SECTION 7: THE IMPORTANCE OF SOUND LEGAL ADVICE FOR FOREIGNERS WHEN BUYING PROPERTY IN PHUKET
Understanding Phuket Property Laws, An Inconvenient Truth
Anyone buying a property in Phuket must ensure that their purchase is done according to the laws of the Kingdom. In certain respects, these laws are not dissimilar to those in most western countries. There is, however, one major hurdle that foreigners must contend with: they are prohibited from owning land.
For the sake of clarity, this also refers to any villa, estate house, shop house or townhouse, the ownership of which is inextricably tied to the land. Foreigners are allowed to own such homes, but only the physical building itself. It is a common arrangement for foreigners that they own building, but lease the land on which it sits. While there are properties that have been explicitly legally structured for foreign freehold ownership, these are not yet commonplace. There are extremely limited and exceptional circumstances under which a foreigner can purchase land, and these are covered below.
Embedded in Thai culture is the intrinsic belief that Thailand be, first and foremost, a country for the Thai people. Phuket property law reflects this sentiment, and it protects land ownership for the people of Phuket.
Land ownership laws in many countries are influenced by a cultural bias, in this case Thai culture and Thai laws. The authorities have always worked to preserve this element of their culture, irrespective of how many foreigners live here.
Over the years, there have been countless rumours of pending changes to land ownership laws, but there has never been any true indication that the law will ever actually change. It is safe to say that nearly every non-Thai would at least like to see the laws on foreign ownership be relaxed a little. Someone interested in Phuket property deserves help understanding both the letter and the spirit of the law today. The reality is that Thai law leaves almost no clear and direct path to land ownership for foreigners.
This is an inconvenient truth for the multitude of villa developments in Phuket marketed to foreigners as freehold property. Foreign buyers are encouraged to get around the law by using Thai company structures. But a considerable percentage of these arrangements are mere holding vehicles to purchase landed property, employing nominee shareholders. And these holding companies are unlikely to stand up to legal scrutiny should this ever become an issue.
It is possible to use a Thai company that operates as a legitimate tax-paying business. But any foreign buyer should be wary of putting their faith (or their money) in other supposed “loopholes” – technicalities of law lacking any recent legal precedent, which are unlikely to survive a legal challenge.
A number of the “foreign ownership” arrangements addressed in the pages to follow have been struck down by Thai courts – some quite recently, and buyers/investors of Phuket real estate deserve clear explanations as to why these may not be as rock solid as certain individuals may lead them to believe.
In fact, when it comes to landed property, leasehold contracts are the easiest way to secure long term habitation, however leaseholds also come with certain risks, as the maximum term for a leasehold by law is only 30 years, so occasionally things do go wrong. But if done correctly, covering all legal angles, and developers are decent people and their circumstances do not change, a leasehold can prove to be a sound investment, too.
There is always the risk that any attempt by a foreigner to violate either the letter or the spirit of Thai law will not end well. If a foreigner wants to stay in Phuket, and have a home here, there are still a number of ways to go about it. Not titled land ownership, but certainly the right to live in a property for as long as they wish, provided they follow Thai law.
The Letter of the Law vs. The Spirit of the Law
HAVE YOU HEARD THE EXPRESSION “THE SPIRIT OF THE LAW”, AND WERE WONDERING WHAT IT MEANT?
If you’ve ever watched an American courtroom drama you will have seen criminals going free because of technicalities or loopholes. The clever lawyers always find a way to get around the letter of the law, and the judges begrudgingly have no choice but to agree with them. It seems that lawyers getting around the law is as much a part of American culture as baseball and apple pie.
The law is deeply ingrained in every culture, and we can no sooner discard law as a cultural belief than we can the rituals and traditions of our ancestors. In Phuket and Thailand, cultural attitudes are the basis for the “Spirit of the Law’’, which judges may enforce as readily as they do the letter of the law.
Whereas discrepancies in other countries create loopholes, in a Phuket court the judges are fully aware of the lawmaker’s intent, and this intent can and does form the basis of some decisions. The intent of the law where property is concerned is that foreigners may not own land or permanently possess landed property (e.g. a villa). This may not necessarily be the literal wording of the law, but the cultural connection of Thai land to Thailand is understood by every judge in every court.
Thai judges are empowered to make rulings based on the Spirit of the Law, and when it comes to foreign land ownership in Phuket, the spirit of the law will trump the letter of the law every time. And no foreigners should be under the illusion that a supposed loophole, or even the best legal defence, will be able to protect them in defence of ownership or control of physical land.
Finding a Good Lawyer in Phuket
This cannot be stressed enough—the first step when undertaking any property transaction in Phuket should be to enlist the help of a very good lawyer.
What is meant by “first step”? If someone is contemplating a real estate investment in Phuket, they should seek legal representation before they even start viewing properties. But what constitutes a “good lawyer”?
Many times it is not only their knowledge of Thai law, but their ability to explain the law in their customers’ own language. Good lawyers will be fluent in Thai and English, but if another mother tongue is needed, it might only be the biggest firms which have the resources to help. Not surprisingly, these are likely to be the more expensive law firms.
Crucially, professional individuals don’t have time to waste. If they are flying to Phuket specifically to find the perfect property, then their limited time on the island is especially precious. Without the right lawyer, a buyer could waste their time looking at properties which don’t offer the legal ownership guarantees they want. Sound legal representation will protect their interests, save time, and ultimately save money.
WHAT OLAF SAYS ABOUT FINDING THE RIGHT LAWYER
Here Olaf Duensing of Duensing Kippen explains what buyers should be looking for in their legal counsel:
Real estate in Thailand can, for the most part, be a very good investment. Sadly, we have encountered horror stories, and they are not as rare as one might hope. If you are thinking of taking this investment plunge, here are a few tips.
When making a real estate investment in Thailand, one of the best ways you can protect yourself is by hiring a competent lawyer. This is imperative, and you should obtain the right legal counsel right at the beginning of the process (i.e. prior to signing any agent’s or seller’s agreement).
The key word here really is “competent”. We often find ourselves dumbfounded when people relate to us what law firms in Thailand have told them. Thailand has a well-developed system of laws, which are in many respects quite similar to laws in the West. For the most part, as in the majority of fully developed nations, the laws in Thailand logically fit together. Furthermore, something which is very convenient for foreigners in Thailand, the English translations of most relevant laws are readily available.
So if something you are hearing from another Thai law firm is seemingly illogical and makes no sense, there is every chance that your skepticism is warranted. If you are uncertain, request a copy of the law so that you may read it yourself. If, with a translation of the law on the table, they are still incapable of explaining their point – or worse yet, if they actually refuse to offer a greater understanding – it would advisable to seek out new legal counsel to help you.
But there is more to “competent” advice than just knowledge of the law—a competent legal advisor will also be ethical. That is to say, they will be compliant with recognised international standards which all lawyers should follow. Every law firm has a fiduciary duty to its clients, meaning your interests are put ahead of those of both the individual lawyer and the firm. This includes putting your financial interests ahead of their own, and ensuring that the firm never has a conflict of interest when it comes to representing you.
That is why your legal representatives should never refer you to real estate developers or agents, and they should certainly not accept commissions from such parties. Your lawyers should never represent both sides in any transaction because to do so is a conflict of interests. You should be able to reasonably expect that the firm will never advance any interest which is detrimental to your interests.
It is simple enough to evaluate any prospective counsel. For starters, ask to see their legal credentials. Then enquire as to their professional code of ethics. Ask to see both, and verify their legal credentials before reading through their code of ethics. If they can’t produce one or the other, or if you are just uncomfortable with their response to your query, then you would be well advised to seek new legal counsel.
As a final point, you should not assume that Thai government officials will provide you with simple or accurate legal advice. While they may be responsible for administering the law, they are not necessarily well-versed in the law’s intricacies.
Doing the Necessary Due Diligence When Buying Property in Phuket
Someone new to Thailand is usually enamoured with the “Land of Smiles”. What could possibly go wrong in a country full of wonderful smiling people, right?
Unfortunately things can and do wrong, but this is true the world over. That is why every buyer must have an understanding of due diligence and makes sure it is conducted to ensure a property is a viable and sound investment, and that the seller is legitimate and reputable.
Stock market investors often spend hours pouring over balance sheets and fundamentals before investing a few hundred Dollars, Pounds or Euros. Why then do some of the same people fail to exercise comparable caution when spending millions of Baht in Thailand?
Due diligence is where the right lawyer is invaluable. If buying from a developer, especially off-plan, it is important to make sure that the title deed for the plot of land is in the name of the actual development – the corporate entity, as opposed to an individual’s name – and that it definitely is not in the name of an unrelated third party. If the land title is in the name of a third party, he/she has the legal right to sell the land whenever they wish, even after you have paid a deposit, installments or the full value of the unit. If that third party were to die, the fate of the land (and with it your property investment) lies with the new owner.
A representative of the developer might claim that such an ownership structure made it easier to title the land, and that ownership will be transferred to the development company when construction is finished. But if the true owner decides to sell the land, or encumber it by taking out a mortgage or loan against it, every investor could find themselves out of pocket. Furthermore, if the land is encumbered, the mortgage could be foreclosed upon, or taxes might not be paid, in which case the revenue department could stake their claim to what people thought was their property. This caution should be taken with any purchase, not just a condominium, except with condos hundreds of individuals could be affected by a single title.
Buyers of condominiums, especially ones sold off-plan, should always ask for a copy of the title. This should be the Chanote title of land for the entire development, not merely a segment related to the unit in question. The full Chanote title will show any liens, mortgages or loans against property.
The same information can be obtained from an individual title deed, but these are only issued upon completion of the condominium’s construction. Purchasing a resale unit is therefore relatively safe, and a completed development (or one that is nearly finished) might also be a consideration for a foreign investor.
Let us turn once again to Olaf Duensing to find out more about what constitutes the necessary due diligence.
WHAT OLAF SAYS ABOUT DUE DILIGENCE
Due diligence basically means doing your homework – identifying any potential legal issues which could adversely affect the purchase of the property you would like to buy. The reason this is so critical is that you are not only acquiring a property, but you are also assuming any legal liabilities which may be attached to it. Due diligence is essential no matter where you are buying, but when you are investing in property overseas (e.g. in Thailand) it is especially important.
We have heard from property owners with “buyer’s remorse” on more than one occasion, and they all insist that due diligence was conducted. Their definition of this is: “My lawyer requested the title deed from the Land Office. He had it translated, and it confirmed the ownership in the name of the seller, and that the property had no mortgage against it.”
While that may be a good first step, it is not real due diligence.
When buying real estate, due diligence should comprise the following (at the very least) :
- A comprehensive title search, including the validity of the deed itself, as well as the full history. The fact that a title deed was issued does not confirm that it was issued legally. It is possible for a title deed to appear in order, only later to be deemed invalid;
- The legal rights of access to the property must be verified;
- A detailed report of the laws governing land use and the regulations covering any construction on said land (if the property is a plot of land on which you plan to build);
- If the land has an extant building (e.g. a villa), the building permit for the structure must be examined to confirm it is legally valid. The existence of a building permit is not evidence that the building is legal. If it is deemed to be illegal, it is possible that it could be ordered to be torn down;
- If any particular licensing is required by the property you plan to buy (such as a condominium license or an additional hotel license if the development will function in both capacities), verification of said licenses is imperative. It is occasionally overlooked that a project must be built in a certain way, to qualify for condo or hotel licensing. Higher-end developments are surprisingly not immune from this oversight. A seaside development in Phuket was once sold as a condominium – even winning “best condominium” awards – only for everyone to be“shocked” later when it was revealed it did not qualify for its condominium license because the access road was too narrow. The development instead became a hotel; and
- If you are acquiring a property by means of taking over the company which owns said property (a practice not typically recommended), it is advisable to conduct a thorough examination of all company records – legal, accounting, and corporate.
LEAVING A WILL IN PHUKET AND INHERITING A PHUKET PROPERTY
Planning for our passing is important, so this section provides guidance on Thailand Wills. No matter where in the world you live, or where your assets are held, you should be sure to make a Last Will and Testament. Planning ahead ensures your loved ones will be looked after and makes the settlement of your estate far easier for everyone concerned.
In Thailand, there are no forced heirship laws. Forced heirship means that by law, the assets must be divided up amongst descendants and spouses. Countries such as France, Italy, Spain, and Portugal have forced heirship. Even Japan and many Arabic countries handle estates in this way.
So, therefore, if you have Thai assets, which may include real estate, especially something of significant value like an expensive luxury Phuket villa, then you should definitely have a Thai Will in place.
Thailand is influenced here by common law, and adheres to the rules of intestacy. If you die intestate (e.g. without a Will) your assets will be shared out equally between the statutory heirs. This means that assets are distributed according to different classes of statutory heirs, with descendants and spouses usually coming first.
But despite the fact that statutory heirs are the legal beneficiaries of your Phuket property, and your whole estate, don’t expect the procedure to be quick and fluid. It is anything but. Even if you are married to a Thai national, the settlement of the estate without a Will still inevitably turns into a lengthy process.
And this means legally married – the influence of common law in Thailand does not extend to marriage. If you’re not married to your partner, even if you have shared everything with them for many years, he/she will have no legal claim to any “joint” assets should you die intestate.
But what happens if you don’t have any family in Thailand and you never left a Will? The simple answer is that your family will be placed in an even more distressing situation than those described above.
To start with, they might have to fly 12,000 miles just to get to Thailand. Once here, the first hurdle is to prove they are who they say they are. Then they will have to go through the settlement of your estate, which is a complicated process that can only really be done using a Thai lawyer.
It could all take years to resolve, and as the lawyers’ work is quite in-depth, the fees involved will not be cheap. Depending on how long it takes, a huge chunk of the estate’s value, could be lost in lawyers’ fees alone.
There is also the chance that the authorities do not even recognise your family member as the beneficiary, which could mean they receive nothing.
Some people think they can get away with their overseas Will (i.e. from their home country), which technically would be accepted in Thailand. But the probate of the estate still has to go through the Thai courts, which would require the Will to be translated into Thai. The translations also need to be notarized, and then authorised by The Ministry of Foreign Affairs.
Thailand’s probate procedures are lengthy enough without the introduction of an overseas Will. Depending on the length of the Will, it could cost as much to have it translated and notarised as it would to draft a Thai Will in the first place.
What If I Inherit a Property in Phuket?
If you inherit a property on the island as a foreigner there a few things to consider.
Firstly, if it is a villa i.e. landed property, which includes land, a townhome, bungalow etc., you are allowed to inherit it, but will not be allowed to title it in your own name. The property must be disposed of – to a Thai national – within a reasonable period of time (typically 180 days).
If you are left a Phuket condominium, the inheritance laws are more favourable. If you inherit a condominium you’re required to inform the Land Office within 60 days. There will be some fees involved because the title deed will have to be transferred into your name.
As mentioned earlier, there are two competing pieces of legislation to contend with on an inheritance. They don’t agree, nor can lawyers agree which one carries the most weight.
Whether or not you get to keep your inherited condo in Phuket may come down to something as simple as which judge hears your case on the day.
So How Do I Get A Thai Will For All My Phuket Assets?
We recommend that you use a Thai lawyer to write a Will. It is quick and easy to do, and a good lawyer can assist you in doing everything correctly.
There are many services provided by the state in Thailand, and making a Will is one of them. However, you need to be fluent (or at least extremely conversant) in Thai to take advantage of this service. If you are a foreigner who can speak and write Thai, you can go to the local Amphur (District Office) and they will write a Will for your Thai assets.
When you get your Will, get as many copies as you need. Give one to every family member who you have named as a beneficiary. Make sure your lawyer keeps copies, keep one safe yourself, and also give one to a trusted friend.
By doing this, you will help to ensure a smooth transition of your estate to your heirs.
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