So you’ve bought a property. Have you checked the management contracts?
by Panuwat Somrit – Phuket lawyer specialising in property
Buying or investing in property may seem like a straight forward and easy transaction. You simply pay the money, transfer the ownership and that’s it. But it’s not that way in Thailand.
If it were, there wouldn’t be so many issues related to buying property here. Many foreigners face problems after they have already bought property. They have to appear in court to fight cases, which is a huge waste of time and money.
One such recent issue was at Aspasia. In March this year, ten foreign tenants from the Aspasia Phuket Resort, led by Dutch national Jan Cornelis van Zuilekom, complained to Phuket Governor Chamroen Tipayapongtada that he and other tenants had been locked out of their rooms and had their electricity and water cut off.
(Read more about the story HERE)
The tenants wanted the management to provide them with financial reports, but their request was refused. They then stopped paying the maintenance fee, which resulted in their electricity and water being cut off. The management team claimed that the tenants had no right to see the reports according to their contract, which is why they were punished by having their electricity and water cut off. All of this, the company said, was written clearly in the management agreement.
This can be a good lesson for others to exercise caution. There are many similar cases of this nature in Phuket.
The problem with this arrangement is the ignorance of both parties – the buyer and the project owner – about the management plan or management agreement, after buying or investing in the property.
Buyers or investors mostly focus on the buying and selling agreement, but nobody pays much attention to the management plan. Most buyers and investors are unaware of what else that they have to pay, or what terms and conditions apply for when they live in that property after becoming the owner of it.
There are two types of property ‘investment’: leasehold and freehold.
Leasehold is a long term rental that can last up to a maximum of 90 years, but the contract has to be renewed every 30 years. A freehold transaction is when you actually buy the property.
Every property in Thailand falls under Thai law, as well as each private business’s own regulations. Therefore, investors, especially foreigners, have to be careful and study these laws before they decide to buy or lease under a freehold or leasehold agreement.
Most buyers are cautious when deciding how much they have to pay up front and how much they need from the bank. However, it’s what happens afterwards that causes so many problems.
For example, in some cases, owners have the right to vote on how much in maintenance fees they are willing to pay per year. They also have the right to see the financial documents showing the usage of the maintenance fee, as well as to examine how the juristic persons work. This is usually the case in condos.
In other types of property, the project owner or management team has the right to decide on how they will utilize the maintenance fee. They can even set their own price for water and electricity. The tenants or owners have no right to be involved with management. They just have to pay the maintenance fees as required.
So everything depends on the management agreement between the buyer and project owner. As a lawyer, I strongly advise all parties to carefully consider the management agreement before making any buying or investment decisions. This will highlight what you can or can’t do after you have bought, what the management’s responsibilities are, etc. Be careful; read the management agreement thoroughly and do not limit your focus solely on the buying and selling agreement.
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Panuwat Somrit is a Phuket lawyer specializing in property. He has been practicing law for the past six years. He graduated with a Bachelor’s degree in law from Ramkhamhaeng University.
