THAILAND Trends and Developments Contributed by: Shunsuke Minowa, Yosuke Konno, Poonyisa Sornchangwat and Natthapa Jirathawong, Nagashima Ohno & Tsunematsu
to collectively hold up to 49% of the total floor area in a condominium project. Ownership of condominium units also includes co-ownership of common property, including the land on which the condominium project is located, in proportion to the area of the unit owned. This can be seen as an exception to the prohibition on foreigners owning land in Thailand. Alternatives to land ownership When foreign investors are unable to hold direct own - ership of land, they need to secure their rights in real property through other legal approaches, for example, leasehold rights, superficies, usufruct, or other rights, which are further described below. Long-term leasehold right One of the most common approaches for foreign investors is a long-term leasehold. Such long-term leases are, however, subject to certain legal limita - tions. Under Section 538 of the Thai Civil and Com - mercial Code (CCC), a lease with a term exceeding three years must be registered with the land office; otherwise, it will be enforceable for no more than three years. Furthermore, under Section 540 of the CCC, a lease term cannot exceed 30 years; any agreed lease term exceeding this limitation will be deemed void and will be reduced to 30 years. Particularly in large-scale projects, investors often prefer to secure their rights over real property beyond this 30-year limitation. The most common approach to address this 30-year limitation is to include a “promise of lease” provision within the original lease agreement, enabling renew - al for consecutive 30-year terms. Such “promise of lease” is a unilateral offer binding only on the lessor. To be regarded as a “promise of lease”, the renewal terms and conditions, including the rent, must be agreed in advance, precluding further negotiation between the parties. If the terms remain open to negotiation, the arrangement will not qualify as a promise but will instead be deemed a right of first refusal. To exercise the right under a “promise of lease”, the lessee must exercise its right to accept the promise to renew the lease within the original lease term, after which a new lease is executed, effectively extending the lease term for a successive 30-year period. Nevertheless, this arrangement has given rise to a legal issue, as high - lighted by a recent court case in 2023 (see below).
Exploring 30-year lease extensions as a long-term strategy: key insights from a landmark Supreme Court case The arrangement of a promise of lease for succes - sive 30-year periods has recently come under scru - tiny following a Supreme Court judgment rendered in 2023, which highlights the legal risks associated with extending lease terms beyond the statutory 30-year limitation. A summary of the facts of the case, the judgment, and an evaluation of the judgment are set out below. Summary of facts The plaintiff, being a lessor and a property owner (ie, the land and the residential house thereon) in Phuket Province, Thailand, entered into a lease agreement with the defendant, as lessee, on 10 May 1990. The lease agreement stipulated a 30-year lease term (ie, 1990-2020) for a total rent of THB1.5 million and con - tained a promise of lease provision entitling the lessee to renew the lease upon expiry. Additionally, on the execution date of the original lease agreement, the parties executed a separate agree - ment under which the defendant agreed to make early payment of THB1.2 million (the rent for two successive 30-year lease terms, ie, 2020-2050 and 2050-2080, with THB600,000 as the rent for each term), which was to be paid later in 1990, in order to secure two successive 30-year lease terms, ultimately extending the lease to 90 years. Despite these agreements, in 2020, the plaintiff demanded that the defendant vacate the property and demolish the structures built on the land. The defend - ant refused, leading the plaintiff to file a complaint seeking monetary damages for failure to vacate the premises. In response, the defendant filed a counter - claim, requesting the Supreme Court to enforce the registration of a new 30-year lease term, for which partial payment had already been made. Judgment The Supreme Court first referred to the purpose of Section 540 of the CCC, which clearly prohibits leases exceeding 30 years to “protect the parties from dis - proportionate advantages or disadvantages resulting from long-term leases that could cause changes in
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