EXCLUSIVE: Confusion over Phuket court’s recent property lease ruling cleared up

A recent article published in two well-known Thai English-language newspapers reported that a Phuket court ruled that 90-year secured property leases usually offered to foreign buyers are void, causing confusion and distress amongst many of the country’s expatriate population.

According to report in The Phuket News last Friday, the Phuket Civil Court, backed by the Region 8 Appellate Court, ruled that the secured leases – that allow foreign owners to add two consecutive 30-year terms to an existing 30-year lease – had never, in fact, existed.

“Finding a lease that is void means that it never legally existed, and therefore, as far as the law is concerned, a void lease cannot be, nor ever could have been, registered,” The News’s legal correspondent Jerrold Kippen said in the report.

The decision was made by a sole trial court judge, upheld by a three-judge Appellate Court and now awaits hearing at the Supreme Court, the story, which was also republished by The Bangkok Post, noted.

However, the more detailed subject matter of the case reveals more relevant information.

The ruling was not actually an original challenge to the leases, but was in fact a case relating to ‘right of redemption’ and breaches alleged by several parties, including alleged breaches of the unregistered lease agreements, Woraphong Leksakulchai, managing partner at Thailand-based law firm Hughes Krupica, told Property Report.

“In this case there was a right of redemption; alleged default by lessees; alleged default by lessors and leases were not registered on land title documents,” he said. “On that basis, due to the issues of this case, the leased were deemed void due to several clauses that had been drafted to allow termination of the leases and for other reasons in the judgment.

“Investors should not react to cases through panic or belief that somehow a blanket decision can be made due to a single case.”

In Thailand, it is possible as in other jurisdictions, for contracts to be deemed void in court proceedings.

Property developers on the island have traditionally produced contracts for foreign buyers of their projects that include 30-year lease agreements with the option to add two consecutive 30-year terms. Such extensions are achieved under Thai law through the use of different legal structures, including ‘collective leasehold’ – which means that the company that owns the land where a property stands can renew the lease on behalf of the owners who voted for it.

“There are many cases in Thailand every week although this case is of interest on the facts,” Woraphong added. “I advise that buyers look carefully at whether developers have rights of redemption; have borrowed monies; have drafted their leases correctly and take the normal precautions before entering into an agreement. They should also check for any nominee shareholder arrangements and contraventions of the Land Code in relation to direct or indirect control of land. ”

In Thailand, which has a codified system of law differentiating it from ‘common law’ or ‘judge made’ law systems, even Supreme Court decisions are not legally binding, but only ‘guiding’.

With tremors in the property market as a result of the media report on this case, questions have naturally been raised as to whether this case somehow undermines such structures.

The report immediately made headlines and became viral online over the weekend, causing alarm to existing 30-year renewal or “90-year lease” owners or prospective foreign buyers, and expat netizens were quick to voice their opinions.

One member of the Thai Visa community, “BudRight”, commented: “This is not new. Some have been predicting this for years. Now this has happened, though I feel sad.”

Another forum member, “steelpulse”, said that all the property sellers and developers needed to do was to update the lease contracts to change the ownership to the legal 30-year leases, echoing the same recommendation by Kippen.

Dexter Norville, national director of JLL Thailand, noted that this was not a new thing for buyers who enter into lease agreements in Thailand, but the inaccurate reports made on this case could cause confusion among prospective buyers.

Asked if the controversial case might scare foreign investors away, he commented: “As we are speaking about a relatively small percentage of the overall market in terms of real estate investment across Thailand it will not have a dramatic affect to the industry.”

Norville wouldn’t hypothesize on how this recent case could turn out in the next hearing, but he hopes that the attention could educate buyers about leasehold ownerships. “As I’m not a lawyer or judge I can’t comment on what the Supreme Court ruling maybe but would hope some clarity and negotiation on how developers can sell more percentage to foreign buyers in certain locations such as the resorts which have been a hotspot for foreign investors can be achieved.

“For example could there be something along the lines of the BOI where certain developments can apply for full foreign ownership rights as some hotels have for instance.”

Still, he is concerned that the news could have a slight impact, especially on many uninformed lease buyers. “Where developers are targeting foreign buyers it is bound to felt and without a quick and clear decision will deter buyers from making possible investment decisions. Foreigners will have to look at buying where they can secure freehold title.”