A pledge is commonly used as security for the performance of monetary obligations under a contract.
Thai law provides a limited list of types of pledges and alternative mechanisms to protect the rights of a creditor. The main ones are as follows:
1. Pledge without transfer of possession
A pledge agreement grants the pledgee the right over the pledged property of the pledgor, but does not grant the right of possession. In simple terms, the property remains physically with the debtor. However, if the debtor fails to repay the debt, the creditor has the right to sell the property and recover the outstanding amount.
The pledge agreement must be made in writing, include a description of the pledged property, and must be registered with the Land Department.
A land pledge agreement does not automatically extend to buildings constructed on the land after the pledge is created, unless otherwise specified in the agreement. Likewise, if a pledge is created over a building constructed on land not owned by the debtor, the land is not considered part of the pledged property unless explicitly stated in the agreement.
Both individuals and legal entities, Thai nationals and foreigners, may act as pledgees.
The subject of a pledge may include not only land and buildings, but also equipment—however, only after ownership of such equipment has been registered. For example, factories may obtain loans secured by equipment after it has been registered with the Department of Industrial Works. Equipment pledges must also be registered with the relevant authority.
2. Pledge with transfer of possession
Movable property may also be pledged by physically transferring it to the pledgee, who will hold it until the debtor fulfills their obligations. The obligations are considered fulfilled once the creditor returns the property to the debtor.
If the debtor fails to repay the debt, the pledged property must be sold at a public auction.
3. Lease with option to purchase
Movable property may be transferred under a lease agreement with a subsequent purchase option. In this case, the contract specifies the payment schedule and amounts, and ownership is transferred to the lessee after the final installment is paid.
The agreement is made in simple written form and does not require registration. The lessor may terminate the contract if the lessee misses two consecutive payments. In the case of vehicles such as cars or motorcycles, the contract may be terminated after three consecutive missed payments.
4. Conditional sale
This is a standard sale and purchase agreement with a condition delaying the transfer of ownership. Ownership passes to the buyer only after full payment of the purchase price.
In this case, the buyer does not use the property until ownership is transferred (i.e., this is not a lease arrangement).
For any questions regarding loans, installment payments, or the drafting of pledge agreements, please call: +6687-348-57-03.