Freehold and Leasehold Property Ownership in Thailand

What’s the Difference Between Freehold and Leasehold Property Ownership in Thailand?

When we start to explain the differences between Freehold and Leasehold Property Ownership in Thailand, we should first start with Freehold Ownership which directly translates as Chanote in Thai.

Freehold (known as Chanote in Thai) is the main ownership title when purchasing a property. Leasehold refers to the right to use a property for a maximum of 30 years, protected by Thai law, and this term cannot be disrupted.

With freehold ownership, the buyer receives the Chanote (Title) from the Land Department with their name on it, granting them full legal rights to the property.

On the other hand, in leasehold ownership, the buyer receives the Chanote with the lessor’s name on it, and the length of the lease and the lessee’s name are entered on the back of the Chanote. Is it safe and secure? Yes, it is 100% secure and safe, and the buyer will have full protection until the end of the lease.

As we mentioned in the article ‘Can Foreigners Buy Property in Thailand?‘, Thai laws allow foreigners to own only Freehold Condominium properties under their name. For any other type of property, foreign buyers need to go through the purchase via a Thai Company or a Thai person’s name. Therefore, in many cases, foreigners prefer to purchase property through the Leasehold Property Ownership route.

Leasehold ownership is straightforward, often cheaper, and easier than hiring a lawyer to set up a company for ownership.

However, Freehold property grants lifetime ownership to the buyer. Freehold property owners fully benefit from any capital gains in case of resale. Meanwhile leasehold owners might have to sell the remaining lease term if they need to liquidate their asset at any point.

What exactly is Leasehold?

As mentioned above, Leasehold is a type of property ownership that allows the lessee to have full usage rights of a property for a maximum of 30 years. During the lease period, the lessee can use, rent out, and develop the property as they wish. They can also resell the remaining lease term to a third party at any time. All of these rights are protected by Thai laws.

In some cases, the lessor and lessee may agree to have a pre-extended Leasehold ownership contract. Thai laws recognize a maximum of 30 years for lease ownership. Once this period is over, both parties may agree on a new term and start a new lease. One common practice in Thailand is to pre-agree to an extended lease term. For example, the Sales and Purchase agreement may state a 90-year lease term by adding two more maximum lease terms into the contract, totaling 30+30+30 for a total of 90 years.

We strongly recommend hiring a lawyer before accepting this type of transaction. Even though a Sales and Purchase agreement is a legally binding document, Thai laws clearly state that the maximum length of a lease agreement cannot exceed 30 years. To avoid unpleasant surprises in the future, it’s always a good idea to ensure you are following the correct procedures from the beginning.

What’s the Difference Between Thai Freehold, Thai Company Freehold, and Foreign Freehold?

Thai Freehold basically indicates that the property can only be purchased under a Thai Limited Company or under a Thai person’s name. According to the Thai Condominium Act declared in 1979 and still in force, only condominium projects can allocate a Foreign Quota not exceeding 49% of the total area of the project. This quota is known as the Foreign Freehold Quota.

For example, let’s consider a condominium project consisting of 100 equal-sized units. 51 of those units can be purchased as Thai Freehold under a Thai Company or Thai person’s name. These 51 units can also be purchased as Leasehold. The remaining 49 units can be legally purchased by foreigners as Foreign Freehold.

What is the Most Common Legal Structure to Buy a Property in Thailand?

Needless to say, when it comes to condominiums, the most popular choice is Foreign Freehold. However, this depends on the client’s preference. Some buyers don’t place much importance on ownership beyond 30 years, while others want to save on tax and transfer fees, and some prefer to purchase through Thai spouses or relatives.

When it comes to buying a villa or house, the most common way is purchasing the property as Thai Company Freehold under a Thai Company and leasing the building on the land to their name for a maximum of 30 years. It is possible to add a clause to pre-agree to a lease extension, totaling 30+30+30 for a total of 90 years.

In this scenario, the foreigner can be a shareholder of up to a maximum of 49% of the total shares of the company, while the remaining 51% of the shares should be held by Thai individuals.

How Safe is it to Own a Property Through a Thai Company?

Even though, on paper, you can only hold up to a maximum of 49% of the total shares of the company/ The remaining 51% owned by Thai individuals. Though this is still a safe way to own property in Thailand. Law firms set up a structure in a way that the foreigner becomes the biggest shareholder of the company, while the other 51% of the shares are distributed among multiple Thai individuals. Therefore, even if all the other small shareholders come together, they will still need the signature of the major shareholder to take any action.

If you don’t know any Thai individuals to work on this structure, we recommend you to contact a Thai Legal Firm to get further assistance. Well-established law firms are familiar with this subject and can help you create the best structure for you to own your dream home.

What is Protected Leasehold?

Protected Leasehold is a commonly used term for owning a property via an offshore company. Here’s how the system works:

• Step 1: The project sets up an offshore company, most commonly in the British Virgin Islands (referred to as a BVI company).
• Step 2: Every single unit owner in the project has equal shares in the BVI company.
• Step 3: The BVI company holds 49% of the shares of a Thai Land Holding Company.
• Step 4: The remaining 51% of the shares are held by the Management Company, which is set up and employed by the collective ownership of the BVI company.
• Step 5: Finally, the Thai Land Holding Company owns the land 100%.

This way, each property owner in the compound has equal shares in the BVI company, giving them full legal rights to lease their property to themselves whenever the lease is expired.

This scheme eliminates the need for a third party to hold the property ownership. Particularly, older condominium projects in Phuket still use the Protected Leasehold system through BVI ownership.

What are the pros and cons of Leasehold or Freehold?

As mentioned above when we explain Freehold and Leasehold Property Ownership in Thailand, Freehold indicates full ownership of a property, whereas Leasehold gives full usage rights of a property for a certain period of time. Therefore, there is a clear difference between these two ownership statuses.

While Freehold may sound much better and is often preferred, sometimes it depends on personal preference. Buyers might choose to save on transfer fees and taxes. Some may not see the value of having a property over a certain period of time. Others may prefer to avoid the process of setting up a new company and opt for a straightforward, fast transaction.

As discussed in the previous article on Property Transfer Fees and Taxes in Thailand, Leasehold registration and extension fees are much lower compared to Freehold taxes and fees. Leasehold fees are only 1.1% of the declared price of the property. These fees are usually shared between the buyer and the seller. On the other hand, property taxes and transfer fees for Freehold properties can go up to 6.8% of the appraisal price or the sales price (whichever is higher). Additionally, there may be costs associated with setting up a Thai Company. There are also ongoing expenses keeping it active during the years of owning the property under it.

Buying property in Thailand may not be straightforward, but there are proper ways to do it. We highly recommend contacting a reputable law firm to help you with this process. It’s better to be cautious than sorry in the end. Investing in professional assistance will pay off in the long run, and you will thank yourself in the future.

Please feel free to reach out to us if you have any questions or if anything is unclear. We will be happy to answer all of your questions and share our experience and knowledge with you.