The leasehold system is a system of property tenure wherein a person acquires the right to occupy a particular land or building for a pre-determined time. The owner of the building or land (landlord), hands over temporary possession and occupation of the premises to another person (tenant or leaseholder), by paying a fixed sum or in installments.
A freehold property gives full legal rights to the owners to occupy, use, lease, sell or develop the property. Purchasing a condominium is the simplest process for foreign buyers. Thai law allows foreign freehold ownership of condominiums as long as you buy a unit within a building’s foreign quota. The freehold will, however, give you rights over the building but not over the land.
A leasehold property only gives the lessee the right to live in the property or use it for commercial or residential purposes for a specific period. The lessee’s rights associated with leasehold has limitations under Thai law.
A lease agreement is a personal tenancy contract with a fixed and a prepaid term with a maximum lease term of 30 years. Any lease of immovable property for longer than 30 years may only be made by renewing the contract upon its expiration. Renewal for a further 30 years is at the owner’s discretion. However, both parties must register the renewal with the local Land Office. They must also settle all the necessary government fees at the end of each term.
Thai law stipulates that foreigners may not personally own land in Thailand. However, they can buy the right of freehold ownership for a building which sits on the land. There are a number of purchase options available to foreigners. Most property developers will offer buyers both freehold and leasehold alternatives. Foreigners can buy the land as leasehold and the property that sits on the land as freehold. A foreigner may only buy land to build a property if the land is on leasehold. However, if a foreigner is operating a business in Thailand he may buy the freehold of the land through his Limited Company. In this case, the company, not the individual, will own the land.
A major disadvantage of lease is that the contract and the right of possession terminates upon the lessee’s death. Its rights are not automatically transferable by inheritance. Although the lease agreement must include a succession clause, this does not offer full guarantee for the lessee’s heirs.
Aside from not having to renew the contract frequently, the lessee is not solely responsible in maintaining and preserving the leasehold property. Landlords are also bound to do their legal obligations according to the lease agreement. This is to make sure that the lessee or the tenant enjoys full and uninterrupted possession of the property. Leaseholders have an option to renew the contract with the previous arrangements after the end of each term. The lessee is free to pursue alternative arrangements for his benefit. Unlike in a freehold ownership, the lessee is not tied to the property and holds no other interest apart from his previous tenancy.
To its disadvantage, the lessee’s degree of control over the land or property is more limited compared to that of complete ownership. For a pre-determined time, the tenant can only possess and enjoy the property but not complete authority. The lessee cannot mortgage or use his leased property as collateral. Unless otherwise provided by the lease agreement, a lessee cannot sublet or transfer his rights in the whole or part of the property leased to a third person.
For validity, you must register any lease longer than a three-year period with the local Land Office. The Title Deed must then show the lease. Such registration allows any possible third-party buyers to know of the lessee’s rights to the land during the lease period. If you do not register the lease agreement, the lease is enforceable by action for a 3-year term only.