It is well known that ownership of land by foreigners in
Thailand is restricted. Thus, a long term leasehold is often the best option for
a foreigner to invest in real estate. However, the duration of leasehold in
Thailand is limited to thirty years by Section 540 of the Civil and Commercial
Code (the “CCC”). It is generally agreed that thirty years is rather short when
one is making an investment of any significance and in order to “overcome” this
limitation a typical long-term lease agreement in Thailand will provide for two
additional successive periods of 30 years each; this despite the fact that
current Thai law provides for only one such renewal.
Due to such restrictions, for many years now, developers and consumers have been
calling for an extension of the maximum lease term. However, extending the
current maximum lease term and/or renewal periods under Section 540 of the CCC
would require a change of law and, therefore, parliamentary approval.
The Joint Foreign Chambers of Commerce (JFCC) has been working on a proposal to
extend the maximum lease term. In March 2010 the JFCC submitted a white paper to
the Thai government entitled “Proposal for Leasehold Extension”. The
whitepaper’s introduction recognizes that changing the law itself would be
difficult and so the JFCC’s Proposal will “focus instead on a fast-track
solution that is available under existing law.” It is our position here that the
JFCC Proposal fails to understand the relevant law and that its core proposals
are not workable under existing law.
The first “more achievable and sensible solution” according to the JFCC’s
Proposal would be “the revision of the Land Department regulations to ensure
that two lease agreements can be registered and enforced in accordance with the
CCC, on a back-to-back basis, allowing for a clear, definite 60-year term.”
(JFCC Proposal, page 5). Clearly the JFCC recognizes that the CCC currently
limits the maximum lease term to thirty years.
Obviously the Land Department does not “enforce” land leases. The Land
Department is charged with the duty, among others, to register land leases.
However, since it bears directly on their white paper’s core recommendation to
the Thai government.
The registration of a land lease and its legal effect seems to be one of the
common mysteries in Thai real estate law. The common misunderstanding is that
the “registration” somehow makes all elements of a lease contract enforceable
and unassailable. The registration of the lease is, however, merely an
administrative act. The only legal effect of lease registration beyond Section
538 is that it makes the lease agreement a matter of public record but it does
not make an otherwise unenforceable lease, enforceable.
Current Thai law does not provide for an “extension” of a lease term; rather and
only it provides for a “renewal”. Only the owner at the time of renewal, at the
beginning of the new term, can act as the lessor and at that time enter into a
lease agreement with the lessee.
The only way forward is an amendment to the relevant law i.e. to Section 540 of
the CCC itself, to provide for a lease term of more than 30 years.
Pushing for such a measure would undoubtedly make JFCC’s
efforts more efficient and would perhaps provide a real opportunity to hope for
all the benefits that would accrue to Thailand and those investing here by way
of a longer maximum lease term. Duensing Kippen is a multi-service boutique law
firm specializing in property and corporate/commercial matters, as well as
arbitration proceedings arising therefrom. Duensing Kippen is also the only such
firm in Thailand that compliments its property and corporate/commercial legal
expertise with a core tax law practice. Duensing Kippen can be reached at:
[email protected] or www.duensingkippen.com.