Foreign ownership of houses and villas in Thailand is tricky, especially from a legal point of view. The easiest solution is to acquire this type of property via a leasehold arrangement, but the terms of these don’t sit well with many buyers. There are other options available, including purchasing it via a Thai registered company.
However, neither method is as clear as buying a condominium unit where freehold ownership is permitted. From the legal aspect, foreign ownership of houses and villas in Thailand requires patience and a deep understanding of the law.
“The purchase of houses or villas in Thailand is not straightforward for foreign buyers. The ownership of land in Thailand is restricted to Thai citizens and Thai-owned companies. Obviously, this rule can present significant challenges to foreign purchasers who are looking to buy houses or villas that are situated on such land,” Khun Sirichot Chaiyachot, Partner at Law at LAFS Legal, explains. “There are various legal methods available for purchasers who would like to buy a house or villa, but I would strongly recommend that buyers consult with a lawyer who is familiar with the relevant law and can ensure that they are in full compliance.”
Foreign ownership of houses and villas in Thailand with a Thai registered company
International buyers wanting to own a house or villa outright can purchase it via a Thai registered company. On the surface, the arrangement comes with favorable terms, but Khun Sirichot warns potential buyers that this type of ownership structure comes with wide-ranging challenges.
“I do not generally advise my clients to hold the ownership of land and a house/villa through a Thai company limited, unless they are certain they will have full control over the property either directly or indirectly,” Khun Sirichot states. “This means that he or she is the director of the company who can solely sign and bind all activities of the company and holds or controls shares in the company that provide the majority of the voting rights. In addition, such a company should be healthy; conduct regular, ongoing business; and not be at risk of insolvency.”
That last line in particular is one foreign buyers need to take note of. Maintaining a Thai registered company has significant time and financial costs that cannot be avoided. If the business holding the property becomes inactive and is delisted by the Business Department, selling or transferring it becomes a massive headache.
“In the event that the director(s) of the company have abandoned the company, died, disappeared or have not submitted the annual income/balance sheet, the buyer will need to ask the seller to take all necessary actions to activate the company including, but not limited to, changing the structure and/or submitting the balance sheets for the previous year(s) up to date, prior to taking any further steps,” Khun Sirichot details.
Ultimately, purchasing a house or villa in Thailand through a Thai-registered company should be avoided unless the business is active, has secure finances and the buyer is in full control of the organization.
The pros and cons of leasehold villa or house ownership in Thailand
Foreign ownership of houses and villas in Thailand via a leasehold agreement is common, although not without some legal challenges. That being said, it is generally seen as a more secure form of ownership than buying a property through a Thai registered company.
“At the very least, the buyer will be entitled to use, occupy and enjoy the property for up to 30 years. The lessee may also be entitled to sublease, or assign the leasehold right to a third party(s), or leave as an estate to the successor(s) of the buyer if the lessor or landlord provides express consent in writing in the lease agreement,” Khun Sirichot points out.
In theory, leases can be extended for up to 60 years after the expiration of the original 30-year agreement. Some developers selling houses and villas in Thailand to international buyers will even promote this despite the fact lease extensions are by no means guaranteed.
“Common lease extension terms, often seen in lease agreements (e.g. 30 + 30 + 30 years) are, in my view, likely unenforceable,” Khun Sirichot reports. “In the event that the lessor/landlord does NOT voluntarily honor any clause regarding the renewal of the lease upon the expiration of the first lease term, the lessee will have no choice but to attempt to exercise his or her right in court. However, I cannot guarantee that the judgment of the court at that point of time will be in favor of the lessee.”
Another growing trend in leasehold properties is the inclusion of guaranteed buyback clauses where the developer agrees to pay the buyer a set amount upon the end of the leasehold term. This may sound great, but may not be legally binding, according to Khun Sirichot.
“If the buyer enters into a lease agreement, the ownership of the property is not going to transfer into the buyer’s name. In fact, upon the expiration of the lease term, the buyer will have to vacate and return the property to the seller. A guaranteed buyback clause can happen only if the seller keeps the promise upon the expiration of the lease term,” Khun Sirichot says. “It could be more accurately described as a ‘gentleman’s agreement’ rather than a legally binding agreement. If the guaranteed buyback clause is in a purchase agreement, it may be deemed as ‘Kai Fark’ or sale with a right of redemption.”
Is legal help a necessity?
Foreign ownership of houses and villas in Thailand almost certainly requires having some sort of legal help. Trying to navigate the process on your own is extremely difficult and may see you enter into an unfavorable agreement.
“When buying property in Thailand it is important to have a professional in your corner. Someone who knows the local market, the language, the country and its particular practices and legal system. A reputable local law firm is ideal for this and I recommend buyers take the time to sit down and talk with such a professional before they even consider buying property in Thailand,” Khun Sirichot concludes. “A professional can expertly guide buyers through the entire process and ensure that the proper steps to complete a successful purchase are followed.”
For more information about real estate law from LAFS Legal, please click here: www.lafs-legal.com/property-law
