Thailand property: foreign ownership, leasehold issues
Bangkok Post: 31 May 2009
Expat Counsel
www.BangkokPost.comFOREIGNERS: LEGAL PROBLEMS OF HOME OWNERSHIP IN THAILAND
Part V: The lease doesn't provide for successionBy: James Finch and Nilobon Tangprasit
In this series we're talking about legal problems that foreign homeowners in Thailand may have. The problem we'll discuss below is a typical one. You may be living happily in a home that is long-leased and not even know the problem exists. It's easy to fix, but if you don't, your loved ones could lose the home if you die.
Thai law provides that if a tenant leasing real property dies, the lease is terminated and the property reverts to the landlord. Thus, if you're the sole tenant on a 30-year lease that doesn't provide otherwise, the home will go back to the landlord if you die, even if, for example, less than a year has gone by since you signed the lease. This means your heirs wouldn't get the remainder of the lease on the place, your landlord would.
How does one deal with this problem? There are two ways. First, the lease itself should be amended to state that the parties agree that if the tenant dies during the term of the lease, the tenant's heirs will succeed as tenants to the lease. There is a small problem with relying only on this amendment. Though there is precedence for it in lower court cases, the Thai Supreme Court has not dealt with the issue directly. Because of the lower court cases, however, we recommend that you take this precaution.
Needless to say, if you say something in a lease to the effect that your heirs should take over the lease when you die, you should have a will that lets the world know who your heirs are. If you don't, in Thailand the lease would pass to what are referred to as your statutory heirs. In the West, we call this intestate succession. It means that without a will the law, not you, decides who inherits your property when you die. Since you may not agree with how the law splits up estates, a will enables you to make these decisions yourself.
A will you've properly executed in your home country or under the laws of a third country is, under Thai law, acceptable. To be safe, however, we recommend you execute a separate will in Thailand applicable to your property in Thailand.
The second solution to the problem of death during the lease is adding a joint tenant. Under Thai law, there may, of course, be more than one tenant on a lease. A lease could have, for example, husband and wife as joint tenants or father and daughter or even several members of a family, such as parents and children. Under Thai law if one of these tenants dies, that person's interest disappears and the other tenants get the whole lease in equal shares.
As with our suggestion about the clause in the lease, the way to add additional tenants is by amendment to the lease. Of course, you'll have to ask your landlord to sign the amendment, but both changes could be done in a single amendment. If you add tenants, by the way, they'll have to sign the amendment, either in person or by power of attorney.
If you do an amendment you will probably have to pay the government registration fee and stamp duty again - 1.1% of the stated value of the lease over its entire period - but peace of mind is worth it.
James Finch of Chavalit Finch & Partners finch@chavalitfinchlaw.com and Nilobon Tangprasit of Siam City Law Offices Limited nilobon@siamcitylaw.com
For more information visit http://www.chavalitfinchlaw.com
Comments? Questions? Contact us at the email addresses above.
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PREVIOUS ARTICLES IN SERIES:
Part IV: House on the lease, continued
By: James Finch and Nilobon Tangprasit Last time we told you that if you buy a house and rent the land on which it sits, you should take title to the house separately from the land, and not have it included in the lease of the land.
This time we will discuss another reason that your landlord may have put the house on the lease, and what to do about it.
The second reason the landlord may object to letting you take outright ownership of the house relates to taxes and government fees, since the landlord, as seller, may have agreed to pay all or a part of these. Home purchase deals in Thailand may, for example, often provide that the seller or landlord agrees to pay half the taxes and fees.
Of course, property taxes and fees have to be paid on a house transfer, and the seller may have wanted to avoid these. The taxes and fees may, however, be higher on the lease of a house than those on its purchase, but the landlord may not be aware of this.
Here's how the taxes and fees work. The registration fee on a lease is 1.1% of the value of the rent for the entire period of the lease. One option is to include the value of the house for the entire long lease period in the lease and pay 1.1% of this as the fee.
Alternatively, since you as a foreigner may own the house in your own name, you may pay the taxes and fees on the sale, not the lease, of the house and register it directly in your name.
Your landlord may have registered the house on the lease because he or she thought the taxes and fees were lower this way. Here's what your landlord may not know, however - the taxes and fees on the sale of property, such as the sale of a new house where the land has been separately leased, were drastically reduced for one year, from May 1, 2008, to March 28 this year. During this period they were:
- A registration fee of 0.01 % of the assessed price, plus
- a specific business tax of 0.11% of the sale price and assessed price, whichever is higher.
The above is a total of about 0.12%, including stamp duty.
After March 28, the taxes and fees reverted to the following:
A registration fee of 2 % of the assessed price, plus a specific business tax of 3.3% of the sale price and assessed price, whichever is higher, or the income tax on the sale in case the seller owned the house over five years.
On March 26, the Ministry of the Interior, however, announced that the break in the above 2% fee would continue for another year. On May 18, the Ministry of Finance announced a royal decree reinstituting the break at 3.3%, effective from May 29. Thus on May 29, and following for about one year, the taxes on the sale of property will go back to the roughly 0.12% mentioned above.
Because of these tax reductions, the property taxes and fees on registering ownership of a house, now about 0.12%, are lower than those of including the value of the house in the lease, which would subject it to the 1.1% fee mentioned above.
What should you do if the house is on the lease?
Ask the landlord to amend the lease so that it only includes the land and to convey the house separately to you. You may have to cover the taxes and fees on this, but because they've been reduced this won't be much to put out in exchange for much better rights to what you've bought. If you own the house outright, for example, you may convey it to others without worrying about getting the approval of the landlord. And you can be much more sure that if you die it will go to your heirs.
James Finch of Chavalit Finch and Partners (finch@chavalitfinchlaw.com) and Nilobon Tangprasit of Siam City Law Offices Ltd (nilobon@siamcitylaw.com).
For more information visit http://www.chavalitfinchlaw.com.
Comments? Questions? Contact us at the email addresses above.-----------------------------
PART III: A house on a leaseBy: James Finch and Nilobon Tangprasit
Here's yet another problem that foreigners with homes in Thailand run across - the house is on a long lease. We'll explain it fully below, but this one can be fixed.
If you acquired your home in Thailand on a 30-year basis you may find that the lease covers both the land and the house. What's wrong with that?
Well, to begin with, let's look at the reason you have leased. Without a major investment and individual government approval, foreigners aren't allowed to own real estate in Thailand. They are, however, allowed to long-lease it, so many if not all foreigners are now leasing the land.
But what about the house that sits on the land?
There's nothing in Thai law that would prevent a foreigner from owning it. In fact, there's a procedure for this. First, the foreigner through a representative posts notice of claim of ownership of the house at the amphur (the district or sheriff's office) and the tessabal (the municipal office) that have jurisdiction over the area where the house is located. Thirty days later the foreigner can register ownership of the house in his or her name at the land office, just like any other real estate is registered. Even if the land on which the house sits is leased.
Why do houses not get registered and why are they put on a lease?
Two reasons. First, a lease is always more uncertain than ownership and the landlord may have his or her reasons for giving only a lease on the house. If the lease is prematurely terminated, it will be more convenient for the landlord to get both land and house back. This might happen, for example, if you die and you haven't made proper provision for succession in the lease. Under Thai law, unless provided otherwise, the property will revert to the landlord when the tenant dies. All the rights of the lease, including the house, would, in this event, go back to the landlord.
But you paid a full price for the land and house, right, not some reduced price because you only have a lease?
Thus you should insist that the landlord convey the house to you separately.
No use in running the risk that it will go back to the landlord or his or her heirs when the lease ends. By the way, many wooden houses can be disassembled and moved. If you own such a house you can move it away from the landlord's lot whenever you want. If you only lease the house you can't do this.
Next time we'll give you the second reason the landlord may have included your house in the lease, and why it shouldn't be that way.
James Finch of Chavalit Finch & Partners finch@chavalitfinchlaw.com and Nilobon Tangprasit of Siam City Law Offices Limited nilobon@siamcitylaw.com
For more information see http://www.chavalitfinchlaw.com
Comments? Questions? Contact us at the email addresses above.----------------------------
PART II: Is your long lease registered?By: James Finch and Nilobon Tangprasit
This is a continuation in our series about legal problems you may have if you already own a home in Thailand. Many of these may exist even if you're living in the home and everything appears to be fine.
Here's the issue of the week. Is your long lease really registered at the land office? Many foreign residents of Thailand are confused about this, and long after they have signed the lease and forgotten about the whole thing find they have only a fraction of the protection they thought they negotiated with the person who sold the home to them.
Here's how it happens. Often the seller and the foreign buyer sign an elaborate long lease in English that contains protection for the buyer. It may be that the foreigner has requested numerous provisions in the lease that give him or her a real sense of confidence in the transaction. The lease is signed and money changes hands.
Here are examples of the kinds of clauses in a long lease that might protect a foreign tenant: "If the laws of Thailand change and allow foreigners to own land freehold [forever] the landlord agrees to convey it to the tenant in freehold."
"If the landlord is in default, for example by not providing certain services, the landlord must pay damages."
"If the tenant wants to sublet or assign the lease, the landlord has to allow this."
But what happens then? Quite often, the lease the parties have negotiated doesn't get filed at the land office at all. Instead, all that is filed is a short notation of the lease and the names of the landlord and tenant in the file relating to the land. Such a notation will have none of the protection for the tenant contained in what was signed between the parties. In fact, it may contain limitations on the tenant's enjoyment of the property that contradict what is in the lease the parties signed.
What happens to the long lease that the parties negotiated and signed? Under Thai law, unless a lease has been filed at the proper land office, after three years it is not valid. This means that if the lease is for 30 years, the protection in the signed agreement will not last beyond three years.
One tip-off that your lease may not have been filed is that if it is in English or another foreign language only, it cannot have been filed at a Thai land office. A translation of it can be filed, and a lease in both English and Thai in alternating translated paragraphs can be filed at a Thai land office, too. But if it was never translated into Thai, you can be sure it was never filed.
How do you find out if your lease was properly filed? Practically any lawyer can check this with the land office that has jurisdiction over the area in which you live. If the lease you signed was never filed at the land office, you should ask the landlord to cooperate in having it filed immediately. This can be done by having it translated into Thai, if this hasn't been done already. You and the landlord can then file it at the land office. Neither of you has to go in person. You can give powers of attorney to someone else to do this.
Now that you understand what can happen, you also know why we recommend that the "someone else" mentioned above be a person who can explain to you what's being done and who fully understands how to protect your interests.As with issues discussed earlier, the solution to the problem of the unfiled lease is quite simple and cheap. But the best thing to do is make sure the problem is solved at the time you lease the home - not later.
James Finch of Chavalit Finch and Partners (finch@chavalitfinchlaw.com) and Nilobon Tangprasit of Siam City Law Offices Ltd (nilobon@siamcitylaw.com).
For more information visit http://www.chavalitfinchlaw.com.
Comments? Questions? Contact at the email addresses above.-----------------------------
Part I: Is the home in your name?By: James Finch and Nilobon Tangprasit
This is the first in a series about the legal problems of foreigners who now own homes in Thailand. If you have one or more of these problems, you can and should correct them - before they reach some final stage of the legal system.
Vast numbers of foreigners who have bought homes in Thailand have done so with serious defects in title or ownership. One factor contributing to these numbers is the fact that many first-time home buyers in Thailand let the developer or seller do all the documentation and filing of the ownership documents without consulting with somebody who understands what must be done to protect the buyer's interests. And they sign documents in Thai, even though they don't understand them.
One important issue is whether the home is in your name or not. If you are living in a condo, you should find out whether it is in your name and if you own it on a freehold basis. If you have a house, you should first find out if the house is in your name, even if somebody else owns the land or the land is leased to you.
Foreigners can own houses, even if the houses are on land they don't own.
This is important because most of the value of your home purchase is in the house, not the land, and you should control the house.
How can you find out whether you own the house? Any lawyer can do a search and tell you. If it's not registered in your name, and you bought it from someone, you should take steps now to have it registered in your name. The registration is done by giving an official 30-day notice along with filing copies of the building permit, the certificate of completion, the blue or yellow book and other documentation.
Who owns the land on which your house sits? This may surprise you. The answer lies at the land office, not necessarily in documents you may have signed.
In Thailand, all ownership of land must be registered at the government land office with jurisdiction over the area where the house is. Likewise, all leases longer than three years are not enforceable beyond three years unless they are registered at the land office.
Many foreigners we meet produce elaborate leases, corporate documents and deeds that they think protect their home ownership. Often when we check, nothing has been filed at the land office and they have no ownership or lease at all. What this means is that the real owner of record at the land office can sell the home to someone else. If this real owner dies, his or her heirs will take the home, not the foreigner. If your land ownership or long lease has not been filed at the land office, it should be, right away.
Numerous foreigners, for convenience, put land in the names of Thai spouses or friends. If the relationships don't work out the foreigner may lose everything. This can be protected against by having the Thai party long lease the property back to the foreigner. Alternatively, in the case the Thai party is your spouse, you can use a vehicle of Thai law called a right of usufruct, which gives something like a life estate to the you. There are other ways, as well.
If your land is owned by someone else, even though that someone has held it for some time, you should protect your interests in it now, by asking that person to give you a lease or usufruct or other form of protection.
James Finch of Chavalit Finch and Partners (finch@chavalitfinchlaw.com) and Nilobon Tangprasit of Siam City Law Offices Ltd (nilobon@siamcitylaw.com).
For more information visit http://www.chavalitfinchlaw.com.
Comments? Questions? Contact at the email addresses above.
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