Article One - Legal Issues to Consider when Leasing Residential Property in Thailand
Story date:1 March 2013
The leasing of residential property in Thailand is a commonplace transaction which affects the lives of many, however, there are a number of legal issues that tenants & landlords should be aware of in order to avoid problems developing at a later stage.
One of the most asked questions we hear is whether a residential lease needs to be registered at the Land Department. Basically, if the term of a lease is 3 years or less then registration of the lease is not required in order for the lease to be legally enforceable. However, in order to protect the tenants' interests, a lease with a term which exceeds 3 years (but 30 years or less) should be registered in order ensure enforceability in court.
When registering a lease, the parties should bear in mind that currently the lease registration fee is set at 1% of the total rental fee over the entire term of the lease agreement. In addition, the parties should be aware that this transaction will also be subject to stamp duty set at 0.1% of the total rental fee over the entire term of the lease agreement.Hence, for example if the monthly rent is 25,000 and the term of the lease is 4 years then the applicable lease registration fee shall be 12,000 THB while the applicable stamp duty will be 1,200 THB. In regards to the issue of who must pay these fees, often it is shared between the parties however, they are able to apportion the cost according to their own agreement.
The documentary requirements for registering a lease include the lease agreement in Thai language script, the identification of the parties i.e. Thai ID card or passport. It is also important to note that the lease agreement must include a reasonable rental fee otherwise the officials will not register the lease or they will assess it based upon government appraisal for the property.
For leases exceeding 3 years and up to 30 years in length, the benefits of registering them with the Land Office are several fold. Firstly, if a legal conflict arises regarding a registered lease then generally speaking the courts will enforce the lease, whereas if the lease is not registered and a conflict arises after 3 years of the agreement have passed then the courts will not enforce the lease. Secondly, if a landlord is a person and they die before the end of the term then the tenant is still able to continue leasing the property for the term of the agreement unless the conditions of the lease provide otherwise. Finally, and crucially if the landlord sells the property to a third party after 3 years of the agreement have passed, then the lease can be enforced by the tenant against the new owner unless the lease agreement provides otherwise. However, if the lease is not registered then the new owner could legally force the tenant off the property.
Another frequently asked question regarding residential leases is what are the minimum and maximum permitted terms. According to section 540 of the Civil and Commercial Code (the Code) the maximum permitted term for the hire of immovable property (such as a house or apartment) is 30 years and even if the term mentions a longer period such as 50 years it shall be reduced to 30 years. However, the Code also provides that the term can be renewed but it must not exceed 30 years from the date of renewal. Parties to a lease exceeding a term of 3 years should also be aware that if they wish to register a lease with the Land Office then officials will not register it if the term of the lease exceeds 30 years.
In relation to the the issue of whether residential lease agreements need to be made in writing, according to section 538 of the Code, the renting of immovable property (such as a house or a condo) must have some written evidence signed by the liable party in order to be enforceable in court. Hence, we strongly recommend that you use a written agreement signed by both parties (and witnessed) in order to ensure your rights can be legally enforced. It is also worth noting that in order for a lease to be registered at the Land Office it will need to be made in writing in Thai language otherwise the officials will not process registration.
Over the years we have been asked on several occasions to advise on when rental deposit monies can be forfeited to the landlord; in regards to this matter it will depend on the terms of the lease agreement. We advise that tenants carefully review their lease agreement to ensure that the clauses dealing with deposits clearly and precisely state under what circumstances can the landlord hold on to these monies and when they must be returned to the tenant if they are not forfeited.
Landlords should also be aware that under the Code they are subject to the following duties & liabilities:
i. Delivering the property to the tenant in a good state of repair (section 546);
ii. If the property is leased in a condition that is not suitable for the purpose it is leased for then the tenant can terminate the lease i.e. If a house is leased for the purpose of being a residential home but the roof has fallen in then the tenant can terminate the lease as it is not suitable for use as a home (section 548);
iii. Unless the lease provides otherwise, the Landlord is responsible for repairing any defects to the property during the term of the lease excluding those which are by law or custom are handled by the tenant i.e. replacing washers on taps (section 550).
Under the Code, tenants should also be mindful that they are subject to several duties & liabilities including:
i. A tenant cannot use a leased property for a purpose which is not ordinary or usual or which is contrary to the purpose as stated in the lease. For example if you lease a condo to use as a residence you cannot use it as a sports club (section 552);
ii. Unless the lease states otherwise, section 553 of the Code provides that the tenant will be responsible for ordinary maintenance and petty repairs such as replacing blown light bulbs.
iii. Unless otherwise provided in the lease, the tenant may not alter or make additions to the leased property without first obtaining the written permission of the landlord. If the tenant fails to comply they must on request of the landlord restore the property to its former condition and they may be liable to the landlord for any loss or damage that results from the unauthorized alteration(s) or addition(s) to the property.
Over the years our firm has handled numerous cases involving leases where the parties have contested whether rent has been paid; our experience has shown us that it is sensible not to pay rent in the form of cash as it can be difficult to prove at a later stage that payment was made. We recommend that tenants pay by bank transfer so that there is an official record of the monies going from your account to the landlord's account. Moreover we recommend that if possible you get a receipt for all payments made, including payment of the rental deposit. This approach will help to safeguard your position by providing solid evidence should the issue of payment be argued at a later stage.
In case a tenant breaches a lease agreement, we recommend that the landlord should first refer to the lease and examine the clauses dealing with breach or default and act according to their rights under the agreement. However, if the lease agreement fails to address this type of situation then the landlord can rely upon section 387 of the Code which provides that if one party fails to perform an obligation (i.e. failing to pay rent) then the other party may fix a reasonable time for the breaching party to perform that obligation and if the breaching party fails to comply then other party may terminate the agreement.
Finally, in relation to the issue of subletting a leased property, section 544 of the Code provides that unless the lease agreement provides the right to sublet the property, the tenant is not permitted to do so and if they do then the landlord shall be within their rights to terminate the lease.
Should you require any legal advice regarding your rights as a tenant or as a landlord please contact us at Dharmniti Law Office Co., Ltd. 4th Floor, Nai Lert Tower, 2/4 Wireless Road, Lumphini, Pathumwan, Bangkok, Tel : (66) 2680 9756, Email: email@example.com