What does Leasehold mean?
What does Leasehold mean?
Leasehold is an interest in property whereby the leaseholder does not actually own the property but is granted the right of "exclusive possession" and use of the property. A lease is not just a contractual agreement, it is also a registrable legal interest against the freehold title document. Once registered, the lease becomes a lien upon the title deed. As a legal interest, it also means the lease can be bought and sold.
The right to possession and use is for a specified period of time in return for the payment of consideration and the terms are recorded in a "lease agreement". It is possible to take a leasehold interest over any type of property such as land, apartments, townhomes or villas.
If the leasehold relates to land, the agreement would generally be a Land Lease Agreement (LLA). If the leasehold concerns an apartment, the agreement would generally be an Apartment Lease Agreement (ALA).
In Thailand, the current legal maximum period stipulated for a leasehold is 30 years. This relatively short period specified by Thai law for leasehold property has therefore led to the creation of contractual leasehold arrangements designed to "extend" the lease term. Land offices in Thailand refuse to register leases for more than 30 years, although they do allow private agreements to contain lease "renewals". In Phuket, the first lease renewal was granted to Club Med in 2015 from their initial 1985 registered lease.
Consequently, great efforts have been made by developers and their lawyers to provide purchasers the opportunity to acquire longer leasehold periods.
When buying leasehold property in Thailand, it is common to come across the 30+30+30 year leasehold structure. In theory, this is a 90-year lease but purchasers must understand that only the first 30 years is legally registered and therefore guaranteed, while the two options to renew are contractual in nature.
It should be noted that leasehold renewals are not automatic and require paperwork at the land office at the end of each term to renew the lease. Without getting into complex legal terminology, the main point to understand is that the 30+30+30 year leasehold structure is not equivalent to a 90-year lease.
Be mindful that leases are personal in nature, which means a leasehold terminates upon the death of a lessee. It is very important to have a Succession Clause inserted into the leasehold contract stipulating that the lessee's rights and obligations will be assigned to the lessee's beneficiary of choosing.
Most pure investors with a hold time of fewer than 10 years will choose leasehold due to the substantially lower tax rate of just 1.1%. We always suggest consulting a property law firm to establish which form of ownership is best for you. We would be happy to answer your questions, call us today at +66 93 606 0906.