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Land and House Purchase in Thailand: Legal Considerations

Having a background in English law, and a number of years involvement in the Thai land and real estate business, I am happy to share my personal thoughts on the legal considerations involved with the purchase of land, a house, or a condominium in Thailand. However I would like to stress that I am no more than an informed layman, and before making any decisions, you should consult a good lawyer qualified in Thai law -- I can recommend several with whom I have had personal dealings who are honest, efficient, and up to speed with the ever changing policies.

Thailand law is based very much on the English system, as one of the Thai princes studied in the UK a century or so ago, and brought back with him the notions of title deeds and registration.

There are several grades of land title, 'Chanot' being the principal one, which is the equivalent to a freehold. Details of the land are shown on the front, and current and previous ownership along with any registered debt on the back. If you are shown a copy of a chanot, always ask to see both sides before even starting to enter into negotiations -- there could be some nasty surprises on the back!

Prior to any conclusion of a contract for the transfer of land the original chanot must be presented at the land office, who will then check that all details match their records, and when satisfied will rubber stamp the new ownership. That's when you hand over the cash and not before! It's a quick, inexpensive and sensible system that works well.

On islands and in remote areas the title will often be 'Nor Sor Sam Gor' or simply 'Nor Sor Sam,' not the full 'chanot,' but entirely acceptable, upgradable at little cost and registered at the land office in the same way. Lesser titles exist and naive foreigners have often run into trouble -- don't touch them unless you are a very good poker player.

That's the good news, the system works, and the security of tenure is as high as anywhere in the world. The bad news is that, barring a few exceptions foreigners cannot own land in Thailand: a house, yes, but not the land it stands on. So how do we do it?

1. Through a Thai company
For many years, foreigners have been forming Thai companies with 'nominee' Thai shareholders to purchase land in the company name, a system that is used in many other parts of the world. Technically the foreigner should hold no more than 39% of the company, making him a minority shareholder in bed with complete strangers. 'He must be mad,' you're thinking.... but no, he has complete control of the company. His 39% of the shares are 'A' shares, which hold all signatory rights, rights to dividends and voting control. The balance are 'B' shares which are worth less than the paper they are written on. This system, set up and approved by qualified Thai lawyers and tacitly condoned by a series of governments, has enabled foreigners to buy land, build or retire happily for many years.

Problems arose in June 2006 sparked off by the use of nominee shareholders by Thaksin Shinawatra (the former prime minister) to facilitate a major overseas telecoms deal. There was a national uproar and an edict issued to all land offices that any transfer of land involving a company with a foreign shareholder should be investigated and that no transfer could take place until they were satisfied that the 'nominee' shareholders were genuine and had the means to invest. This resulted in a predictable panic and business slowed to a halt for a few weeks. Needless to say ways were found to circumvent this. Some land offices were more stringent than others, and within a couple of months, business was almost back to normal.

Khun Sirusak, a highly respected Pattaya lawyer, was recently quoted in the press as having said that as far as he was concerned nothing had actually changed legally and he was continuing with business as usual. Other lawyers disagree and it is definitely a moot point. There are also lot of bar room rubbish talks about the proposed foreign business act which is not yet law and therefore has no effect today. Many have missed the point that it only applies to trading companies as opposed to dormant holding companies (ie. those used to hold land.). It has never been illegal to have a nominee share structure and it has never been illegal for a foreigner to have a minority share in a Thai company. The point at issue is: has the Thai lawyer colluded with the foreigner to set up a structure enabling him to own land? Yes he has, along with every other lawyer in the country, and with the blessing of a whole series of governments. The ball's in your court.

Khun Sirusak went on to say that he is happy with the way things are, and my own personal lawyer has refined the system so cleanly with the use of a Thai investment trust as the nominee that it positively purrs!

2. Leasehold
This has been widely used in the Phuket and Koh Samui markets on the $1 million plus developments, and I suspect will be the eventual route forward. A 30 year lease similar to those in most parts of the world is a recognised statutory instrument under Thai law, and registered at the land office in the same manner as a chanot. Agreements have been drawn up to allow a further 30 year extension, but the system is young and has yet to be tested in the courts. Contracts have been refined somewhat since the early days using a ring fenced corporate body as the freehold to allow a 30+30+30 lease or even a lease in perpetuity. Which quite frankly is as good as a freehold unless you want to use the premises for illegal activities, in which case you'll forfeit the lease, but if you're serving 20 years that's probably the least of your problems!

3. Purchase in the name of a Thai spouse or friend
The crucial point here is that the friend or spouse has to show that he or she has the means to purchase the property. This is shown simply by setting up a formal loan agreement with scheduled interest payments and registering the mortgage at the back of the chanot at the land office. This not only legalises the procedure but also serves to protect your interests -- the property cannot be transferred until your funds have been repaid in full. Relationships can occasionally be rocky, so you might want to add a 30 year lease on it as well, just to be on the safe side!

4. Condominiums
Because a condominium block is technically owned by a 'juristic person' as opposed to an individual different rules apply, allowing a minority interest, i.e. 49%, to be owned directly by foreigners, in their own names. The other 51% is allocated to Thai nationals or Thai registered companies, invariably owned by foreigners. This has now become an important distinction and my advice would be to keep things simple and wherever possible go for the foreign ownership option.

I hope this brief summary is of use, at least as a starting point. Investing in Thailand is not the minefield that some suggest, the answer is simple and the same as anywhere in the world: use a good lawyer and listen to his advice, not the bloke sitting next to you at the bar!