In our previous article, we briefly discussed the Thai Supreme Court ruling that supposedly “condemned” leasehold.
Why didn’t the condominium market in Phuket lose 51% of its value (the Thai ownership quota in condominiums, which is often offered to foreigners on a leasehold basis)? And why didn’t the entire villa market collapse, given that foreign investors typically hold the land beneath their houses on a leasehold basis?
Because the Supreme Court ruling did not introduce any fundamental changes.
The maximum lease term for real estate remains 30 years.
However, the ruling confirmed several important points:
- The tenant was unable to compel the landlord through the courts to enter into a second lease agreement for the same period, even though three lease terms had already been paid for.
- Agreements designed to circumvent the statutory 30-year lease limit were declared invalid.
- The ruling concerns private contractual relationships between individuals. For Phuket’s property market, we are primarily interested in relationships between developers (legal entities) and tenants (individuals). We have not yet found similar court cases involving such relationships.
So What Keeps Leasehold Going?
1. The Goodwill of Both Parties
The law limits the duration of a property lease but does not restrict the parties’ right to voluntarily renew an agreement, as opposed to being legally compelled to do so.
If both parties agreed to register a second lease term, nothing would prevent them from doing so.
In the case of a developer, provided it is not a short-lived company established simply to “build, sell, and disappear,” there is usually an intention to renew leasehold agreements, supported by tax and financial planning.
We seriously doubt that developers’ business plans include a sinister scheme to take properties away from tenants after 30 years.
A more likely obstacle to renewal is the absence of long-term plans for the company’s continued operation.
2. Advance Payments for the Second and Third Terms as a Means of Leverage
The Supreme Court ruling says nothing about the landlord’s obligation to refund payments made by the tenant for the second and third lease terms if the lease renewal does not take place.
In theory, the tenant may file a lawsuit seeking reimbursement of the overpaid amounts, as well as penalties.
In practice, each case requires a detailed individual assessment.
For a developer who has divided the total leasehold price into separate terms and received advance payment from the tenant for all three terms, this means the tenant may have grounds to claim a refund of the overpaid amounts and penalties if the developer refuses to renew the lease.
3. Consumer Protection
At this stage, it is difficult for us to imagine exactly how this mechanism might work in practice.
But consider the following situation: a developer misled a tenant by promising a guaranteed lease term of 30+30+30 years and then refused to renew the lease after the first term expired.
The consequences could vary significantly.
Much would depend on whether the lease payments were divided into three separate terms, what evidence the tenant could provide, and what obligations the developer had undertaken.
Depending on the circumstances, the matter could potentially lead to criminal liability.
Should You Be More Concerned About Leasehold Now?
No more than before the Supreme Court ruling.
If You understand that You are acquiring lease rights for 30 years, with a possibility of renewal that depends on numerous factors, why not?
The important thing is to understand that renewal is not guaranteed, even if the agreement provides for additional lease terms.
Where Can You Find the Supreme Court Ruling?
The original ruling in Thai can be found by searching for the case number on the official website of the Supreme Court of Thailand.
Only the original court ruling in Thai is legally authoritative.
Author: Alexandra Agapitova.
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