- How to benefit from our real estate practice
A property transaction in Thailand not only involves “getting the deal done”, but also understanding what it is you want to get done, the risks – present and future – of getting it done and the means available of getting it done. We can help get the deal done, but one of our more important roles is to assist clients in understanding the commercial structures and legal risks associated with real estate transactions in Thailand.
PriceSanond is a law firm and not a real estate broker or property developer. When we agree to represent a client in a real estate transaction in Thailand, we represent his or her interests. Our goal is not to close the deal at any cost. We don’t earn, nor will we accept, real estate commissions. Instead, we advise our clients on the relevant issues – including the risks – pertaining to a proposed real estate transaction, prepare the appropriate documents for that transaction and handle the necessary transfer registrations.
Our fee structure reflects the nature of the services we offer. Because a client may decide not to proceed with a transaction after he or she receives our report on the target property and advice on the transaction options, we do not charge a flat fee for the entire transaction. Instead, recognizing the understandable reluctance of many clients to enter into open ended hourly fee arrangements for property transactions, we offer fixed fees for discrete phases of a real estate transaction. To provide greater flexibility, clients can also obtain further advice and services on an hourly basis. As an alternative to these arrangements, clients can also retain our services on a strictly hourly basis.
- Property law in Thailand, briefly
When entering into a property transaction, it is important to pause for a moment and consider what exactly you hope to obtain and what the law allows you to obtain. Property laws are often uniquely local and the term “property” can mean many things in many countries.
When a foreigner seeks to acquire an interest in property in Thailand, he or she faces two sets of issues. First, Thai legal restrictions on foreign ownership and business activities must be considered. These are often a source of surprise and frustration, particularly for foreigners familiar with property transactions in more open and developed economies. Second, the basic issues that arise in virtually any property transaction in the world, such as transfer fees, title, easements, mortgages and zoning must also be considered. There is, for example, no title insurance in Thailand.
Thai law permits foreigners, under certain circumstances, to own condominiums and it permits foreigners to enter into long term lease arrangements. Foreigners can even own buildings, but as a general rule (there are exceptions) foreigners cannot directly own land in Thailand. Indeed, criminal penalties (fines and imprisonment) potentially apply if a foreigner illegally owns property in Thailand and the Director General of the Land Department is empowered to dispose of the land.
- The basics of title, zoning and other issues which commonly arise
It is important to understand the “universals”- the issues that arise in any property transaction, and the local Thai peculiarities of such issues.
Ownership of land or possessory rights in Thai real estate may be evidenced in a number of different ways. There are various levels of property “ownership” in Thailand, each of which require different procedures to acquire “ownership”, and thus it is important to understand exactly what you are acquiring:
- a chanote (equivalent to “fee simple”) is the purest form of land ownership and contains a description of the land such as size, boundaries and marking posts, and a history of all registered transactions concerning the land. Chanotes usually cover land in urban and other developed areas. Transfer of ownership or granting other rights of land represented by a chanote is usually accomplished without delay by presenting the original chanote to the applicable land department.
- a nor sor saam gor (or a “confirmed certificate of use”) is similar to a chanote in that it certifies that the person named therein has the right to use the land. Transfers of land represented by a nor sor saam gor are made at the district office (rather than the land department) and are typically accomplished without delay.
- a nor sor saam (or a “certificate of use”) is similar to a nor sor saam gor, except that the formalities required to certify the right to use have not been performed. These certificates can be transferred only after the owner first posts a notice of intent followed by a statutory thirty day waiting period in order to allow others with an interest in the land to object to the transfer.
- a sor kor neung (or a “certificate of possession”) is a certificate that recognizes possession but does not imply ownership or a right to use the land. Such certificates cannot be transferred and are most commonly found in rural areas.
- a tax receipt may evidence possession, but does not confer an ownership right with possession. It may be useful, however in applying for a certificate of possession
- Restrictions on Foreign Ownership of Land
As a general rule (there are exceptions) foreigners cannot directly own land in Thailand. Indeed, criminal penalties (fines and imprisonment) potentially apply if a foreigner illegally owns property in Thailand and the Director General of the Land Department is empowered to dispose of the land. Thai law does, however, permit foreigners to enter into long term lease arrangements (which may in some cases be made a matter of public record with the applicable land department) and have direct ownership of buildings and other structures.
Faced with restrictions on land ownership, nominee arrangements are often proposed using Thai private limited companies or other structures. Such arrangements pose substantial risks since the concept of “trust” (a right of beneficial ownership in property to which another holds legal title) is not recognized under Thai law except in limited circumstances, and nominee arrangements are illegal. Complicating matters further, fraud is not uncommon in many of these arrangements.
While it is important to address these restrictions, they should not divert attention from any of the more universal and fundamental problems with the property itself: simply establishing a viable vehicle for acquiring a property interest does not necessarily mean the property is worth acquiring.
- Liens and Easements
Restrictions and charges that may apply to property in Thailand are similar to those found in other jurisdictions. For example, property may be subject to a mortgage or easements allowing others access over portions of the property. Conversely, a purchaser of property without direct access to public roads will want to ensure he or she is the beneficiary to easements over adjoining property. Other rights in land include leases (both registered and unregistered), superficies, servitudes, charges and usufructs.
Zoning in Thailand is covered by one or more legislative acts, depending on the location and nature of the property concerned, such as the Building Control Act, Zoning Act, Environmental Act, National Park Act, Forest Act, and Agriculture Reform Act. In addition, different governmental agencies also have responsibility for establishing zoning rules, including the Department of Civil Works and Zoning and the Office of Natural Resources and Environmental Planning and Policy. To complicate matters further, zoning rules may differ among the various provinces in Thailand. Any property investor will thus need to determine what zoning rules apply to his or her prospective purchase, as such rules may limit the sorts of structure the investor can build or the type of business he or she intends to operate.
For example, in Chiang Mai Province, a commercial building with floor space in excess of 300 square meters may not host wholesale or retail trade operations if it is located within 10 or 15 kilometers (depending on the total floor space of such building) of a municipal boundary.
In Phuket, zoning restrictions limit the height of a building and the scope of activities that may occur therein, as well as the amount of land such building cover. These restrictions are based on a host of factors, including the distance of the proposed building from the sea, its distance above sea level and the gradient/slope of the property on which it is built.
Finally, an investor will also want to determine the types of restrictions that apply to adjoining properties (for example, whether or not a neighbor may legally build a 24 story hotel or operate a 24 hour disco on his or her property).
- Special issues involving condominiums
Although Thai law permits foreigners to own condominiums, there are a number of issues that deserve particular consideration. For example, the condominium building must be properly established as a “juristic condominium”, and each condominium unit should have a form of title deed in the form of a chanote (as described above). Each condominium unit carries with it a proportionate ownership of the underlying land and common areas of the condominium building as well. Ownership is transferred at the land department, and foreign ownership of units is strictly controlled. Foreigners who are not official residents in Thailand will generally be required to purchase a condominium unit with funds from abroad. Other issues to consider include whether or not there are any liens against the condominium, a review of the condominium’s sinking fund and management of common areas, and the documentation required for the foreigner to acquire the condominium directly in his or her own name.
The purchase of a new condominium from a developer presents several unique issues. Many developers, for example, require deposits, and those deposits are often not held in escrow; instead, they are often used to fund construction or the developer’s other business activities. Many prospective property purchasers in Thailand have lost deposits to developers that were unable to complete their projects. Recent amendments to the Condominium Act are intended to improve the overall condominium market, however, by screening out non-professional developers that take advantage of buyers. For instance, as part of the amendments the Ministry of Interior has issued a prescribed format for the sales agreement between purchasers and developers, which includes provisions for liquidated damages and a return of any deposits made (with interest) in the event the unit is not transferred by the date provided in the agreement. The amendments also require developers to pay common area expenses for unsold units after unit transfers have taken place, which should put a greater burden on irresponsible developers who earlier tried to avoid these payments.