This article aims to explain the differences between freehold and leasehold structures and give a clear explanation of what leasehold means in Thailand.
We appreciate that the terms “freehold” and “leasehold” are not necessarily universal concepts.
Freehold vs. Leasehold ownership is a common distinction in many countries. But the differentiation is found most frequently in the UK and the countries comprising the Commonwealth.
Freehold is a simple concept: absolute, titled property ownership with full proprietary rights.
“Leasehold”, by contrast, is an ownership arrangement by which the owner of a home or building does not necessarily own the land it is sitting on, but rather rents it from the “freeholder”.
The practice dates back to feudal England when serfs paid landowners for the privilege of living on their land. If a serf failed to pay a certain amount of grain, gold or sheep, then he and his family were evicted.
In the 21st Century, someone is probably not going be raising crops or animals on behalf of the landowner, but as a foreigner in Thailand they are also not going to own the Chanote title for the land.
Buying a “Leasehold” in Thailand
We should probably explain why we have written the word “leasehold” in quotation marks (inverted commas). While the concept of leasehold is a known distinction from freehold ownership, it is nevertheless not the same legal structure in Thailand as in the rest of the world.
The origin of leaseholds (above) is how the law still applies in the UK and elsewhere, but the duration of a UK leasehold ranges from 99 to 999 years.
Most people would agree that a leasehold which lasts one millennium is near enough permanent ownership.
You are Renting. You Do Not Own
In Thailand, however, any foreigner who wants to “own” landed property is limited to a 30-year “leasehold”. Hence the inverted commas – this is not a leasehold in the traditional sense of the word, nor is it any form of true ownership.
The 30-year lease available to foreigners should be viewed as long-term rental (a 30-year rental, to be precise).
We will therefore use the term “lease” (rather than “own”) so that there is no confusion as to what the contract actually entails.
A lease places the buyer (or lessee) on a more solid legal footing than the owner of a Thai Limited Company, but it is not true ownership.
Pre-Paid Lease Renewals in Thailand
Some developers offer “30+30 Leases” (or even 30+30+30), meaning they are effectively promising upfront that a lessee can stay in a villa for 60 or 90 years.
Section 540 of the Civil and Commercial Code does allow a lease to be renewed after 30 years, and the letter of the law does not differentiate between foreign and Thai lessees.
But section 540 is also very clear on both the maximum term of a lease, as well as lease renewal.
Judges are the arbiters of the spirit of the law, and courts have already ruled that extensions “written in stone” within a lease agreement are attempts at de facto foreigner ownership.
Extensions for foreigners must instead be an option—no more than a promise—and one which is only enforceable against the original lessor of the property.
This is fine as an addendum, but any effort to make the lease contractual/binding for 60 or 90 years could be deemed to violate the spirit of the law, and would almost certainly be voided by the courts.
Are Pre-Paid Lease Renewals Cast in Stone?
Most villa developers understand that offering strategies to assist foreigners in prolonging the initial lease period is in their best interests, but any decision to renew the lease after 30 years is purely at the discretion of the landlord (or freeholder).
This is a fact that every foreigner must appreciate if they plan to lease a property from a private individual.
If the individual owner were to die, and his wife, children or grandchildren inherited the property, the foreign lessee could find themselves homeless and out of pocket at the end of the lease if the heirs are not amenable to an extension.
But this does not mean foreigners should automatically trust a developer over an individual.
If a company is sold, or even changes directors, the management of the new company may decide not to honour a previously agreed extension/renewal, and the lessee will have to move out.
But an extension is not the only thing to be concerned with, it is the underlying ownership of the land itself.
In 2016, on the island of Koh Samui, a number of foreigners were evicted (after only 20 years) from the luxury villas they had built.
The developers were not the freehold owners of the land, and decided not to renew its lease. They had further agreed that anything built on the land was the property of the landlord.
This further emphasises the importance of investigating the Chanote title (and of hiring a good lawyer).
Always Register The Lease
It is essential that any lease agreement longer than 3 years be registered with the Land Department. The protection offered from a registered lease is extremely relevant should ownership of the land change hands.
If the landlord dies, becomes insolvent, or sells the land to another party, the new owner must honour the terms of the original lease.
If the lease has not been registered at the Land Department, however, the new owners are not even obligated to allow the lessee to keep living there. The tenant, because that is what they are, could effectively be evicted.
Promises, like an unregistered lease, do not hold up in court. A new owner is not obliged to fulfil any agreement made by the past owner, verbal or written.
The lease may be protected, but any consensus reached with the former owner to renew the lease after 30 years will now be at the whim of the new owner.
This highlights the importance of registering the lease, and also putting the lease in multiple names.
But unfortunately the number of foreign owners per development is limited. Only 49% of the available unit area may be owned by foreigners. The remaining 51% must be owned by Thais.
However, the CCC states that foreigners are allowed to lease the same units that are designated for Thai nationals.
So while a foreigner cannot own one of “the 51%” allocated to Thais, they can lease the unit for a period of 30 years, with possible renewals after that period.
In most situations, it is not advisable for people to enter a lease agreement on a condominium unit. You can read more about this here:
Some condominiums encourage foreigners to set up Thai companies to purchase one of these “leasehold” units because, as the buyer is a Thai company, it is deemed to constitute part of the 51%.
But running a Thai company may not be financially feasible for owners of low-end condominiums. Most crucially, however, it may also be questionable from a legal standpoint.
You may read more about this here:
Unlike a freehold condominium, where ownership of the unit is in perpetuity, an apartment is only available on a “leasehold” basis, and only allows the lessee to live there for 30 years.
Occasionally, a superbly priced and well managed apartment development may be attractive, but it limits the length of “ownership” by the lessee.
Furthermore, a lease contract is typically terminated upon the death of the lessee, and there is not necessarily a provision for inheritance.
Because apartments often fall into the same price range as freehold condominiums, the ownership restrictions should make any buyer think carefully before considering one.
A Thai “leasehold” is not the leasehold we know of in, for example, the United Kingdom, where leaseholds are looked at as a form of ownership.
Anyone entering into a property lease agreement in the Thailand must understand that they are, in effect, renting a property (or land) for a 30-year period.
If you rent you do not own anything.
Although some developers offer 30+30+30 leases, these are effectively promises which cannot be contractually enforced in a court of law.
Buyers being offered apartments (which are only available leasehold) or leasehold condominiums should consider carefully why they would choose one of these over a freehold unit.
This is an excerpt from the Thai Residential Phuket Property Guide 2019/20. To download your free copy, please click here.
Read more of our related articles on the Phuket real estate market: