Real Estate Leases in Thailand
Leasing is a viable option for non-Thai nationals (“foreigners”) who want to have a legal and long-term interest on land in Thailand. As Thai law essentially prohibits foreigners from owning land, leasehold is one of the very few options available to foreigners in Thailand.
In Thailand, the laws and regulations state that any hire of immovable property which exceeds three years is not enforceable unless it is written and registered at the Land Department. Thus, a long-term lease is any lease over 3 years. Registration at the Land Department requires a registration fee, approximately 1% of the total lease value.
Lease agreements can have up to a 30-year lease term. If the investors would like to have a lease agreement greater than 30-years, they need to renew the lease, but the renewal must be made prior to the expiration of the original lease term.
Many people do not want to pay the 1% registration fee so they avoid the fee by using a short-term contract which does not exceed 3-years. This method is easy. Both parties, lessor and lessee, can agree and sign the contract by themselves without the participation of the Land Department. Then they renew the lease contract every 3 years.
Renewal of Lease
In Thailand, there is no automatic right to renewal. Lessors and lessees must take the step to renew the lease.
Under Thai law and Supreme Court rulings, the lease agreement is considered as a real right of the lessee, but the renewal of the lease is considered as an option contract that needs to be enforced in the future. So, it needs careful drafting of the clause regarding the intention to renew.
Lease within the Private Sector
Leasing property within the private sector can be very straightforward and depends on the negotiation between the parties. Let’s say that the landlord wants to receive the highest rent possible but the tenant also wants to save as much on rent as possible. Both sides know that applying market value is standard, but it is only a starting point, and many details can be negotiated. The contract may apply the market rent at the beginning of the contract and average growth rate is 3% per year. It could be 10% per 3 years or 15% per 5 years.Many factors will be negotiated between the landlord and tenant. There are no fixed rules.
Lease from a Government Body
In Thailand, there are many land plots that are owned by the government. Usually, the Treasury Department is the body that is responsible for government land but there also lands under the State Railway of Thailand.
What are the conditions for leasing from the Treasury Department in Thailand?
Prior to 2018, the Treasury Department calculated the rental rate on land by using “baht per square wah per month” and “baht per square meter per month” for the building. This method made the rental cost from the Treasury Department very cheap compared to the market. The Treasury Department took notice and changed the rule to be more consistent with the market.
In 2018, the Treasury Department issued new regulations to change rental terms. They split the lessees into two types:
- ‘New Lessee’ is the person who obtained the right of the property lease after January 1, 2017. The new lessee also includes any lessee who built the building and transferred to the Ministry of Finance from January 1, 2017.
- ‘Old Lessee’ is the person who obtained the right of the property lease before January 1, 2017. It includes the person who obtained the transfer of the right of the land lease from the old lessee, the lessee who inherited a lease on the property from an old lessee, old lessee who renews the lease contract, old lessee who changes the purpose of the lease contract, and old lessee who obtains additional property area under lease due to a mistake in the allocation process.
The new lessee must apply the new rental terms for leasing while the old lessee can continue grandfather in the previous regulations. There is a large difference between the old term lease and the new term lease. The old term lease charges a fixed rate while the new term lease will charge a percentage of the property value. Basically, this new term lease is almost the market value. The time for cheap rent on Treasury Department land is over.
New Lease Term
Here are the major costs of the new lease term for commercial property:
- Utilization fee is 1% of property value multiplied by number of lease years.
- Renewal fee is 0.2% of property value multiplied by number of lease years.
- In the case of leasing the land and the building, the building rent is 2% of land value per year.
- In the case of leasing the land with the building, rent is 3% of property value per year (land value + building value).
- In the case of leasing the building from the Treasury Department but not the land, rent is 3% of building value per year.
- Compensation for the land during development
- 0.50% of land value per year.
- Fee for transferring the right of lease contract to another party, not through inheritance
- 6 times the annual lease value.
- Fee for transferring the building to the Ministry of Finance
- 6 times the annual compensation value.
Transferring the Building to the Ministry of Finance
If the lessee leases idle land from the Treasury Department and develops the land, the lessee must transfer the building to the Ministry of Finance after the construction is completed. A long-term lease only begins after the building has been transferred to the Ministry of Finance. The lessee must agree to this and comply with the term of building transfer.