If you have been searching for the ideal property in Phuket, and have found the one your heart is set on, the next step is to place a deposit and sign off on the reservation agreement.
While the process is very similar in real estate markets across the world, each country will have its own set of procedures, and Thailand is no different. It too, has its own set of practises which most lawyers will follow.
Reservations agreements are relatively straight forward, often a single page, but they should cover the most salient points in the property transaction. It is important that a reservation agreement “ticks all the boxes” to ensure that the buyer is protected so that any deposit is returnable.
Essentially, this means that should your lawyer find anything untoward with the property which would cause it to fail due diligence, the buyer is entitled to receive the full deposit back from the seller or developer.
The reservation agreement is normally provided by the seller or the seller’s lawyer, and often signed before the buyer engages a lawyer. In fact, many people decide to undergo the entire purchase property without the use of a competent lawyer, but in some cases this can prove to be a mistake.
To safeguard your purchase, you should ideally hire a lawyer before (or at the absolute latest immediately after) you sign the reservation agreement. If you can, you should try to have a lawyer before any deposit is paid.
An experienced lawyer can make sure that the deposit is paid with certain guarantees of it being returned if the due diligence turns up problems with the property. Your lawyer will also see to it that any future monies are only paid subject to the developer satisfactorily achieving the stages of construction or development detailed in the agreement.
It is also worth pointing out that many lawyers on the island will already be aware of the problems that some developers or projects have faced in the past, and will be able to advise you which should be avoided. By employing a lawyer before you sign the reservation agreement, you can be saved the time, hassle and potential cost of placing a reservation deposit on a project which the lawyer already knows will not hold up when subjected to due diligence.
Some lawyers will insist on a “cooling off period,” whereby the buyer may pull out of the deal within a certain timeframe – without any penalty, and with a full return of the deposit.
Because of this, the lawyers or agents representing the seller may try to confuse you, and may even suggest that your own independent legal representation is not necessary. In such cases any deposit placed may not be returnable, and you should be suspicious of any seller’s representative who attempts to place such pressure on you.
Disputes in Thailand can take a long time to resolve, and buyers need to consider the costs of legal fees when trying to get back a deposit from a developer or seller. Paying a lawyer to ensure you have a rock solid reservation agreement is far less costly than attempting to recover your deposit if you do not.
It pays to use a lawyer, but sometimes the developer may recommend a lawyer for you. If you do decide to engage the services of a developer’s lawyer, you should at least be armed with the knowledge of what a reservation agreement should include.
Apart from having the full details of both the buyer and the seller, here are the other key points a reservation agreement should contain:
1: It should confirm exactly what is being sold. For example, is the property a villa, condominium or an apartment? The reservation agreement should also confirm the area (in either rai or square metres) of the property. It should outline the legal structure. For example, is it a freehold or leasehold? And if it is a freehold, is there a Chanote freehold title and what is the land title number? Does the property include furniture, or is it sold as seen? In some cases, it may be necessary to also list all the fixtures and furnishings included in the sale.
2: It should state that the deposit forms part of the total sale price, and will be applied as an advance payment when due diligence has been completed and the sale looks likely to go ahead. It should also state the payment schedule for full payment.
3: Buyers need to make sure they have plenty of time to carry out due diligence (anything between 7 and 30 days) and should also include just what the lawyer will need to conduct the necessary due diligence on your behalf. A well-constructed reservation agreement should give the lawyer ample time to do the necessary due diligence. It should also state the time required before the more important Sales & Purchase Agreement is signed.
4: If the property is being sold off-plan, it should also state the timeframe for completion of the property. However, it should also state that should more time be necessary, a revised schedule for completion may be drawn up with the mutual agreement (in writing) of both the Seller and the Buyer.
5: It should clarify what happens with the deposit should either the buyer or the seller withdraw from the transaction. If the seller is in breach of the agreement, the deposit should be refunded in full. If the buyer is in breach of the agreement, the deposit is normally forfeited.
6: It should state categorically that any issues which arise as a result of due diligence – issues which would negatively impact the buyer of the property – will result in a return of the deposit to the buyer. In most cases, a lawyer must be able to demonstrate the reasons for the due diligence failure. If a problem identified is relatively easy to overcome, the buyer’s lawyer may also give the developer or the seller the opportunity to resolve the issue within a specific timeframe.
7: Most reservation agreements also state how the taxes are shared between the seller and buyer, and exactly what those taxes will be.
8: Finally, the agreement should state that it is governed by the Laws of Thailand, to make it easier to pursue a return of the deposit, in case that becomes necessary.
The reservation agreement should be signed by both parties and original documents kept in a safe place. Should the buyer give their lawyer Power of Attorney, then the lawyer may sign on the buyer’s behalf. Any representative signing on behalf of the developer should also provide the necessary legal documents demonstrating they have the necessary legal “signing power.” If they do not, then the agreement will not hold up in a court of law. All documents also need to be stamped with the official company stamp of the developer.
By using the above checklist, you can ensure you have covered all the relevant points in the reservation agreement, so that your entire purchasing process will be both swift and secure.
And by using a qualified lawyer early in the purchasing process, you can ensure that your reservation agreement is correctly structured from the outset, so that you can also enjoy peace of mind.