Connect with us

Property

Phuket Property Legal: Collective Leasehold Structures – Overview

Legacy Phuket Gazette

Published

 on 

image
image

PHUKET: PHUKET and neighboring provinces contain some of the finest villa developments in Thailand. However, under Thai law, foreigners are generally prohibited from owning land. However, they are, as many are aware, allowed to own buildings. Therefore, a common method for foreigners to purchase a villa is to lease a land plot (or plots) from a Thai landowner, and purchase (or construct) the villa.

Thai law permits a maximum registrable lease term of 30 years. At the end of the 30-year term, the lease may be renewed together by the lessor (the landowner) and lessee (the buyer) but such a renewal agreement is by contract only, not pre-registration at the land office. Most land lease agreements for the leasing of land in Phuket’s villa developments contain provisions stating that the lease will be renewed for two additional 30-year terms. As such, a common lease arrangement is 30 years + 30 years + 30 years, for a total of 90 years, thus providing a time period that can be considered “near-freehold”. However, many potential buyers and their international legal counsel question the validity and enforceability of the renewal term.

Challenges of leasehold arrangements

As stated above, a significant drawback with such leasehold arrangements is that there is no legal guarantee that a landowner will actually renew the lease. Thai law does not require such lease renewals. A lessor’s “obligation” to renew a lease is merely a contractual promise. Therefore, if the lessor chooses not to renew the lease, it is a breach of contract, and not a violation of the law per se. The likelihood of a lessor breaking a contractual promise to renew a lease increases when the land is transferred to a third party, as is likely during a 30-year term, since such a third party may (incorrectly) conclude that it is not under the same obligations as its predecessor.

What is more, a lessee’s remedies are limited in the event of a lessor’s breach of a contractual obligation to renew a lease term. To compel renewal, a court action must be initiated. However, the damages that are available regarding a breach of a renewal clause are restricted to damages, and a lessee cannot “force” a renewal.

Collective Leasehold

However, despite the challenges outlined above, a structure is available that can provide greater security for villa owners. The structure is known as “collective leasehold”, where owners, as a group, take a minority shareholding in the landowning company via a corporate entity. Through corporate and legal structuring, the owners would be able to provide their opinions on issues regarding the landowning company. Importantly, this would include renewal of leases.

This structure works by all the owners in a development each owning shares in an offshore (non-Thai) company. Usually, such shareholding corresponds with the land plots leased. In other words, if an owner leases two plots, they would own two shares in the “owners’ company”. This offshore company would then purchase a minority stake in the landowning company.

As such, the owners have a say in the landowning company’s corporate decision-making, especially regarding the development’s land. The end result of the collective leasehold structure is that owners have more control over their own villa investments.

The primary drawback of the collective leasehold structure is that it requires the full consent of the landowner to be implemented. For example, the lessor must agree to allow the lessees to own a stake (even if a minority portion). However, the structure can ultimately be beneficial to landowners, who are often the villa project’s developer, in that greater owner security means a more attractive project to potential investors.

Conclusion

Collective leasehold structures provide owners in villa developments the legal means to have a greater say in their villa projects. Importantly, this means that owners have increased control over the renewal of their leases, thus mitigating a major risk associated with long-term leases in villa developments. For the structure to be successfully implemented, owners must work with the project’s developer or landowner. While such a proposition may seem daunting to many owners, if correctly implemented, a collective leasehold structure has benefits for both owners and landowners. Projects, which do not have collective leasehold structures now, but contain multiple stand alone lease agreements, could be converted to this safer system.

This article was co-written by Desmond Hughes, Deputy CEO, and John Frangos, Senior Associate, of the law firm of Limcharoen Hughes and Glanville.

— Desmond Hughes & John Frangos

 

Get more from The Thaiger

📱 Download our app on Android or iOS
👋 Have your say on our Thailand forum
🔔 Subscribe to our daily newsletter
📺 Subscribe / Join for daily shows
👍 Like/Follow us on Facebook
🐦 FOLLOW us on Twitter
📷 FOLLOW us on Instagram

image

Join the conversation and have your say on Thailand news published on The Thaiger.

Thaiger Talk is our new Thaiger Community where you can join the discussion on everything happening in Thailand right now.

Please note that articles are not posted to the forum instantly and can take up to 20 min before being visible. Click for more information and the Thaiger Talk Guidelines.

Click to comment

You must be logged in to post a comment Login

Leave a Reply

Archiving articles from the Phuket Gazette circa 1998 - 2017. View the Phuket Gazette online archive and Digital Gazette PDF Prints.

Follow Thaiger by email:

Video58 mins ago

The “Dislike: button, Serving alcohol, Thai longtail boats | Thaiger Bites | Ep.75

Coronavirus (Covid-19)1 hour ago

LATEST NEWS: First Omicron case detected in Thailand

Politics3 hours ago

Cambodian PM plans a visit to Myanmar to smooth divisions in ASEAN

advertiseadvertise
Transport4 hours ago

A bird strike may have caused Royal Thai Air Force F-5 fighter jet’s recent crashing

Thailand4 hours ago

Thailand Top Stories | Alcohol situation in Pattaya, Thailand Omicron update | Dec 6

Coronavirus (Covid-19)4 hours ago

First Omicron strain reported in Thailand, Test & Go traveller tests positive

image
Join the conversation on the Thaiger Talk forums today!
Coronavirus (Covid-19)4 hours ago

Covid UPDATE: Still no Omicron, today’s infections drop to 4,000

Crime5 hours ago

Phuket police arrest 32 after more than 3,500 venue raids since November

Video5 hours ago

Dealign with omicron, Opening the southern border, pen15 park | Good Morning Thailand | Ep.146

Politics5 hours ago

US Republican Party senator Bob Dole passes away at 98

Coronavirus Vaccines5 hours ago

Thailand’s Health Ministry misses Covid-19 vaccination target

Tourism6 hours ago

Germany removes Thailand from its list of high-risk countries

Indonesia6 hours ago

Death toll rises to 14 in volcanic eruption in Indonesia

North East7 hours ago

Police deny detaining or threatening woman who told PM to “retire quickly”

Coronavirus (Covid-19)7 hours ago

CCSA meets today to decide on southern border re-opening

Coronavirus World5 days ago

Health officials say Omicron probably in the Netherlands prior to South Africa reports

Coronavirus (Covid-19)5 days ago

PM will decide on need for lockdown if and when Omicron found in Thailand

Coronavirus (Covid-19)6 days ago

PM Prayut Chan-o-cha says PCR tests will remain a requirement for foreign arrivals

Thailand7 days ago

Thailand News Today | Quarantine requirements in Thailand relaxed, Vocal expat deported | Nov 29

Tourism6 days ago

No plans to reverse re-opening, despite Omicron variant – Tourism Ministry

Drugs5 days ago

Men arrested at Bangkok airport for allegedly smuggling drugs valued at 95 million baht

Visa3 days ago

10-year long term visa scheme takes a step forward, measures approved by PM

Thailand5 days ago

Possible lockdown, Crypto in Thailand, Transit system improvements | Good Morning Thailand | Ep.143

Coronavirus (Covid-19)6 days ago

Thailand entry restrictions on African countries in response to Omicron

Bangkok6 days ago

Foreigner claims Bangkok taxi pocketed 1,000 baht for ride down Sukhumvit

Tourism5 days ago

Cha-am permitted to sell alcohol in restaurants from December 1

Expats4 days ago

Bangkok is 4th best place to live in Southeast Asia, according to expat survey

Thailand6 days ago

More venues in Thailand require proof of vaccination, or ATK test, at the door

Tourism6 days ago

Tourism officials welcome Czech movie filming in Phuket and Krabi

Thailand7 days ago

“Sandbox” stay shortened to 5 days for vaccinated travellers from overseas

Thailand3 months ago

Morning Top Stories Thailand | Police to end protests, Human Trafficking | September 14

Thailand9 months ago

Thailand News Today | Thai Airways in rehab, All go for Songkran | March 4

Tourism9 months ago

Phuket’s nightlife. Yes, bars and clubs are still open | VIDEO

Phuket9 months ago

Thailand News Today | Covid passport talks, Thai Airways heads to court | March 2

Tourism10 months ago

Phuket Thai food treats you need to try | VIDEO

Thailand10 months ago

Thailand News Today | Bars, pubs and restaurants ‘sort of’ back to normal | Feb 23

Tourism10 months ago

In search of Cat & Dog Cafés in Phuket Town | VIDEO

Thailand11 months ago

Thailand News Today | Gambling crackdown, Seafood market to reopen, Vlogger challenge | Jan 21

Thailand11 months ago

Thailand News Today | Covid testing for visas, Business impact, Vaccine approval | January 19

Thailand11 months ago

Thailand News Today | Weekend Bangkok bombs, Thailand fires, Covid update | January 18

Thailand11 months ago

Thailand News Today | Stray car on runway, Indonesian quake, 300 baht tourist fee | January 15

Thailand11 months ago

Thailand News Today | Governor off respirator, sex-trafficking arrest, condo prices falling | January 14

Thailand11 months ago

Thailand News Today | Chinese vaccine, Thailand ‘drug hub’, Covid update | January 13

Thailand11 months ago

Thailand News Today | Bangkok may ease restrictions, Phuket bar curfew, Vaccine roll out | January 12

Thailand11 months ago

Thailand News Today | Covid latest, Cockfights closed down, Bryde’s Whale beached | January 11

Trending