into debt and sold the land in the first 5 years then the new (loan shark) owner could just sit back and wait until the first 5 years expires. After that you're little more than a trespasser.

To be secure you need the full duration of the lease to be written onto the chanote.

Don't, however, automatically assume the owner thinks this way. 3+3+3 are very common leases in Thailand and the same rules apply to those too. The company I work for recently rented a shop to a well known convenience store on a 3+3+3 lease. The company ripped the entire premises out and fitted new everything. We could sell the land/building in the first 3 years and the new owner could kick them out just the same.

It's a gamble. The thing is it would make no commercial sense for anyone to kick out our commercial tenant. Would it make commercial sense to kick you off the land?

The final thing is that the owner could be thinking about rent increases after each 5 years, which would be written into the contract. With one lease period all increases would have to be agreed and calculated first. You (or they) would also have to pay 1.1% of this amount to the land office.

this is much better than my confusing writing.

[rwdrwdrwd]

Thanks for the input - we're not going through with it, especially in conjunction with the fact my wife just mentioned that the actual owner is currently in prison for murder....

Glad I asked - might have dodged a bullet there!

Edited November 21, 2015 by rwdrwdrwd

[manarak]

Thanks for the input - we're not going through with it, especially in conjunction with the fact my wife just mentioned that the actual owner is currently in prison for murder....

Glad I asked - might have dodged a bullet there!

Owner in prison for murder... it seems to me that avoiding dealing with such a counterparty is indeed advisable.