Although the 2008 worldwide economic recession, together with H1FI flu circumstances and local political uncertainties have recently had a heavy negative impact on the tourism and hospitality sector in general in Thailand, the general consensus is that longer term prospects appear much brighter.
Thailand consistently ranks as a top worldwide destination for both tourism appeal and business transactions. As such, various enterprises locally and from all over the world have already set up and operating in the Kingdom and additionally are in various stages of planning future new hotels, resorts, serviced apartments, timeshare structures, fractional ownership arrangements, condotels, destination or vacation clubs and other types of hospitality attractions throughout the Kingdom.
In structuring any types of hospitality products, a wide variety of legal issues and processes arise and need to be addressed and implemented. The exact issues, structures and processes applicable to any particular project would depend on the exact planned final product (and operating arrangement) as more generally described below. It should be noted that this is not intended to be an exhaustive list of all matters to take into consideration in a planned project, but is intended as a highlighted overview.
Planning Stage and LOI
At the initial stage, an overall plan would be settled for the project in mind. Amongst a myriad of other matters such plan would consist of:
- identification of the parties involved (e.g., existing or proposed property owner or property lessor/lessee, proposed international or local brand of management, property architects, designers and contractors, applicable trademark owners, local and international service providers, and brokers for projects which includes saleable residences or vacation products etc.);
- the actual hospitality product to be offered (e.g., type and structure of product, whether a conventional hotel, a serviced apartment or hybrid product such as a condotel or other type of product);
- the proposed location (and stage of acquisition and/or construction) of the physical property; and
- the detailed steps to be taken and licenses and permits and regulatory processes needed to implement forecasted operations.
At this stage, if two or more parties are joining in the proposed plan, it is usually prudent to enter into a letter of intent to memorialize the general intentions, responsibilities and applicable scope of implementation of the project.
Real Property Acquisition
Generally speaking, after general planning noted above, the initial stages to be considered in a hospitality project are real property acquisition in some type of format, with or without financing, and whether by outright purchasing of title, leasing, joint venture arrangements, board of investment privileged projects, real estate property fund acquisitions with lease backs or other arrangements, or acquisition by other appropriate avenue. This acquisition stage triggers a myriad of questions on the target of action and the best avenue of wide choice of combinations on implementation and consideration of the applicable legal issues, processes, permits and licenses involved.
Also, it should be noted that even if the property is already acquired (and possibly operated) by a joint venture party, it is normally prudent for the proposed local or international management company to conduct at least a limited due diligence review of the property to ensure satisfactory conditions and possessory rights before committing resources and reputation to a long-term branded management arrangement.
In examining the proposed target of property acquisition, a detailed legal due diligence of the land (and structures if applicable) in question is usually advisable. In addition, it is prudent in most cases, and especially in more undeveloped areas outside of the central metropolitan zones, to independently verify the on-the-ground borders of the property by professional land survey.
Unfettered ownership title and secured access to public roads, beach and utility supplies are crucial. Also important are the absence of restricting building, usage or construction permit issues, entertainment zoning conditions, agricultural, forestry, wildlife, marine life, coastal, coral reef or other preservation or protective measures and environmental impact assessment (or initial environmental evaluation, as applicable) approval conditions, any of which could render the planned project inefficient as best and unworkable at worst.
A myriad of central government agencies are involved in conducting such types of due diligence reviews, including the applicable Land Office (of the Ministry of Interior), Ministry of Commerce offices for corporate reviews, and central and local offices of central government agencies. In addition, for upcountry projects, various provincial and district level authorities would need to be consulted. In metropolitan areas, the applicable city authorities would be consulted, such as the Bangkok Metropolitan Authority in the capital.
Once it is settled (and conditions satisfied) what real property will be acquired and in what manner of planned operation and by what entity (or for existing properties how such properties will be converted or renovated and rebranded), the parties involved would usually need to negotiate the details of, finalize and enter into the applicable agreements, such as:
- The joint venture (or shareholder) agreements and accessory documents amongst the ultimate owners of the hospitality project (if more than one entity);
- Corporate establishment documents (if the property owning/leasing/possessory entity will be separate from the joint venturers);
- The acquisition documents in respect of real property purchase (land and/or structures), registered lease or otherwise;
- If applicable, the documents required for application of Board of Investment privileges;
- Environmental impact assessment approval documents;
- Building permit documents;
- Hotel licensing documents;
- Accessory licensing documents (such as food and liquor licenses, food storage and tobacco (local and import) permits, hazardous business licenses, customs permits, video broadcasting licenses, foreign exchange licenses, cash machine registrations, direct marketing permits, gas storage permits and restaurant permits);
- Applicable work permits and visa for foreign staff and managers of the hospitality property;
- Financing documents;
- If applicable, real property fund applications and documents;
- Construction, architectural and design agreements;
- The hotel, residential or other applicable management agreements;
- The branded trademark licensing and royalty agreements;
- The international service and/technical, construction or design consulting agreements;
- The trademark agreement extracts for registration;
- If applicable, any rental program arrangements; and
- Any other agreements, applications, or documents required in the contemplated project.
The complexity of a planned hospitality project in the Kingdom of Thailand can range from very straightforward and relatively quick implementation (for a example, under circumstances where an urban-zoned conventional hotel property is already operating with all existing (and clean) titles, licenses and permits with entry into a new converted and renovated hotel management arrangement) to a much more complex and involved mixed-use project in an undeveloped portion of the Kingdom (for example, a planned hospitality project consisting of a conventional hotel, a serviced leased villas resort, and a serviced and concierged private residential condominium component partially participating in a voluntary branded pooled rental program and partially participating in a vacation destination club, with all components sharing common recreational facilities and other resort amenities).
In any event, for parties taking a longer term view of economic circumstances in Thailand and throughout the world for that matter, the hospitality sector in Thailand looks bright indeed.