Renewal Options And Lease Term Of A Thai Lease Agreement

in Lease
As foreigners are prohibited from owning land in Thailand a thirty year land lease agreement is commonly used to sell property to foreigners. The most common clause in a 30 year lease agreement aimed at foreign property investors is the renewal option, either included as 1, 2 (the 90-year lease) or more renewal terms. A renewal option in a 30 year lease agreement is not supported by Thai law, other than that it is a private agreement between the parties to the lease agreement. Most good Thai law firms will point this out to a potential property investor when reviewing a lease agreement, others don't as they argue that a renewal option is an enforceable contractual obligation.

The written law governing lease or rentals can be found in the Civil and Commercial Code section Hire of Property (sections 537 to 571). Section 540 Thailand Civil and Commercial Code refers primarily to the maximum term of a lease agreement:

The duration of a hire of immovable property cannot exceed thirty years. If it is made for a longer period, such period shall be reduced to thirty years. The aforesaid period may be renewed, but it must not exceed thirty years from the time of renewal.

A lease can only be renewed upon expiration of the first term (section 540). If the lessee and lessor have for example executed 2 consecutive 30-year lease agreements it shall be deemed as 1 lease and reduced to 30 years.

Thai law specifies the maximum term of a lease that can only be made longer by renewal upon expiration, not that it recognizes one or more renewals.
The first reason why renewal options do not work
Transfer of ownership does not break rent in Thailand according to section 569 of the Civil and Commercial Code.
A contract of hire of immovable property is not extinguished by the transfer of ownership of the property hired. The transferee is entitled to the rights and is subjected to the duties of the transferor towards the hirer.

Section 569 must be read in relation to the content of a lease agreement that is in essence hire of property. Not everything that is written in a lease are true lease rights, therefore not enforceable against a transferee owner. The Thailand Supreme Court is consistent and clear that renewal options in a lease agreement are personal contract promises between the original parties to the lease and not lease rights that transfer following section 569 with ownership to the transferee.

Supreme Court Judgment (6763/ 1998): In case the lessor promises in the lease agreement to extent or renew the lease term but has sold the leased land before the lessee was entitled to accept, the renewal option is not binding upon the new owner.
The second reason why renewal options do not work
Lease under Thai law is a personal right and not an inheritable right. As specified by the Supreme Court of Thailand (1108/ 1994):

The lessee is the essence of the lease agreement. Therefore, should the lessee die, the lease contract will be terminated and the lease rights WILL NOT transfer to the heirs of the lessee.

Either way:

  • if owner dies or has been transferred ownership without the new owner specifically accepting the renewal option the renewal option is lost, or
  • if the lessee dies the lease is terminated including the renewal option according to written laws and Supreme Court judgments.

In general, using common legal sense, any personal promise to enter into an agreement in 30 years time (that is what is required) that is not backed by written law, formal registration or Supreme Court judgments (e.g. the lease renewal promise in Thailand) holds very little value.

The rule with renewal options in a lease agreement in Thailand is that there is nothing against including them, but as a renewal guarantee it is unenforceable under Thai law.
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Nadia Henderson has 1494 articles online and 5 fans

Nadia's articles are based on 7 years working as a foreign legal consultant in Thailand. Contact at Bangkok Law Online

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Renewal Options And Lease Term Of A Thai Lease Agreement

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This article was published on 2010/10/03