Thailand Real Estate & Conveyancing: The Legal Aspects of Buying Property in Thailand – Chapter 1: Basics

THAILAND REAL ESTATE & CONVEYANCING

THE LEGAL ASPECTS OF BUYING PROPERTY IN THAILAND

Chapter 1 : Basics

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It is a glaring certainty that Thai Real Estate is ever increasing in popularity, not only among locals and expatriates but to catch the eyes of investors worldwide. With webs of development projects mushrooming around Bangkok with promises of relatively high, speedy ROIs, property investment is no longer even foreign single individuals have an eye on Thai to invest in its local real estate. Inasmuch, please find an extremely helpful starting point to jumpstart your ambition of acquiring Thai real estate below, where I have undertaken to analyze and compile the basics of Thai Real Estate Law, in an effort t provide a basic understanding of the nuances of the legal aspects of Thai Real Estate:

Foreign Investors – The 49% – 51% Rule

It is commonplace that foreign entities (individuals / companies) seeking to invest in real estate or in the case of the former a home in Thailand purchase condominium units as opposed to houses / land. Foreigners are at liberty to own up to 49% of units in a condominium building / development where naturally, 51% has to be Thai owned. Foreigners purchasing such condominium units must have the ability to present correct and complete documentation and evidence as required by the Land Department, for instance: evidence of withdrawal of monies in an amount not less than the price of the unit to be bought.

Our more comprehensive Condominium Buying Guide for Foreigners may be found here.

Similarly, there is a prohibition against foreign entities (individuals / companies) in owning land in Thailand.

Notwithstanding, companies incorporated in Thailand that enjoy a 51% Thai ownership may legally own land in Thailand. This is the normal if not only facet employed by foreign investors to own land in Thailand. However, this avenue is not to be abused as a company with significant foreign equity may attract investigation by the Land Department to adjudicate whether the foreigner instead is the true owner of the land before the purchase is permitted registration.

For more information please see BLB Chapter ‘Limited Liability Companies – Incorporation of Private Limited Companies in Thailand (Brief Introduction)’ here https://bangkoklegal.wordpress.com/2012/07/02/private-limite…f-introduction

There are narrow exceptions to this rule (save for the aforementioned ownership of condominium units) which include where the foreign entity had received permission from the Ministry of Interior, having brought in investment monies no less than 40 million THB (fixed in Ministerial Regulations) for the purpose of purchasing land to be used as residence with an area less than 1 rai (1,600 square meters); special privileges accruing under projects with the Thai Board of Investment and Industrial Estate Authority of Thailand; and ownership by foreign oil companies that meet the requirements of the Petroleum Act.

There are no restrictions as to building ownership. Foreigners can thus lease land and build on the same.

While a cascade of ‘foreign land ownership’ solutions have surfaced in recent years and is increasing in popularity, the penultimate remains and severe legal repercussions await those who defy.

Due Diligence

Property due diligence is of course, a very prudent course of action. Good title may be evidenced by a copy of the title document certified by the Land Office (viz-a-viz Title Search), supplemented by bankruptcy searches, searches at the Legal Execution Office, corporate searches (where owner is a corporate entity) and the relevant courts.

Title searches are generally done by the purchaser at his / her own cost, unless the vendor agrees to absorb the cost.

Formerly, legal opinion letter / due diligence reports were not common. However, much significance is being placed on this aspect and this breed of due diligence per proper have become quite the norm especially with regards to transactions of higher value.

Conveyancing

  • There has to be a written agreement
  • This written agreement has to be registered in the province’s respective Land Office (District Land Office in the case of Bangkok)

Pre-SPA

Letters of intent and other forms of non-binding pre-SPA agreements are not common for transactions of smaller value and where the terms are less complicated. Pursuant to Thai Law, so long as parties are not agreeable to an agreement in its entirety, and one party declares its non-agreement, the agreement will be deemed not concluded in the event of doubt. Further, a mere ‘understanding’ as to a particular term, even though noted down is not deemed to be binding.

While the norm in Sales & Purchase transactions is to contain preceding obligations in an SPA, we take the stand that having a Pre-SPA Agreement is crucial to encompass the parties intentions, toward the SPA and prior to any ‘booking fee’ being deposited.

Sales & Purchase Agreements (SPA)

Typically, a brief glimpse of terms contained therein a Thai equivalent.

Salient terms, inter alia:

  • Property description;
  • Terms for payment;
  • Vendor’s representations and warranties;
  • Date of title transfer; and
  • Liability for transfer fees and taxes.

Common representations and warranties include, inter alia:

  • The vendor’s valid title to the property;
  • The property is free of all forms of encumbrances including mortgages, claims, charges, liens and c.; and
  • The property is free of pending investigation, actions, suit or proceeding that seek to prohibit, challenge or restrict the sale of property.

Usually, the down payment is set between 10 to 20 percent of the purchase price. Escrow arrangements are not common.

Fees

  • Transfer Fee – 2% of officially assessed value. This official assessment is issued by the Land Department from time to time.
  • Stamp Duty – 1 THB for every 200 THB

If the transaction is one for commercial purposes or profit:

  • Specific Business Tax (SBT) incurred by vendor – 3% of gross receipt before deduction of any expenses

All transactions:

  • Withholding Tax – proportionate to the number of years of the vendor’s ownership of the land. There is a ceiling of 20% of the selling price except where the transaction is conducted for commercial purposes or profit

Unless otherwise agreed, parties shall be equally responsible for the transfer fees and stamp duties. Other taxes are to the account of vendor but burden of which may be passed to purchaser vide contract.

Structural and Environmental Reviews

Such reviews entail high costs and naturally usually are arranged only with larger transactions and development projects. Environmental insurance is not common and the norm is to content with representations or for the purchaser to indemnify him / herself.

Legal opinions or zoning reports are advisable in this respect.

Governing Law in Inter-jurisdictional Transactions (Conflict of Law)

Based on Thai Law, the form required for the validity of a contract, document or other juristic acts relating to immovable property is governed by the law of the country where the property is located, i.e. in the purchase of Thai property, such form, document and juristic acts have to adhere to Thai law.

Liabilities concerned in a Sales Purchase Transaction

  • Specific Liabilities for the Vendor

Defect – The vendor is liable for any defect of sold property that serves as an impairment on either the property’s value or fitness for ordinary purposes or for purposes of the agreement, unless the purchaser was aware of the defect at the time of sale or would have known if such care as might be expected from a person of ordinary prudence had been exercised or if the defect was apparent at the time of delivery but the property accepted without reservation.

Deficiency – As per general principles of contract, where sales of immovable property involves a total area which is specified, the vendor is liable to rejection or acceptance with proportional payment by the purchaser for delivery of property which is not per description but comprises of an area of less or more than that contracted for (deficiency). Nonetheless, should this deficiency or excess not exceed 5 percent of the said specified total area, the purchaser is bound to exercise the latter option of acceptance with proportional payment, provided that the purchaser may rescind the contract if the deficiency / excess is such that had the purchaser known the purchaser would not have entered into the agreement.

There is a limitation period that applies: Action for liability for defect or liability on account of deficiency must be taken within 1 year after delivery.

Further, the vendor is liable for consequences of any interference with the right of peaceful possession of the purchaser by any person having a right over property sold, except where the purchaser knew at the time of sale that the right of the person causing disturbance existed.

  • Specific Liabilities where the Sale is by Auction

The purchaser is entitled to withhold the agreed price or part of the agreed price (unless the vendor provides proper security) if the purchaser discovers defects in the property.

The purchaser is also entitled to withhold the price in whole or in part, if he or she is threatened, or has good reason to believe that he / she is about to be threatened with action by a mortgagee or by a person claiming ownership of the property sold until the vendor causes such threat to cease or gives proper security.

  • Subsequent Liability related to the Property

Based on the CCC’s ‘Wrongful Act’ Doctrine, if damage is caused by reason of the defective construction or insufficient maintenance of a building or other structure, or due to the planting or propping of trees, the party in possession of such building is bound to make compensation. However, if the same party in possession has exercised proper care to prevent the occurrence of such damage, liability falls on the owner instead to make compensation. If there is also some other person who is responsible for the cause of the damage, the possessor or owner may seek recourse against such other person.

Protection against Liabilities – Insurance / Indemnity

An agreement for exemption of liability for defects or disturbance is enforceable. Unless the non-liability clause specifies otherwise, such clause does not exempt the vendor from the repayment of the price. Furthermore, a non-liability clause cannot exempt the vendor from the repayment of the price. A non-liability clause cannot exempt the vendor from consequences arising from his or her own acts or facts that he or she knew and concealed. Environmental problems are generally excluded from all-risk insurance.

Litigation Issues

Please see BLB Chapter ‘Thai Real Estate – Litigation Issues’ here:

https://bangkoklegal.wordpress.com/2012/07/03/real-estate-litigation-issues

Financing Possibilities

Please see BLB Chapter ‘Thai Real Estate – Monies’ here:

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Leases

Please see BLB Chapter ‘Thai Real Estate – Leases’ here:

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For more information on the foregoing, please contact the author JOEL LOO SEAN EE, the Bangkok-based Senior Regional Counsel at Kelvin Chia Thailand and a member of Kelvin Chia Partnership’s Regional Practice Group at Joel.Loo@KCPartnership.com.

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This article is published to provide general information only and is not offered as specific advice on any particular matter – This information is to be taken subject to proper consultation with a lawyer.

All written material on BANGKOK LEGAL BLOG including this post are the Copyright of Joel Loo Sean Ee. Any attempt to plagiarize or reproduce these materials in whole or in part, in verbatim or in paraphrase, or in any other form that it can be conceivable that such attempt is being made is an offense in law and will be an invitation by offenders to face charges and prosecution in a Court of Law.
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