Phuket Property Legal: Your lease could be buried with you

PHUKET: Leasing has become a popular option for foreign property buyers to acquire interest in land or apartment units, due to legal restrictions applying to the purchasing of property in Thailand. Many of us may have heard that the maximum term under Thai law for residential leases, that a lessor and his lessee can agree to register with the land department, is 30 years – thereafter renewal options are usually granted.

However, when it comes to the protection of the lessee’s inheritance, in respect to the beneficiaries, many of us may not be aware of the fact that lease rights basically cannot be passed on to loved ones in the case of the lessee’s death. Unfortunately, the Thai Civil and Commercial Code (CCC) does not provide for a transfer of lease rights by way of inheritance. This means that upon the lessee’s demise, a lease is extinguished and ceases to exist.

This may have serious consequences in regard to your investment, particularly in regard to your beneficiaries, who may not be entitled to use and enjoy your property any longer. This seems to be even more draconian if you consider that long term leases, which are usually used in order to acquire interest in land or apartment units, must be fully paid up in advance by the lessee to their lessor.

In order to protect the inheritance of lease rights, the lessor and lessee may agree under the lease that the agreement shall be binding upon and enure on to their heirs, in case of either on to demise. However, such succession or inheritance clauses may not be accepted by a court if it comes to a dispute between the lessor and lessee’s heirs – it needs to be remembered that a lease right is basically considered as a personal right of the lessee, which cannot be transferred upon their demise. Therefore, caution is advisable if such individual agreements shall be the only safeguard in regard to the inheritance of your lease rights.

However, courts have decided that under certain conditions a lease shall be inheritable. This shall be the case if the structure, such as a villa has been erected on the leased land and lessor and lessee agreed that such structure shall be conveyed in the lessor’s name upon expiration of the lease or its extensions. Nevertheless, property buyers should be aware that courts from time to time may change their opinion and rule differently in the future.

It would be surely helpful, in order to increase investor’s confidence in buying property in Thailand, if the inheritance of lease rights could be guaranteed by law, which would require respective amendment of the CCC.

However, until such an amendment comes into effect (if ever) the safest way of acquiring lease rights seems to be to use the name of a corporate body, as such entities do not usually die if properly maintained. And it is preferable to use an offshore company, which are generally easier to maintain.
Acquisition of lease rights under the name of an offshore company may offer further advantages, however, should be discussed with professional advisers in order to ensure that the chosen legal structure satisfies your personal requirements on a safe investment.

For those who do not feel comfortable with holding property under the name of a company structure, it is advisable to enter into a lease together with your beneficiaries as the longer living lessees are entitled to benefit from the property until their passing.

This article is written by International Law Office Patong Beach Co Ltd. For inquiries, contact Friedrich “Sam” Fauma, senior partner, by email at sam@ilo-phuket.com or phone 076-222 1915.