Thailand Leasehold – As a Viable Mode of Property Use

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The leasehold system is a system of property tenure wherein a person, by paying a fixed sum, “purchases” the right to occupy a particular land or building for a given period of time. In operation, the owner of the building or land, commonly known as a landlord, relinquishes in favour of the person leasing the property, known as the tenant or leaseholder, temporary possession and occupation of the premises. This system is one of the most popular and sought after arrangement in real estate transactions due largely to its advantages over that of direct ownership and simple tenancy. It boasts the benefit of allowing the tenant a certain degree of control approximating that of direct ownership while allowing the same the option to discontinue the relationship upon the expiration of the contract. Also, as compared to simple tenancy which requires constant attention and renewal, the leasehold system is relatively longer in duration making it a perfect choice for those seeking some stability in their affairs. This does not necessarily mean however, that such a system would be beneficial to the leaseholder in all circumstances.

The following advantages of the system have made the choice of leasehold attractive to most would-be tenants: First, leasehold involves a longer period of time calculated in terms of decades rather than mere months or weeks. Being so, any potential leaseholder may expect a certain degree of stability, knowing that he or she need not concern himself or herself with the need to extend or renew the leasehold contract repeatedly. Second, being a mere temporary possessor of the property, the tenant is not the sole person responsible for its preservation and maintenance. In a leasehold contract, the landlord may bind himself to perform several legal obligations in ensuring that the tenant enjoys complete and uninterrupted possession of the property. In effect, a cooperative risk-mitigating relationship may exist between the two which would inure to the benefit of the tenant. Last, the leaseholder is given the option not to renew the previous arrangement after the expiration of the leasehold contract. Unlike the owner in a freehold, the tenant is not tied to the land and holds no other interest apart from his previous occupation. The tenant is therefore free to pursue alternative arrangements for his benefit.

To its disadvantage, the degree of control given by the leasehold system to the tenant over the land or property is more limited compared to that of complete ownership. What is merely bestowed upon the tenant is possession and enjoyment of the property and not absolute dominion. In effect, this limits the possible use of the land to the tenant. Moreover, since a leasehold period usually lasts for a long period to time, the tenant may incur risks and costs not initially contemplated in the lease agreement. Also, depreciation may gradually set in, making any potential profit dwindle as time progresses. Therefore, any decision resulting in a leasehold relation must involve a deep and thorough analysis.

Thai law maintains a very strict policy limiting foreign interest and ownership over real property. This has led to the use of the leasehold system as a favoured means of overcoming these legal restrictions by allowing foreigners the opportunity to enjoy the benefits of land use in the country. As a result, concerns regarding the term and transferability of leasehold arrangements have arisen. It should also be note here that a leasehold right is not a title in itself. There is some misunderstanding due to the use of the term leasehold title in Thailand. Unlike some common law countries, Thailand does not have a separate title right deemed as leasehold. It is, as explained earlier, a right registered upon an existing freehold title and has no definition on its own per se.

The Thai legal system limits the existence of any leasehold arrangement to only thirty (30) years subject to possible renegotiation. In order for the parties to extend any existing agreement, a stipulation in the contract must exist allowing them to do so. In the absence of such a stipulation, the parties may enter into a new contract containing the same terms or stipulations found in the original. Caution must be exercised in resorting to this kind of extension since the new contract is not considered as a continuation of the previous one and therefore not all stipulations or conditions found in the old contract would apply to the new one.

Other real property rights have been used in conjunction with the leasehold system in order to address its deficiency in protecting tenant interest. Two of these include the use of Superficies and the creation of Off-shore holding companies which provide the tenant ample amount of security a normal leasehold relationship lacks.

In summation, Thailand Leasehold system provides the leaseholder the opportunity of acquiring an interest over real property without the disadvantages of direct ownership or simple tenancy. Any person interested in engaging in this kind of relationship is strongly advised to seek professional legal advice or guidance for ensuring a profitable, worriless and secure tenancy.