MUST READ: Thailand condominium developers are required to procure an environmental impact assessment (EIA) approval prior to obtaining a construction permit if their proposed condominium meets certain criteria.
Any proposed condominium with 80 or more units and/or 4,000 or more sqm of utilised area must have an EIA approval to begin construction. For smaller projects and activities, it is possible that an Initial Environmental Examination (IEE) would be required, but this is not always the case and depends on the activity and location.
Additionally any proposed condominium located near a river, coast, lake or beach, or in the vicinity of a national or historical park must also have EIA approval to obtain a construction permit.
If you’re contemplating putting your funds into a development that is required to have, but does not yet possess, an EIA approval you should be aware that you are subjecting your funds to an enhanced level of risk.
The EIA process often does not result in an unconditional approval of the first application, and may lead to consequences including (1) the cancellation of the development; (2) the delay of development completion; and/or (3) substantial changes to the nature of the development. Depending on the financial health of the developer each of these consequences carry the potential to put your entire investment in jeopardy.
While the absence of a required EIA approval does enhance the risk of investing in a development, it does not mean that all such investments should be avoided.
Given a sufficient return just about any investment can be worthwhile. However, where there is greater potential for risk it does place a greater burden on you to properly measure the risk and ensure that the contractual relationship between you and the developer only allocates to you a level of risk you’re willing to assume.
A basic amount of diligence will go a long way in analysing the difficulties that the EIA application process might impose on the development.
Firstly you should investigate the development company’s financial position and assess the impact that delays or required changes might have on its ability to complete the project, as well as the ability of the company to repay you if the project is cancelled.
Secondly you should look into the history of the company, its directors and its key staff and assess their histories applying for EIA approvals for other developments.
There are many other questions you should consider asking, but at a bare minimum a prudent investor should perform the above diligence.
You might irritate the developers with your inquiries but if they want you to invest in their development, they’ll be forthcoming with responses.
Once you have a better measure of the likelihood that the EIA application process will cause issues and the developer’s ability to handle such issues, it will be time to negotiate a contract with the developer.
In projects such as these, there is more risk on the table and it is critical to ensure that it is allocated among the parties in a manner where you’re satisfied with the risks and rewards of the investment.
What happens if the EIA application process causes changes to the development you’re unwilling to accept? What happens if other investors are entitled to pull out if the initial EIA application is rejected?
There are countless other contingencies to consider. Have a very frank discussion with your lawyer about risk allocation and see if a satisfactory deal can be negotiated.
A development that is required to have, but does not yet possess an EIA approval, might offer an exciting return but it comes with enhanced risk that must be satisfactorily allocated.
This article was co-written by Jared Spindel, Senior Associate and Desmond Hughes, Senior Partner of Hughes Krupica, a law firm in Bangkok and Phuket specialising in Real Estate; Hospitality; Corporate; Construction; Dispute Resolution and Litigation.
