Leasehold Purchase of a Condominium in Thailand: What a Foreign Buyer Actually Gets

What a Condominium Leasehold Is

When a foreigner is offered a condominium unit 'on leasehold,' the arrangement is not ownership - it is a long-term lease. This is a fundamental distinction to grasp from the outset: Thai law does not recognise a lease as a real right or a transferable asset. Under the Civil and Commercial Code (CCC, the chapters on hire of property - Sections 537-574), a lease is a contract for the hire of property that is tied to the personal identity of the lessee. You do not acquire a title to the property, your name is not entered in the Land Department register as an owner, and you cannot deal with the unit as though it were your own.

Leasehold arrangements most commonly arise when a foreigner runs up against the foreign ownership quota. A condominium registered under the Condominium Act (as amended in 2008) may be held in foreign freehold ownership up to a maximum of 49% of the building's total residential floor area. At least 51% must be owned by Thai nationals. When the foreign quota is exhausted - a frequent situation in resort developments - the developer offers the remaining 'Thai-quota' units to foreigners precisely through a lease structure.

The Key Restriction: 30 Years Under Section 540

The term of a lease of immovable property in Thailand cannot exceed 30 years by law. Any longer term is automatically reduced to 30 years by operation of Section 540 of the CCC. This is a hard rule that cannot be circumvented by contract.

This gives rise to the most common trap in leasehold contracts: the promise of renewal. Contracts frequently include 'a preferential right to a further 30 years,' or set out two or three consecutive contracts structured as '3 x 30 = 90 years.' Such provisions are not enforceable in court: they conflict with Section 540. They may be included in a contract - freedom of contract permits it - but their enforceability in the future is not guaranteed. Even if a court were to uphold such a clause, it would bind only the original parties to the contract and would not automatically pass to a new owner of the building.

What You Can and Cannot Do in Practice

The primary right of a leaseholder is a personal right to occupy a specific unit for the duration of the registered lease term. Several practical limitations flow from this:

• Sale and assignment. A leaseholder cannot sell the lease independently. Assignment is a three-party transaction involving the registered owner, the current lessee, and the incoming lessee. Without the consent and active participation of the registered owner, registration of the assignment at the Land Department is not possible.
• Subletting. Under the general rules on hire of property, subletting is prohibited. A lessee may sublet only if the right to do so is expressly stated in the contract (cross-referencing Section 544 of the CCC on subletting with the lessor's consent).
• Voting rights. Votes at a general meeting of condominium co-owners remain with the owner of the unit and do not pass to the lessee (unless specifically agreed otherwise). In practice, this means that a developer retaining a large number of leased units controls the general meetings - including decisions on building management and the level of maintenance fees, in which the developer has a direct financial interest.

Inheritance: The Most Problematic Issue

A foreign freehold owner may bequeath a unit to another foreigner. A lease operates differently. A lease is a contractual right, and under the rules on hire of property the contract terminates on the death of the lessee (a position confirmed by the Thai Supreme Court). The right of possession dies with the person.

The key principle to remember is this: a change of ownership of the building does not terminate the lease, but the death of the lessee does. A succession clause can and should be included in the contract, but it does not give heirs an absolute guarantee. Where an heir is named in the contract there is a chance the lease may be preserved, but this is considerably weaker protection than the passage of full ownership through inheritance.

Costs: What Falls on the Lessee

Formally, contributions to the condominium juristic person - the sinking fund, regular maintenance and management fees, and special levies for major repairs - are the obligation of the owner. However, in leasehold contracts these are almost invariably passed on to the lessee, with no refund at the end of the term.

A telling example: if in year 27 of the lease a general meeting resolves to invest in a major capital upgrade of the building, the lessee is obliged to pay their share of the owner's contribution despite having only three years remaining, or risk termination of the contract for breach.

Taxation is a separate line item. A leasehold unit (unlike an owner-occupied residence) is subject to a rental tax of 12.5% on the actual or assessed annual rental value, whichever is higher. For a unit priced at 4 million baht, this amounts to approximately 16,000 baht per year, and it is ordinarily the lessee who pays. On registration of the lease, a registration fee of 1.1% of the total lease consideration is also payable.

Leasehold vs Freehold: A Comparison

An important nuance: the sale of freehold units in a project is a 'government-regulated' activity, and sale contracts must comply with minimum statutory standards and consumer protection legislation. Leasing the same units to foreigners falls outside that regulatory framework, which is why leasehold contracts are drafted primarily in the interests of the seller.

What to Check and What to Watch Out For

• Whether the condominium is registered under the Condominium Act, or whether it is a licensed serviced-apartment complex without condominium status (the legal regime is entirely different).
• Whether the 49% foreign quota is exhausted - there may be freehold units still available, making a lease unnecessary.
• The lease term - it cannot exceed 30 years; do not trust '30+30+30' structures.
• The renewal clause - treat it as an expression of intent, not a guarantee; renewal requires a new contract and a fresh payment.
• The succession clause - whether one exists and who is named as heir.
• Who pays the sinking fund, condominium fees, special levies, and the 12.5% tax - and whether the owner has a right to terminate the contract for non-payment.
• The right to sublet - whether it is expressly stated, if you intend to let the unit out.
• Who the registered owner of the unit is and whether that party is genuinely capable of fulfilling its obligations (particularly in the event of the developer's insolvency).
• Registration at the Land Department - without it, a long-term lease does not enjoy full legal protection.