New way to rent land in Thailand

I found a very interesting article that I like to share with you. It is about another way to rent land in Thailand. With few loopholes in the Thai law it is nice to see some foreigners taking the time to write something like this.

All credit for this article goes to William Jarvis the link in the article is found by us. You can copy this article just link back to us and give credit to William Jarvis.

What is usufruct?
“Usufruct” = in civil law, a real right of limited duration on the property of another [Black’s Law Dictionary – Sixth Edition]

Section 1417 Civil and Commercial Code
“An immovable property may be subject to a usufruct by virtue of which the usufructuary is entitled to the possession, use and enjoyment of the property.

He has the right of management of the property.

The usufruct of a forest, mine or quarry entitled the usufructuary to the exploitation of the forest, mine or quarry.”

Section 139 Civil and Commercial Code
“Immovable property denotes land and things fixed permanently to land or forming a body therewith. It includes real rights connected with land or things fixed to or forming a body with land.”

As we can see then, under Thai law, usufruct is a right to possess, use, enjoy and manage land and things fixed permanently to land or forming a body therewith. However, while this may look clear, it is anything but!

Before we go any further, we now need to take a careful look at a select couple of words in the English language:

“land and things fixed permanently to land or forming a body therewith.”

Now, if you were to ask any foreign property lawyer whether or not a house or building could be included within that meaning, likely as not, they’ll tell you probably not. In Thailand, however, things are slightly different, and while there is as yet no Supreme Court decision verifying this fact (that the author is aware of), it is highly likely that a Thai lawyer will tell you that a house or building located on land which is the subject of a usufruct would include such house or building. Trust me, no amount of arguing that if a building constitutes something fixed permanently to land or forming a body therewith, then where’s the World Trade Center in New York, will convenience a Thai lawyer otherwise. The rationale for the view of the Thai lawyers is that a house or building forms a body with the land in much the same way as a tree does. As a purely personal opinion, I’m not convinced with this reasoning, and I await the inevitable Supreme Court judgement ruling with eager anticipation.

Nonetheless, strengthening the view of Thai lawyers is that a number of Land Registration Offices around Thailand, who are even mildly familiar with the concept of usufruct, are willing to register the usufruct.

As a result, this has now become the hottest of hot topics in the somewhat crazy world that passes for Thai property law!

How do I register a usufruct?
I order to create a usufruct right, both the land owner and you need to enter into an agreement wherein you are given the usufruct right. You then need to register this agreement with the land registration office where the land title deed is kept. Importantly here are:

1. in the underlying agreement you must state that the usufruct is being created over the land and all things forming a body or are permanently fixed to the land including any building now or thereafter located on the land. In the event of a dispute, it is highly like that the Thai court will look to the underlying contract creating the usufruct to look to the intent of the parties, thus try to make this as clear as possible, while also remain slightly vague so as to en-capture future developments to the property.

2. you must make sure that the official at the land registration department understands the concept of usufruct and how it works. This may mean you having to take along a copy of the Civil and Commercial Code with you – although with the speed this fire is passing through it may not be necessary!

Having signed the written contract and registered it with the land registration department, the usufruct right has been created.

How long can the usufruct last?
By virtue of Section 1418 of the CCC, a usufruct right can be created for a period of time or for the life of the usufructuary. In the event it is created for a period of time, the period of time cannot exceed 30 years.

Now, this is one very important reason why usufruct is being hailed by property lawyers, developers and real estates agents around Thailand as being the answer to foreigner’s concerns. It is created for the life of the usufructuary – namely you! No 30 year limitation. No concern that if the land owner dies an option to renew is not enforceable (as an option to renew a lease agreement is a personal promise under Thai law and thus dies with the granter). So long as you have not limited the period of time, you’re right last for as long as you do! It has to be said, that’s a mighty big carrot.

What can I do with the property?
Under Section 1421 of the CCC, you must “take as much care of the property as a person of ordinary prudence would take of his own property”.

It should also be noted that you cannot use the property for any illegal activites.

Can I transfer the right?
Yes; unless the underlying contract specifically prohibits this – Section 1422. Again, this is a significant departure from a lease agreement, whereby you need to make sure you include a right to sublease, otherwise it cannot be done.

What happens if the property is destroyed or damaged?
In the event that any damage occurs to the property, say a fire or flood, then:

1. if the property is insured, which the owner can make you do by virtue of Section 1427 of the CCC, and compensation is paid, the owner is legally obligated to make the repairs to the property so that you can continue your use of the property.

2. if no compensation is paid, the owner is not legally required to make repairs and the usufruct will come to an end.

[both as provided for in Section 1419 of the CCC].

What happens when I have to return the property?
Under Section 1424 you are not allowed to make substantial changes to the property and must keep the substance of the property unaltered. Thus, you must return the property is the state and condition you took it.

Do I have to pay for having a usufruct right?
Again, a huge deviation from lease agreements. In the case of a lease agreement the Revenue Department will not accept the notion of pepper-corn rent, but rather impose “fair market” rates. A usufruct, on the other hand, can be given free of charge for your life! As a foreigner, this means no paying rent on a property you may already have bought. Again, a real estate agent’s dream when it comes to giving the sales pitch – and again, a great carrot in favour of the usufruct system.

Now lets get total bizarre!
Okay, so far we have been looking at the issue of a usufruct where land is concerned. But, what if I told you that you could create a usufruct right over a condo. Well, so long as the condominium has been registered under the Condominium Act, and has a unit title issued, you can. But why would you want to? The answer lies in Section 538 of the Civil and Commercial Code:

“A hire of immovable property is not enforceable by action unless there be some written evidence signed by the parties liable. If the hire is for more than 3 years, or for the life of the letter or hirer, it is only enforceable for 3 years unless it is made in writing and registered by the competent official.”

So, if you want to rent a condo for more than 3 years, but do not want to pay fair market rates, you create a usufruct right over the condo and bang – you have a free registered right to use of the condo for life!

I should add, the above section of the CCC is also quoted by Thai lawyers in support of their argument that buildings and houses constitute immovable property under Thai law.

So, is usufruct the answer to all my problems?
Well, that rather depends. It is generally accepted that a usufruct cannot be created on property that is subject to a mortgage. Not because the land registration department will not register this, but because there is an existing lien on the property (the mortgage), it is highly likely that it will not be permitted under the mortgage agreement. So, if the property is the subject of a mortgage, then it is likely you’ll not be able to make use of this.

Conclusion
While there is certainly a case that usufruct is another useful tool in the armour of how foreigners can protect themselves when looking to acquire land in Thailand, I cannot help but keep coming back to the definition of “immovable property”. In my opinion there will, at some time, be a Supreme Court decision on this vital issue, and until such time I would caution everyone to take the usual tablet of advice: tread carefully, don’t believe everything you are told, and never, ever, spend more than you are willing to lose a Las Vegas casino.

Usufruct Sample