Will we see a change in the land lease law and procedures or just clarifying the loopholes and grey zones?
After a judgment from the Phuket Civil Court, there has been a lot of discussion about the “safe leases” of 30+30+30 years on land and condominium now declared not valid, by the Region 8’s Court of Appeal adopted a judgment from Phuket Civil Court.
The matter has how-ever be settled in the Supreme Court.
According to an article in The Phuket News February 27, 2015. The legal correspondent, Jerrold Kippen, the ruling can also mean that the underlying 30-year lease is invalid, even if it is registered at the Land Office, which according to Kippen, would mean that the lessee could be deprived of the property they have rented.
For my part, I’m hesitant to that this could be the case, provided that the lessor is a private Thai citizen or a legal entity, made by the book. What does the law say?
Section 540 of the Civil and Commercial Code
“The validity of a rent (lease) of a stationary property (land / condominium) not to exceed 30 years. If the rental period is longer than 30 years, it shall be automatically reduced to 30 years. The rental period may be extended by 30 years, but it must not exceed 30 years from the renewal date. ”
My interpretation is that what the legislature meant, is that an extension may be renewed upon completion of the initial 30-year lease period expired. That is also Kippens interpretation.
The problem occurs when the seller has been a shell/nominee company, in other words a legal entity in which decision-making power over the company manipulated by the weighted fractional shares so that a foreign national gained control of the company. Since such a company is invalid under Thai law, the Company is not permitted to own land. Consequently, nor can the company legally sell leasing units. That is why Kippen believes, in such a case the lease-holders could face that the tenancy could become illegal.
Under Section 155 of The Civil and Commercial Code stipulates that if two parties enter into a so-called fictitious contracts in order to hide a genuine agreement, the entire agreement is declared void.
What Kippen referring to is that the arrangement of nominee corporations are considered to be “concocted” agreements because such agreements to come to circumvent the law to foreign citizens with a pair of extremely marginal exceptions, are not allowed to own land in Thailand.
Kippen further says that “according to the Court’s analysis, all of which have already invested in such illegal structure risk losing their investment.”
“Kippen mean, however, that there is hope for those who have entered into such a structure, which was dismissed by the court. Fully legally possible to remake the agreements and thus ensure the long term of the lease in such a way that neither the lessee nor lessor loses on the deal. It may be through prepaid renewal terms of repayment.
If that is indeed the case we can probably not be completely sure – after all, Kippen is only a lawyer who expressed so.
Some clarifying parts from Kippen to Andrew Drummond (a journalist) who wrote articles about lawyers and land laws in Thailand.
Kippen points out a few things in reply:
1) I did not say, nor have I ever said, that “anyone who has one of
these ‘secured’ or ‘collective’ leases have 100 per cent of nothing. The whole lease agreement is void.”
What I did say is that if other courts also hold this same legal opinion, that would be a problem for others investing in the same structure.
2) I did not say I agree with these two court opinions. I simply reported what, in summary, the two courts held. In fact, I do not believe that these courts opinions are legally correct and will not be upheld by the Supreme Court. But they could.
However, we/my firm have been very clear that we think the “secured lease” is a tool to market for foreigners that does not deliver for many other reasons. We have published on this both in our blogs on our site and, e.g., in the Phuket News. If you do a bit of Googling you will find those articles from back in 2013.
Should we really NOT warn people about that, particularly if such problems can be avoided?
You might imagine how popular that has made us, as a firm, with developers and real estate agents. And if you do a bit of looking at our other articles you might come to the conclusion that we are not part of the racket that lies to foreign investors so we can make a quick and easy buck.
3) I did not say that I “have the answer”.
What I did say is that there is a better way to structure a long-term lease that will provide actual legal security. By “actual” and “straightforward” I meant what is current provide for in Thai law (as opposed to just calling something a “secured lease”).
And we certainly are not trying to create a rush of business with this. We have openly shared this idea, e.g. here: https://www.youtube.com/watch?v=oqr2Y8Qajz4 (that is my business partner. Olaf Duensing during his speech on this back in 2013). We are simply trying to get people to do things right or at least better for everyone. Incidentally, I organized that event and as such one of the other main topics was “time to regulate estate agency in Thailand”. And leading up to the event we published a two-part article on this topic to stir interest. Do you think that did or would ever drive business to us? And I am sure you can imagine how much more popular we became with estate agents and the industry crowd then.
Further, we are not the only ones to come to this idea as “better”. Again if you do a bit of Googling you will find an article that was in the Nation on 31 July 2014 by one of the Partners (I think the Managing Partner if I recall correctly) of Price Waterhouse Cooper in Bangkok, that advocates that long-term leases like this be structured the way we have been proposing and continue to. [If you cannot find that article, let me know and I will look it up and send it to you].
So we are not the only ones with this idea and we are certainly not trying keep it to ourselves — quite the opposite.
We have been meaning for some time to publish an article explaining what we mean by the lease with mortgage structure and we now doing so. When it is out in the next few weeks, I would encourage you have a look and see if it maybe makes some sense to you.
But, in any event, is it really fair to imply that my summarizing two actual Thai court rulings and saying that there is a better way to structure long term leases is equivalent that scumbag Pattaya alleging unsupported doom to come that he could “fix” (which obviously cannot be “fixed” legally)?
As for your comments about me personally:
1) Come on, a bit unfair don’t you think to characterize me based on the The Phuket News “Exposed” piece. That was intended to be “non-serious” and funny.
2) I graduated from law school and passed the California State Bar in 2001. I was selected by the Chief Judge of US Federal District Court of Guam to be his law clerk for two years. I did not work in the prosecutor’s office, ever.
In 2003 after my clerkship ended I moved to Thailand (having visited on vacation a few times during my clerkship, loving it and having decided to make my life and career here).
The results of the California Bar examination are valid for 5 years, and since I did not need to be admitted to the California Bar to clerk for the Judge or begin working in Thailand, I held off on admission so that I did not have to pay the annual fees until 2006.
And I am sure with a bit of research you can confirm these facts.
Andrew I would encourage you to have a look at our articles. My firm and I highly value integrity and our professional duties to our clients past, current, and potential. We are not popular with the agents and developers because they know we will tell the truth about due diligence findings and legal liabilities in contracts.
We are not the bad guys that your valuable skills and time deserve.
Keep it simple and adjust to what is actually written in Thai laws.
There is always other aspects to consider as due diligence and owner rights on the property or land that you would like to lease.
To the lease itself, Its maximum a period of 30 years that can be registered at The Prominent Land office, for a leasehold agreement. (in the most private cases)
Other agreements made between the lessor and the lessee could be legally bond, as additional renewal rights or usefruits for example. Always consider to talk to your lawyer or a transparent consultant before entering a deal, where your future dreams and coming life would be set.