In this article by PropertySights Real Estate, we discuss the interested parties in Thailand, emphasizing the essential need to adhere to the formalities and legalities of the law. This adherence is not only a requirement but likewise secures these contracts’ validity and enforceability.
Whatever party you may be, a lessee, lessor, sub-lessee, or sub-lessor, you should understand and pay attention to your respective legal responsibilities before entering a lease or sub-lease contract in Thailand to protect each other’s rights and be aware of your responsibilities up until the contract is terminated to avoid legal disputes.
The Thai Law Regarding Property Rental Agreement
The Thai Law regarding property rental agreement can be found in Section 537 and Section 538 of the Thailand Civil and Commercial Code, respectively, which states that:
Section 537 – Renting or Leasing Property
A hire of property is a contract whereby a person, called the letter (lessor), agrees to let another person, called the hirer (lessee), have the use or benefit of a property for a limited period of time and the hirer agrees to pay rent therefore.
Section 538. Renting Property
A hire of immovable property is not enforceable by action unless there be some written evidence signed by the party liable. If the hire is for more than three years or for the life of the letter or hirer, it is enforceable only for three years unless it is made in writing and registered by the competent official.
It is essential to grasp the key terms used in rental agreements:
- ‘Lease’ refers to a contract where one party transfers the use of the property to another for a specific period.
- ‘Tenancy’ is when a party paying rent occupies the real estate under a valid contract with the owner.
- ‘Leasehold’ – When the The property is being leased.
It is worth remembering to document any lease agreement in a valid contract. This will serve as evidence of the consensual agreement between the parties involved, providing clarity, boundaries, and most importantly, legal protection.
What Should a Proper Real Estate Lease Agreement Contain?
The nine main proper real estate lease agreement should contain the following:
1. Necessary Information of the Real Estate
For the agreement to be precise, it is vital to refer to the Thai title deed and house registration book. The Thai title deed is a legal record that ascertains ownership of a property in Thailand, and the house registration book contains the exact details about the property’s size and location.
These documents include the correct unit and floor number, area size, number of rooms, if any, type of property and the complete address. In addition, it is relevant to include information about the electricity bills and any other pertinent fees recently incurred by that real estate.
A lessee can ask the landlord for a copy of the Thai title deed to verify the ownership of the property because the title deed is definite proof of the lessor’s ownership and specifies the area covered by that property. You can verify this with the Thailand Land Department Office, which maintains records of the registered property. This involves confirming if the title deed corresponds to the person written in that title and checking for any encumbrances on that property.
Always prioritize caution and thorough verification before entering a property rental agreement to avoid any unforeseen complications that may arise after the contract is finalized.
2. Essential Identification Information of the Lessee and Lessor
It is important to establish the identities of the parties involved before perfecting a contract because an unknown person cannot give their consent. The vital details that need to be included are the complete name, address, identification card number, and a copy of valid identification of the contracting parties. It is noteworthy that this ensures that you can correctly identify the individual you are dealing with and proceed with the agreement confidently.
Lessors should check the tenant’s history to ensure they make a well-informed decision. They can request a copy of their passport, work permit, and visa information. Asking for a certificate of employment or any other proof of source of income that can cover the monthly rental is advisable.
For lessees, it is crucial to verify the lessor’s identity and, if dealing with a third-party representative, ensure that the person who manages the property other than the owner has a power that is supported legally by law.
3. Accurate Determination of the Rental Period, Including Start and End Dates
Accurately determining the rental period, which should specify the start and end date, is crucial as this imposes legal aspects in Thailand. For instance, a lease agreement of up to three (3) years doesn’t require registration with the land department and can be written in a language of your choice. However, if the lease agreement exceeds three (3) years, it must be registered with the land department and have a Thai script version. This must be remembered to avoid potential legal difficulties.
To give emphasis, the parties involved must establish the rental timeline, as a contract without a start date is not valid. This lack of validity can cause confusion and incur legal consequences in the future, mainly if a lawsuit arises and the contract’s statute of limitations is questioned.
How Long Can a Lease Agreement be?
In the Kingdom, a lease agreement for real estate property may be short-term or long-term. As stipulated under Section 540 of the Civil and Commercial Code, a lease agreement has a maximum term of 30 years. Hence, a leasehold with a longer period cannot exceed 30 years, and a lease with a short-term period is typically for a year.
4. Determining the Value of the Rent, Security Deposit, and Payment Period
The value of the rent, the yearly increase of monthly rental, and the payment date must be determined. Besides the monthly rent, a security deposit and the first month’s rent payment must be specified.
The security deposit will serve as an intangible security for the property owner, which will be returned to the tenant after the contract period is completed without any damage to the property.
Alongside all these, the payment method, whether monthly cash or bank transfer, must be decided. A condition about delinquent monthly rent must be specified for definite understanding and must be ultimately agreed upon.
5. Inspecting the Property Fixtures and Extensions
Before concluding the agreement, a meticulous inspection of the property’s fixtures, extensions, and overall condition is necessary. This includes noting down the furniture list, various electrical appliances, basic equipment in the room, and any existing property defects.
This exhaustive inspection is paramount to prevent disagreements at the end of the rental term and when the lessee hands over the property to the owner. It is advisable to take pictures and videos of the property and its fixtures and extensions for thorough documentation and inclusion in the agreement.
6. Agreeing on Utility Charges and Other Expenses
There must be an arrangement on the utility fees and any other associated expenses so that each party is bound to pay that part upon which they are obligated. This will avoid disarray and misunderstanding and serve as their protection because each one of them will be responsible for these expenses.
For illustration, utility charges in Thailand are expenses that the tenant should pay upon consumption, such as electricity, water and communication services, as well as minor maintenance and upkeep of the property. On the other hand, the lessor is responsible for significant repairs and associated expenses as the property owner, such as the annual maintenance fees paid to the building’s legal office for general property maintenance.
Are There Tax Requirements on Leases in Thailand?
Yes, there are tax requirements on leases in Thailand. Registered leases exceeding three years incur a 1% lease registration fee and a 0.1% stamp duty based on the total rent throughout the lease period.
In the case of a real estate sublease agreement, it is important to note that the sublessor may be subject to personal income tax. This is a significant consideration for the sublessor, as this could influence their overall financial obligations.
7. Restrictions and Rules of the Lease and Fines
The lease agreement does not transfer property ownership from the owner to the tenant; it only transfers the use of such property. What is transferred are personal rights, not property rights.
Under Section 549 of the Civil and Commercial Code in Thailand, the lease agreement is terminated if the lessee dies; however, if the property owner dies, the lease agreement will subsist. Moreover, the suspension of the rental contract can be caused by the expiry of the contract and the inability to use the property due to fire, earthquake, or unforeseen events.
The law allows the landlord or tenant to suspend the rental without notice. Nevertheless, parties must agree as to the pre-termination of the contract, which must be established in the agreement, such as a 30-day notice before pre-termination, which is typical.
Furthermore, it is significant that the parties involved demarcate their boundaries and rules. This includes guidelines on bringing pets, noise restriction in the area, making any minor or significant renovations inside the vicinity, and not using the property for any other business not specified in the contract. These rules are in place to ensure a harmonious living environment and prevent potential future conflicts or penalties, ultimately avoiding legal suits.
If there is any breach of contract, the course of action the lessor should take must be stated. It may be canceling the contract before the period, forfeiting the deposit, fining the lessee, and continuing the contract until the contract period. All conditions and angles must be strictly laid to avoid making a vague contract, which can cause disagreements.
8. Renewal of Rental Agreement
Renewal of rental agreement in the Kingdom is not automatic. Renewal options are not guaranteed and must be outlined by the parties to the contract. It must be remembered that renewal periods should be up to 30 years.
9. Signing the Lease Agreement in the Presence of a Witness
Signing the lease agreement in the presence of the parties involved and witnesses to legally bind the contract, ensuring that what is reflected in the agreement was their true and correct intentions. Attending the property rental agreement in the presence of each other and the Notary public is a must to strengthen the validity of the contract.
What is a Sublease Agreement?
A sub-lease agreement is a lawfully binding contract in which the lessee in the original contract, who is the sublessor in the sublease agreement, leases the property to a third person who is the sublessee. However, it must be noted that this contract will only be valid if the property owner permits a renter to sublease the property to another person.
To conclude, this contract creates two new entities, the sub-lessor (original tenant) and the sub-lessee (third party).
The Thai Law Regarding Sublease Agreement
It is embodied under Section 544 of the Civil and Commercial Code of Thailand, which states that:
Unless otherwise provided by the contract of hire, a hirer cannot sublet or transfer his rights in the whole or part of the property hired to a third person.
In other words, consent from the lessor and written evidence of a signed lease for the sublet and sublessee are required.
What is a Lease Assignment?
A lease assignment occurs when the tenant assigns their personal rights to a third person; the tenant transfers the lease and obligation to another person so that the latter becomes the new renter. Note that the lessee can only assign the interest in the leasehold to a third party with authorization and cooperation of the homeowner.
What are the Steps for Entering into a Sublease Contract?
The four main steps in entering into a sublease contract are the following:
1. Check the Terms and Conditions of the Original Lease
Ensuring the legality of a sublease contract is paramount. To do this, the parties involved must meticulously review the terms and conditions of the original lease. If a clause prohibits subleasing, the sub-lessor won’t be allowed to sublet the property. This is to prevent potential disputes in the future.
2. Gather Evidence of the Household
It’s human nature to forget details, especially after a long period. That is why it is essential to gather evidence of the household before signing the sublease contract, such as taking photos and videos of the property, its surroundings, furniture, appliances, and equipment. These records will serve as a reference in case of any questions or doubts after the contract is terminated, particularly if it is a long-term contract.
3. Secure Your Property
Once everything is finalized, decided in the right place, and agreed on any changes and negotiations about the property, you must confirm the property of your choice. During this process, Property Sights Real Estate expert will take the following steps along the way with you:
- Securing a copy of your passport and visa, if applicable;
- Provide a copy of the sublease agreement and confirm it with you;
- Verifying the property owner’s proof of ownership via a copy of the Thai Title deed
- Have the landlord sign the property rental agreement and acknowledge the two-month holding deposit to reserve the unit. Most clients want to move in within two to four weeks of finalizing everything.
4. Sign the Sub-Lease Agreement
If everything is already put in place and the sublandlord qualifies the subtenant, which the property owner approves and consents to, the parties involved must sign the lease agreement containing the agreed terms and conditions with witnesses.
Are you considering or in the process of entering a property lease agreement? Our experts at PropertySights Real Estate will help you organize and facilitate your agreement from the start to finish.
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