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Leasehold vs Freehold Properties in Thailand

Due to restricted foreign land ownership in Thailand, to acquire real estate, a foreigner may consider the options of leasehold or freehold ownership offered by property developers. We have simplified the difference between the both for your better understanding below.

Lease Ownership

Under this kind of property system, the landlord transfers temporary control and management of the property to the tenant for a predetermined period of time, whereby the tenant has the right to use the property for commercial or residential purposes, as agreed with the landlord. Under this kind of arrangement, the maximum lease period is for a duration of 30 years with prepaid rental agreement. Upon end of the rental period, the tenant has the option to extend the contract, by giving prior notice. This includes change of purpose for alternative arrangements as required by the tenant, with consent by the landlord.

One significant drawback of a lease agreement is that it terminates, along with the right to possession, upon the death of the lessee. The rights granted by the lease are not automatically transferable, even if the lease includes a succession clause. While such a clause is a requirement, it does not offer a comprehensive guarantee for the tenant’s heirs, leaving room for uncertainties regarding the continuity of the lease agreement and property rights after the lessee’s demise.

The disadvantages when compared to freehold are:

  • The tenant’s power over the land or property is significantly limited.
  • The tenant has the right of possession and use of the property during the entire lease period, but not
  • completely.
  • The tenant does not have the option of mortgaging the leased property or using it as collateral.
  • Unless expressly provided in the lease, the lessee is prohibited from assigning or transferring his
  • rights to any or all of the leased real estate to a third party.

Due to such limited control as listed above, the tenant does not have complete ownership over the
property.

Freehold Ownership

This kind of property system allows owners full legal rights to occupy, use, lease, sell or develop the property. To obtain land, the common approach for a foreigner, is to secure the land on lease while obtaining freehold ownership of the structures or buildings on the property. If a foreigner intends to construct a property, the land must be acquired through a lease agreement. However, if a foreigner engages in business activities in Thailand, they can purchase land through a limited company, to be owned by the company. This offers an alternative to foreigners to have an indirect stake in Thai land through corporate ownership.

However, in case of change in laws and regulations regarding real estate ownership, a foreigner’s rights may be affected.

There is also a quota limiting ownership in a building in the ratio of 49-51% , whereby foreigners are restricted to own over 49% of the overall units in a condominium project, the remaining 51% must be owned by Thai nationals. This may impact the availability of units for purchase. There are several factors and considerations to take into account when deciding on which type of ownership would be more suitable for you to proceed with. Get in touch with Umpire Legal to discuss your options, foreseeing the specific conditions and potential challenges associated with your intended purchase and ownership. Our professionals can help navigate the complexities of Thai real estate laws and regulations to assist you throughout the process from planning up to land transfer.