Pitfalls of land lease renewals

In a recent article (Gazette December 20, 2003) by William Pinsent titled ‘Options for Ownership’, he stated that “a well constructed leasehold is typically of 30 years’ duration with two 30-year renewals”. This statement implies that the leaseholder can expect a trouble-free 90-year land/building lease. Under current Thai law, a land lease can be for a maximum of 30 years and each renewal must have a “new” registration at the local land office. Taxes must be paid for each “new” registration and the landowner must agree to the new lease. When Mr Pinsent refers to a “well constructed lease”, I assume he means a legally binding private contract between the landowner and the lessee covering the subsequent lease regisrations. However, if the landowner has no further financial incentive 30 years down the line, he could simply refuse to sign any new registration and automatically become owner of any buildings standing on the ground. The lessee then has the legal right to take the landowner to court for breach of contract but the reality is that such civil actions can take years of expensive legal wrangling. The landowner would hold the legal high ground during this time and the lessee would have no rights at all as the registered land lease automatically terminates at the end of 30 years. Your readers should also be aware that in the event of the death of the registered lessee, the lease is immediately invalidated, given that there is a clause in “private” lease agreements that the inheritor must register a new lease with the landowner – who must be willing to cooperate – to ensure the smooth transition of lease registration. Complex issues have been highlighted and buyers must be alert to all potential pitfalls.

Alex Malcolm , Patong.

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Unscrupulous landlords, although not unknown, are fortunately few and far between. Sloppily-written leases are, however, rather more common. Many of the points raised in your letter are potential weaknesses in the default conditions prevailing in the existing Land Code regarding protection of long-term leasehold rights. These potential pitfalls, including inheritance and renewal options, can be adequately addressed in a custom-drafted and registered lease including, for example, penalties for breach and conditions set for return of improvements. The few aspects that cannot be dealt by these means can be covered in a private addendum enforceable under the Civil and Commercial Code. It is crucial that all these conditions are clearly stated, recorded and registered, with the terms set in such a way that the landlord’s refusal to grant a renewal becomes such an unattractive path that even the most unscrupulous landlord will not find a breach viable. Cumbersome court procedures should thus never be your concern. If you are paying good money for a long-term lease, it is a wise investment to pay for good legal advice at the outset – and only take on a property whose owner is willing to grant you all the protection that your lawyer advises you will need.

William Pinsent, Gazette property columnist.

Answered on January 12, 2004.
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