Any villa or condo owner in Phuket hoping to generate a rental income from their property must ensure they are following Thailand laws.

There are plenty of laws which protect foreign owners, but investors may also see certain statutes as obstacles to be overcome.

For example, owners renting their condominium unit to holiday makers on a short-term basis, must know that this is technically illegal without a hotel license.  (Legal action taken against Airbnb by various countries and cities around the world has highlighted similar restrictions elsewhere.)

If you are buying a Phuket condominium purely as an investment, with limited use of your own, then such “little nuances” are important to understand.

This article takes a broad overview of the current situation surrounding short-term rentals, and how things might change in the future.

You will meet many people in Thailand who have an opinion on whether the government (or even the courts) will make a move to tighten the restrictions on the short-term rental of property. But some owners of condos and villas are concerned, and not without some justification.

If you currently own a property which you regularly rented out for the short term (e.g. daily or weekly, using Airbnb or booking.com), any clamp down by the authorities on this illegal practice may force you to begin renting only for terms of one month (or longer).

This will drastically reduce your return on investment, and could even affect your future ability to resell the condo.

But even though short-term rentals via online booking portals are common and advertised openly, so far we have seen little to no enforcement in Phuket.

What Exactly Does the Law Say? 

The Hotel Act 2004 makes it clear that rental periods of less than one month are not allowed without the necessary license.  This is why most condominium owners are breaking the law when they rent to holiday makers for a couple of days or weeks at a time.

In 2008, however, there was Ministerial Regulation issued allowing for an exemption from this Act. It reads: “Any dwelling place which has a number of rooms not more than four rooms, whether in a single building or in several buildings, and with a total service capacity of not more than 20 guests, operating as a business which provides an additional source of income for the owners.”

This implies that a villa or condominium — provided it has fewer than four bedrooms and doesn’t sleep more than 20 people — is either not categorised as a hotel, or it falls into the category which does not require a hotel license.

The interpretation is still a little unclear for most, but it potentially opens the door to villa and condo owners applying to the authorities for such an exemption for their property.

However, even though they are aware that an exemption exists, many owners have decided that the best approach is to keep a low profile, rather than even attempting to apply for the exemption.

Their reluctance may be, at least in part, down to the fact the Ministerial Regulation has not been sufficiently tested.

But if they have fewer than 4 rooms (sleeping fewer than 20 people), and they report to the hotel registrar, pay their land and house tax, as well as the income tax on rentals are they really free and clear?

We still do not know.

With villas, the 2008 Regulation seems to leave less ambiguity, but conducting a rental business on a condominium is a commercial activity, and without a hotel license it is a clear violation of the Condominium Act.

Furthermore, if a foreigner lives in Thailand and rents their condo, it is a violation of the Foreign Business Act unless they have a work permit.

It is also unclear whether you can even get an exemption for an individual condominium unit, or if it must apply to the entire complex. (If it is the latter, there would obviously be far more than 4 rooms involved, so it would probably not be awarded.)

All of this will no doubt be made a little clearer in the years to come, either through further Ministerial Regulations or by court rulings.

 What About Monthly Rentals?

Most people know that monthly rentals are perfectly acceptable because the Hotel Act stipulates, specifically in Section 4, that the law governing provision of a temporary residence (i.e hotels) excludes rentals of one month or longer.

This means your rental property in Thailand may use online sites such as booking.com or Airbnb, but only for booking periods of at least one month.

In Phuket, if you find the right tenant, monthly rentals can work out to be as lucrative as short term.

There are naturally a myriad of factors to consider, but there are certainly many positives to having a stable long-term resident. Some owners actually prefer more permanent tenants than seeing intermittent cavalcades of rowdy holiday makers descend on their property throughout the year.

The Latest Hotel Grace Period

The Thai government recently granted further amnesties for illegal hotels. The new grace period gives illegal hotels until August 2021 to comply.

All illegal hotels are expected to register with the authorities, and to ensure their hotel fully complies with the Hotel Act, the Building Control Act and any other regulations.

The deadline for registration was August 19th 2019. You can read about this here:

https://www.bangkokpost.com/thailand/general/1698836/illegal-hotels-must-register-by-aug-19

Hotels that qualify for the amnesty, must register as a non-compliant hotel business. They must then proceed to address any safety violations under the relevant acts, which will likely be impossible for many boutique hotels or condominiums.

How this amnesty will affect condominiums under construction offering short-term rentals is unknown.  Once a project has sold out, most developers will simply move on, leaving the management of the resort to a third party. In other words, developers have no real interest in what transpires after a resort has sold out.

Owing to the costs involved, it is unlikely that many condominiums will even bother to apply for this further amnesty by registering with the authorities, or taking any of the necessary steps to becoming compliant. Most will understand the costs involved to do so.

In a mature development, where people have lived for years, there are further obstacles to overcome. Because when it comes to ensuring that a condominium follows the law, it is not only the authorities who make things harder.

The Condominium Juristic Person also has a big say in how you promote and rent your condo, as do the other owners within your development (especially the ones on the residents committee).  And their decisions and actions may even be in opposition to owners who would like to capitalise on the burgeoning tourist trade in Phuket.

So Where Do I Stand With Short-Term Rentals of My Villa?

Although we know of many villa owners who have successfully applied for a hotel exemption, the authorities today do not appear to be as generous in issuing these exemptions.  That said, one thing is for sure:  villa owners have a much less complicated argument for establishing their rental business than condo owners.

Even if the authorities are slow-walking applications, an owner may still technically qualify for an exemption, so it does help to apply.  The fact that they made the effort to apply shows an intent to follow the law, which adds credence to their case if future short-term rentals are challenged.

Even before obtaining an exemption, owners can do everything possible to be “above aboard” by following the guidelines.

For a foreign villa owner this starts with ensuring they have a legitimate Thai Company running their rental business, one that complies with Thai Law, files accounts and pays taxes. Next, they need to make themselves familiar with the health and safety requirements, in particular by installing fire extinguishers.

Finally, and most importantly, they must keep a detailed register of their guests (including passport copies), and ensure that the names are reported every week to the Hotel Registrar.

And What About Short-Term Rentals For My Condos?

The situation is less clear for condo developments than it is for villas.

In theory, it is possible.  There is nothing stating that condos are excluded from receiving an exemption, but in practice it is harder to obtain for a condo. In fact, to date, we do not know of any such exemption being granted to a condominium owner.

Most Condominium Rules and Regulations specifically state that short-term rentals are not allowed.  In order for the CJP to even condone this practice under their own rules, 100% of the owners within the resort must agree to allow short-term rentals.  But changing the condo’s rules is only the first step.

Next comes a long list of regulatory requirements which must be fulfilled to obtain a hotel licence.  For example, the building must comply with the Building Control Act, have the correct usage permits, and the condominium must engage a licensed hotel manager.

The sad truth for most condos is, once they have been constructed, it is often both structurally and financially impossible for them to comply with the hotel licensing requirements.

How Do Thailand’s 5-Star Hotels Feel About Airbnb?

It is obvious that any association promoting the hotel industry in Thailand would not have a favourable opinion of the literally thousands of illegal hotels in Thailand.

The Thailand Hotels Association was established to provide support to its members, who are legitimate hotel businesses, as well as organisations and individuals involved in the hospitality and tourism industries.

Their position, which is not without merit, is that illegal businesses are cashing in on the industry, but without being forced to make the significant investment their members have made in order to operate in Thailand.

Hotels pay large amounts of money to set up in Thailand. Hotel owners either go to the expense of buying land and building a luxury hotel, or buying out an existing hotel project (sometimes for billions of Thai Baht).

Licensed hotels have also ticked all of the necessary regulatory boxes, including operating licenses, safety guidelines, construction code, and space allocation to the common area.

It is also worth considering that, in addition to the expense of building or buying a hotel, the owner is only allowed to devote roughly two-thirds of the land area to the hotel buildings which bring in their revenue.

To be licensed as a hotel, 40% of the land must be allocated to the common area, including gardens, swimming pools, tennis courts, restaurants or even the lobby.  After potentially billions invested, they are only permitted to utilise 60% of their investment for actual hotel rooms.

Is it any wonder that hotels begrudge private owners profiting from their industry without taking the necessary steps to compete on a fair footing.

This is not a new issue. The growing number of illegal hotels has reached the point that they are certainly denting the revenue streams of major hotel chains who invested very large sums of money to operate in Phuket and Thailand.

In 2015, Dr Kritsada Tonsakul, at the time the head of Phuket’s Southern Thailand chapter of the Thai Hotels Association, headed a petition to take action against the then 92,000 illegal hotel rooms in Phuket alone.  Illegal hotels were estimated to represent nearly 70% of all hotel rooms available in Phuket.

Phuket hoteliers petition against 92,000 illegal hotel rooms

It is easy to see why the Hotels Association, tasked with acting in its members’ best interests and protecting the industry, should wish to campaign against so many rooms being rented illegally.

The Situation For The Current Condo Market

Most condominiums under construction in Phuket today are being built as residential developments, which makes sense because people do reside in condominiums.

Unfortunately, they are often being sold to foreigners as “holiday homes,” even touting their potential as investment properties, and offering a guaranteed rental return for a set number of years.

This investment element is very attractive to many buyers, who also get a few weeks use of their property each year as part of the deal.

After the rental guarantee period has finished, owners are then offered to participate in a rental pool, whereby a share of the profits are divided up amongst all the owners.

However, problems could arise at any time should the authorities decide to make a prolonged crackdown on condominiums illegally operating as hotels.  A few court rulings have certainly made people more aware of this.

In 2018, in the Prachuap Khiri Khan Province of Hua Hin, the local court ruled that condo owners renting out their condominiums on a short-term basis did not have the necessary license to do so. As such, these short-term rentals were illegal.

Court declares short term rentals illegal 

Not long after this, the same court also ruled against 10 hotels which were either operating without a proper hotel license, or using fake licenses. These hotels now face closure.

Despite the publicity generated by these court cases, owners in Phuket and elsewhere do not seem overly concerned about any potential repercussions on them.

In fact, it is possible that most people renting their condos over a few days or more are not even aware of the law that prohibits them from doing so.

In fact, it is safe to say that most owners have been sold condo units with zero indication that their promised rental income may be jeopardised by the lack of a proper license. It is also likely they have failed to enlist competent legal representation to guide them.

If the stance taken by the authorities and the courts in Hua Hin and Bangkok becomes a nationwide trend, the returns they envisaged from their Phuket condo could be reduced dramatically.

What are the Penalties for Short-Term Rentals from the Authorities?

Although those running illegal hotels could be subjected to jail sentences of up to one year, with fines of 20,000 Thai Baht, renting a single condominium unit or villa is unlikely to result in such penalties.

In fact, when it comes to short-term rentals, most owners are somewhat indifferent to the stricter approach that seems likely from the authorities. Even if they are unlucky and get caught, the penalties would be relatively minor compared with the income they could generate from renting to holiday makers through portals such as Airbnb.

This may change at some point in the future, but certainly for now small fines are not much of a disincentive. In 2018 the Hua Hin Provincial Court ruled on two violators. The first was ordered to pay a fine of 5,000 Thai baht, plus an additional 500 Baht for every day that guests stayed in his property. It was 20 days, and the total fine was 15,000 Thai Baht.

The second violator was also fined 5,000 Thai Baht, but was ordered to pay 100 Baht for each of the 81 days his property was rented.  Total Fine:  13,000 Thai Baht.

But since that ruling, certainly throughout the Bangkok area, Condominium Juristic Persons (CJPs) have been enforcing the illegal activity of owners who decide to rent for the short term.

The fines levied by CJPs far exceed the fines issued by the courts. It certainly looks therefore that, until we get some clarity from the authorities (for better or for worse), the main threat to short-term renters will be from their own CJP, should it become vehemently opposed to illegal short-term rentals.

The Condominium Act contains provisions relating to the Condominium Rules and Regulations, the Condominium Juristic Person, as well as the provisions on the general meetings held by the owners committee and any resolutions that committee may pass.

The Condominium Act states that no commercial activities should take place within the condominium building when these activities might disturb other residents. This includes the rental of units on a short-term basis.

“SECTION 17/1 In case that any commercial area is provided within the condominium premises, the access to such area must be arranged to be separate from normal residential access in order to not disturb the peaceful living of co-owners. No commercial trading shall be conducted in a condominium building except in the commercial area specified in paragraph one.”

Some Juristic Persons are already using this statute to clamping down on owners. And according to Section 65 they have the right to do this. The CJP may fine those violating the Condominium Act up to 50,000 Thai Baht, plus up to 5,000 Baht per day during the period of violation or non-compliance.

SECTION 65 Whoever violates Section 17/1 shall be penalized with a fine of not more than fifty thousand baht and the offender shall be further penalized with a daily fine of not more than five thousand baht throughout the period of violation or not complying with such provisions.

In some cases, Rules and Regulations have also been changed to give the CJP more power to put a stop to illegal rentals, and the penalties have been harsher.

We have already experienced owners in Bangkok receiving a fine of 70,000 Baht for renting illegally. The owner lives in Hong Kong, and rented his unit to a Chinese national on a one year contract. Unfortunately, the Chinese tenant then began sub-leasing the unit (with short-term rentals) on Airbnb.

When the owner received a letter from the CJP ordering him to pay the fine or face the consequences, the tenant had disappeared. The owner also has no legal standing, as they are responsible for the actions of their tenant.

In this case, the CJP had made the decision to impose fines on residents for renting illegally. By checking the passports of any faces they didn’t recognize at the reception area, and logging them, they were able to establish the pattern of short-term tenants using this unit.

Sadly, this may prove to be a common situation throughout Thailand. Owners who do not stay in Thailand may similarly become victims, discovering too late that their long-term renter has illegally sub-let the property to holiday makers on a short-term basis.  Legitimate ignorance of the tenant’s actions will not prevent them from being fined.

Owners may find themselves being forced to pay hefty fines even though they were not in the country, and had no knowledge of their unit being rented short term.

You may read the full English translation of the Condominium Act 2008 amendments provided by Thailand’s Department of Lands here:

https://www.dol.go.th/estate/Pages/act%202008.pdf

Why Will Condominium Juristic Persons (CJPs) Become Stricter on Not Allowing Illegal Short-Term Rentals?

As the publicity surrounding short-term rentals becomes more widespread, condo CJPs are waking up to the fact that some of the legal culpability for the owners’ actions may also fall on them.

An important part of a CJP’s responsibilities is to ensure their owners are not only adhering to the condo’s Rules and Regulations, but also that they are not breaking the law.

Not that long ago any attempt by a resort’s CJP to notify owners that they should not be renting short term would have been half-hearted at best:  a small notice on the communal notice board, or perhaps a leaflet placed to each mailbox.

But over the last few years, the speed at which enforcement is being implemented has meant change is happening at a much faster pace.  And the CJPs at most developments have been initiating their own internal “crack-down” on owners who are illegally renting their condos for the short term.

Some developments have an international brand name resort acting as the CJP and/or management, and such companies have reputations to uphold.  While they may have “tolerated” short-term rentals in the past, they are likely to take a different stance as enforcement of the law becomes more robust.

They definitely do not want to leave themselves open to prosecution by either publicly endorsing short-term rentals, or by not enforcing or condemning those that break the rules.

As a first step, a number of developments are prominently displaying large signs notifying owners that short-term rentals are not allowed.  In this small way, they hope to be seen as doing the right thing by condemning an illegal activity.

We also know of some CJPs who have recruited advisors to help them implement procedures to tackle this problem, including how to deal with those who are violating the Rules and Regulations.

Certainly no CJP wants to be viewed as culpable if owners continue to break the law.

Can I really Get Caught?

The question you have to ask here is: caught by whom? The chance of you being caught by the actual “authorities” is very slim — some may say even non-existent.

If you think about it, the chances of someone knocking on your door one day, or delivering an official letter informing you of your infraction, seem extremely unlikely.

For a CJP to readily figure out you are conducting illegal short-term rentals would really depend on your condominium resort and how the entrances and exits are laid out.

If residents/guests must pass through a main guard house or reception area — with either security guards or receptionists on duty before you reach the lifts — it is certainly possible, if not likely, that they will notice the rotation of holiday makers who are using your unit.

It is also possible that a nosy neighbour notices the ever-changing number of people coming in and out of your unit, and decides to take the issue to the CJP.

In either case, if any CJP is motivated to do so, it is within their rights to levy a fine for breaking the Condominium Rules and Regulations.

What Can You Do if You are an Owner and Oppose Others Renting Short Term in Your Condominium?

In many developments, the majority of residents are also owners, and these premises are their home.  They have bought here specifically for the tranquillity of the resort, and they do not want holiday makers on the premises.

There’s no doubt about it, holiday makers certainly make more noise, get in at much later hours and have altogether less respect for the building, the facilities, or the other residents.

Where no specific rule opposing short-term stays exists, unhappy co-owners can join together and sign a resolution, then ask the CJP to take action to enforce a short-term stay ban.

Individual owners may also act independently. Those who feel as if they are infringed upon by noisy holiday makers are protected by Thailand’s Civil and Commercial Code, which does in fact contain provisions to protect co-owners from such situations.

The offended owners can actually sue the co-owner responsible for renting out their unit on a short-term basis. A ruling in favour of the aggrieved party can range from compensation for damages to an injunction against future holiday rentals.

If an unhappy resident feels they are getting no action from their CJP, they may also choose to bring the violation of the Hotel Act to the attention of the authorities.  It may not hold up in a civil case, but taking a breach of the Rules and Regulations to the local authorities could be enough for a CJP to put a stop the practice.

What The Future May Bring

This is anyone’s guess.

It appears that the government has been willing to allow Airbnb and similar portals to offer short-term rentals, but this more laissez faire attitude may only be for rural areas where lower-income families depend on the income they receive renting out rooms or apartments.

However, if multinational 4-Star and 5-Star hotel chains in high-density tourist areas begin to complain more vociferously that they are suffering at the hands of private rentals, we will probably see a different approach.

The authorities may one day decide to follow the models found elsewhere, such as in Spain or Portugal where short-term rentals are illegal without a proper license.

In both of these countries Airbnb are not allowed to advertise properties which do not have a license. Violators are fined heavily, and heavily means up to €30,000.

Many regions in Spain have restricted Airbnb style short-term holiday rentals, but some areas of Spain, such as Majorca, have banned them altogether.

It is worth noting that many new developers are using a little foresight by offering both types of accommodation within a single development.

For example, the resort is divided into two sections, one for residential purposes and one for investment. The designated residential properties will be for people who wish to live in the unit with no interest in generating a rental income, while the hotel licensed units can be rented either short-term or long-term.

This may be the way forward, and we would not be surprised to see more resorts structured this way in the future.

Can My Old Condominium Obtain a Hotel License?

As mentioned above, the first thing that any condominium project must do is obtain consent from every owner on the resort to accept short-term rentals. This is mainly because holiday makers renting short term are generally noisier, rowdier and messier than those who have made their homes in a condominium complex.

Some owners do not want holiday makers lowering the tone of their tasteful, relaxing living environment, and if so, their resort is unlikely to ever make that move.

But even if the owners are in 100% agreement (and mostly they are not), there are still many other structural and safety requirements the resort must meet in order to obtain a full hotel license.

But it is not impossible. Many established condominiums throughout Thailand, and a few that we know of in Phuket, have managed to get a hotel license.

Conclusion

Buyers of Phuket or Thailand real estate who want to be confident in their choice of property need to consider both the Condominium Rules and Regulations of each resort, as well as Ministerial Regulations which we already know apply nationwide.

If you decide to buy at a resort with no hotel license,  and the Condominium Juristic Person begins closely adhering to the laws governing short-term rentals, you may be forced into renting only for the longer term (e.g. on a monthly basis).  If the authorities decide to clamp down on illegal rentals, it would be the same outcome, albeit more definitively applied.

The requirement to offer only long-term rentals may drastically reduce your income, and therefore your return on investment. It could also influence the decision of potential future buyers, thus impacting your ability to sell the condo later.

Discerning buyers wishing to generate an income, should aim to purchase within a resort which has a verifiable hotel license, and which caters to not only investment, but also to those looking for residential accommodation of their own.