It is often heard from foreigners in Thailand that Thai property law is complicated but in reality Thai property law is quite clear in regards to foreign ownership. Foreigners can own “freehold condominiums”, buildings and structures (such as houses). Foreigners cannot own land but can take leases on land.
Where things get complicated is in understanding the different methods and legal structures used by lawyers to get around the strict foreign ownership regulation. Beneath will follow a description of the different methods employed to get around the foreign ownership regulation, but let us first get the general terminology defined:
- “Freehold” – Freehold is the ultimate ownership interest that can be held in property and represents absolute ownership.
- “Condominium” – A condominium is a building that is divided into units where each unit represents a condominium unit. Ownership of a condominium unit gives a co-ownership of the common property (condominium). It is in this way that the expressions “condo” and “apartment” differs in Thailand. When referring to apartment in Thailand it generally means that there is no co-ownership of the common property.
- “Condominium freehold” – Condominium freehold is an expression used to refer to the 49% of a condominium building that can be owned in foreign name.
- “Leasehold” – Leasehold is an interest in land or any type of property but where the ownership is not transferred.
LEGAL PROPERTY OWNERSHIP
Buying a condominium freehold unit is the easiest and most favored by foreigners to acquire direct property ownership in Thailand, as they can be hold directly in foreign name and the process of buying is clear and straightforward.
A condominium is regulated by the Condominium Act and according to the Condominium Act 49% of the registrable area of a condominium can be allocated to foreign purchasers.
Thai property law does not allow for foreign individuals or foreign companies to own freehold interest in land, except for a few exceptions which will not be described here as they are not relevant for the usual investors in Thai property. Foreigners can get indirect ownership of the land through a Thai company or through leasehold ownership. These two forms of ownership are described below.
Foreign individuals and foreign companies can hold freehold ownership of condominium units, as described under Condominium freehold and building and structures on land, such as houses.
A leasehold agreement is a legal interest that can be registered as a lien on the property title deed and secures an exclusive possession and use right. There is no restrictions on the foreign ownership of a lease hence it is possible for foreigners to register the lease directly in a personal name, or in the name of a Thai or foreign company.
The Land Department in Thailand currently only allows leases with a maximum period of 30 years to be registered. However they do allow for private agreements to contain renewal options for another 30 + 30 years so it in fact becomes a “90-year lease”.
The renewal clauses are governed by the legal principal “privity of contract” and hence only binding for the parties who signed the contract. This could raise a potential problem if the freehold land is sold or transferred and the Supreme Court of Thailand has ruled that only the legally registered leases will transfer and follow the title deed to the new owner.
Due to the potential problems that can arise if the freehold land is sold or transferred it is important to create a protective leasehold structure.
Further it should be noted that lease contracts are personal in nature, which means the contract terminate upon the death of a lessee. Therefore it is important to include a succession clause stipulating that lessee’s rights and obligations will be assigned to the lessee’s heirs.
LEASEHOLD WITH OPTION TO PURCHASE THE FREEHOLD LAND
Due to the fact that only the first 30-year lease of the 30+30+30 year leasehold structure is registrable on the title deed a leasehold agreement with an option to purchase the freehold provides the purchaser with a greater security and control over the freehold land.
With a clause to purchase/transfer the freehold land the purchaser has the ability to control who becomes lessor and therefore will be able to transfer the freehold land to himself should the Thai ownership regulation change in the future or to any entity over which he has control.
In practice upon entering into the leasehold agreement the lessor hands over the title deed to the lessee and provides lessee with a Power of Attorney to allow lessee to transfer the freehold land ownership to any entity designated by the lessee at any time.
THAI LIMITED COMPANIES
As Thai law does not allow foreigners to own a direct freehold interest in land it has been a common accepted method to use a Thai Limited company as a vehicle for holding freehold land and all other kind of properties in Thailand. The reason why this is possible is that a Thai Limited company commands the same legal rights as a Thai citizen.
However it is not possible for foreigners to hold more than 49% of the registered capital of a Thai limited company and there must be more Thai shareholders than foreign shareholders. Therefore it is important to understand the crucial difference between ownership and control.
The Thai shareholders will own the majority of the registered capital (51%) but the foreigner will control the company through voting rights. Technically this is done by dividing the company’s share capital into two different classes which each has different voting rights and where the foreigner holds the preference shares. By doing this it is possible to get 100% control over the company.
By having 100% control over the company also means that the controlling shares have superior rights in relation to dividends and distribution upon liquidation of the company.
The setup procedure of a Thai Limited company is a relative simple procedure and with low setup costs.