ISSUES RELATING TO COMMERCIAL LEASING. THAILAND Tilleke & Gibbins International Ltd.

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1 ISSUES RELATING TO COMMERCIAL LEASING THAILAND Tilleke & Gibbins International Ltd. CONTACT INFORMATION Chaiwat Keratisuthisathorn and Nuanvirat Kraubua Tilleke & Gibbins International Ltd. Supalai Grand Tower, 26th Floor, 1011 Rama 3 Road, Chongnonsi, Yannawa, Bangkok 10120, Thailand bangkok@tillekeandgibbins.com 1. Describe [National][state][territorial][provincial] or local transfer taxes payable on creation or assignment of a lease. -Government fee for the lease registration is 1 % of the rental fee of the entire lease period. -Stamp duty is 0.1% of the rental fee of the entire lease period. -House and Land Tax is imposed on owners of properties that contain houses, buildings, or other structures, or land that is rented or otherwise put to commercial use. Tax shall be imposed at the rate of 12.5% of the assessed annual letting value of the leased property. 2. Describe any legal restrictions limiting the maximum term of a lease (including renewals). Generally, the duration of a lease of immovable property cannot exceed 30 years. If it is made for a longer period, such period is to be reduced to 30 years. The aforesaid period may be renewed, but it must not exceed 30 years from the time of renewal. [Section 540 of the Civil and Commercial Code of Thailand ( CCC )] However, immovable property may be leased for commercial or industrial purposes for a period of more than 30 years, but not exceeding 50 years, in accordance to Ministerial Regulations regulating leases under the Act of Lease of Immovable Property for Commercial or Industrial Purpose B.E (1999).

2 3. Describe any laws requiring landlords to allow a tenant to renew its lease. Section 570. At the end of the agreed period, if the tenant remains in possession of the property and the landlord, knowing thereof does not object, the parties are deemed to have renewed the contract for an indefinite period. 4. Describe any restrictions on rent that may be charged for to a tenant. There are no restrictions with regards to the amount of rent that may be charged for a tenant. However, the CCC has provision with regards to the time for payment as follows: Section 559. If no time for rent is fixed by the contract or by custom, the rent must be paid at the end of each period for which payment is stipulated; that is to say, if a property is leased for a certain amount per year, the rent is payable at the end of each year; if the property is leased for a certain amount per month, the rent is payable at the end of each month. Section 560. In case of non-payment of rent, the landlord may terminate the contract; but if the rent is payable at monthly or longer intervals, the landlord must first notify the tenant that payment is required within a period of not less than 15 days. 5. Describe any laws permitting tenants to terminate a lease prior to its stated expiration date. Section 548. If the landlord delivers the property in a condition not suitable for the purpose for which it is let, the tenant may terminate the contract. Section 556. If the property requires urgent repair during the term of the contract, and if the landlord desires to do an act necessary for such repair, the tenant cannot refuse permission to have such act done, though it may cause him inconvenience. However, if the repair is of such a nature as it would take an unreasonable length of time, and thereby cause the property to be unsuitable for the purpose for which it is let, the tenant may terminate the contract. Section 567. If the whole of the leased property is lost, the contract is extinguished. Section 568. If a part of the leased property is lost without the tenant s fault and the tenant cannot use the remaining part to accomplish to the purpose for which he entered into the contract, the tenant may terminate the contract. 6. Describe any laws allowing tenants to assign or sublease without landlord s consent.

3 Section 544. Unless otherwise provided by the contract, the tenant cannot sublet or transfer his right in the whole or part of the leased property to a third person. If the tenant acts contrary to such provision, the landlord may terminate the contract. 7. Describe any laws allowing landlord to restrict assignments or subleases by tenants. See Item What is the common form of eviction proceeding? What is the customary length of time for that proceeding? In enforcing the rights of eviction, a civil case needs to be instituted. In such event, the provisions of the Civil Procedure Code of Thailand shall apply. If the judgment debtor (i.e., possessor of the property) fails to comply with an eviction order, the judgment creditor is entitled to file an ex parte application to the Court for an order appointing the executing officer to procure the judgment creditor to take possession of the property. The Court has the power to order the arrest and detention of the judgment debtor, entrust the whole or part of the property to the judgment creditor, and where necessary, destroy the obstructive matters which prevent possession as he sees fit. Land eviction can be time consuming, as it involves lengthy court proceedings, and may take more than a year to complete. 9. Are there any legal restrictions on pledging a leasehold interest as security for a financing? Generally, a lease cannot be mortgaged as security for financing unless it is allowed by a specific law to provide registration for that purpose as ruled in Section 703 of the CCC. For example, a lease of immovable property for commercial or industrial purposes can be mortgaged as security for financing as specified in the Act of Lease of Immovable Property for Commercial or Industrial Purpose B.E (1999). However, a leasehold may be used as security for financing through a conditional assignment of the right of lease between the lender and the borrower (i.e., the leasehold shall be transferred or assigned to the lender upon the borrower s default). Please note however, that such assignment of leasehold right merely establishes contractual right between the parties, not real right attached to the property. 10. Describe any requirements for landlords to hold security deposits in separate accounts and, if such requirements exist, describe if there can be one separate account for all tenant security deposits or whether each security deposit must be held in its own separate security deposit. There is no requirement for landlords to hold security deposits in separate accounts. 11. Describe any required statutory or other legal disclosures to be made to all tenants. Section 162. All disclosure requirements are the same as those specified in general provisions of the laws governing juristic acts. In bilateral juristic acts, the intentional silence of one of the parties in respect to a fact or quality of which the other party is ignorant is

4 deemed to be fraud if it is proved that, without it, the act would not have been made.

5 12. Describe all taxes on rent or other taxes that landlord are required to collect from tenants. Rent is categorized as assessable income under Section 40 (5) (a) of the Revenue Code of Thailand, which may be subject to the following taxes: 1) Corporate income tax at the flat rate of 30% on net profits if the rent is received by a juristic company or partnership. 2) Individual income tax at progressive rates ranging from 10% to 37% on net assessable income if the rent is received by an individual. 3) Withholding tax at the rate of 5% on rent paid from a company or partnership to another company or partnership carrying on business in Thailand or an individual who is a resident of Thailand. 4) Withholding tax at the rate of 15% on rent paid to a foreign company not carrying on business in Thailand or an individual who is not a resident of Thailand. 5) Provision of services of letting out an immovable property is exempt from Value Added Tax ( VAT ) in Thailand. The landlord is not required to charge tenants for VAT. 13. Describe any limitations on the ability of landlords to exercise self-help. Self-help is not allowed under Thai law. A civil case needs to be instituted. 14. Describe whether remedies such as acceleration of rent must be expressly stated or whether they are implied. All remedies must be expressly stated in the contract. 15. Describe whether there are any expedited remedies for tenant default and, if so, what lease provisions (such as waiver of jury trial, for example) would be required for a landlord to seek expedited remedies. Under Section 560 of the CCC, the landlord may terminate the contract in case of nonpayment of rent. Again, a civil case shall be instituted. However, no action by the landlord against the tenant in connection with the contract can be entered later than 6 months after the return of the leased property. (Section 563 of the CCC) 16. Describe any formal requirements for the execution of a lease. Section 538. A lease of immovable property is not enforceable unless there is some written evidence signed by the liable party. If the lease is for more than 3 years or for the life of either the landlord or the tenant, it is enforceable only for 3 years unless it is made in writing and registered by the competent official.

6 17. Describe whether a memorandum of lease or other document would need to be recorded for the lease to be enforceable against third parties. If the lease is for more than 3 years, a lease contract of immovable property shall be registered with the Land Office. In case of land, the lease shall be endorsed on the land title deeds and recoded with the relevant Land Office. 18. Describe any restrictions on the transfer of ownership of real properties subject to a lease. Does such a transfer affect the tenant s rights or obligations? A lease contract of immovable property is not extinguished by the transfer of the ownership of the leased property. The transferee is entitled to the rights and is subject to the duties of the transferor towards the tenant.