And about the Fate of Gullible Farangs.

How many blissful revelations

The spirit of enlightenment hides!

And then experience born of lapses

And genius antinomy-wise

And chance, the heavenly inventor…

A.S. Pushkin

Foreword

Everything written in this article is my personal experience. An experience that cost me real money, nerves and time spent, an experience stretched over years. Few will talk out about this. There is such a term “troubleshooter”, when a person, having gone through his certain experience, becomes a professional in certain situations. But, it’s one thing when “pseudo-experts” tell you something as if they know something, deceiving you for the sake of their own benefit for a 5 – 10% commission, it’s another thing when you have actually taken this whole path yourself and when the Universe gives experience and knowledge to you. I believe that by sharing this with the world, I will also give back and really help someone, especially in such a time which is so difficult for everyone.

The year 2015. We decided on a complete family move to Phuket. To make it clear right away, Thailand is our favourite country and our home. And we still believe that this country is the best for living with a family with an excellent tax system, medicine and education (the goal of obtaining another citizenship is not pursued. In this country, there are other, excellent opportunities to obtain long-term visas).

Through various well-known agencies, we begin to look for real estate for living, as well as investment properties in order to rent them out. For our own residence, the spouse is considering a villa of 596 m² with a land plot of 1807 m², worth 41 million 837 thousand baht in a village in the Naiharn district. We hire lawyers, we look at agreements where it is indicated that the cost of the land is 25 million baht, while the villa is about 17 million baht (spoiler: the deal does not go through). All negotiations come to one and the same principle: you need to trust, and numerous murky registration schemes are offered to set up a company (with an authorized capital of at least 5 million baht), namely: the villa is your property (Freehold), but the land plot is your Thai company’s, where you become a co-founder of 49% shares and a director, but this is already after the registration of a land plot for a company with a Thai founder has gone through, where his share was initially 100%, otherwise the agreement will not be registered with the Land Department. And after you enter the 49% company and become a director, you must draw up a lease agreement with the company for further residence in the house. That is, we calculate that if the cost of a house is 17 million baht, the price per metre with 596m² is 28,500 baht/m² — this is quite consistent with the average price of construction by a real estate developer in Thailand. But only 49% of the land leased through your company will be owned by the company for 30 years (keep this in mind, with all the risks that it entails).

! Important note: that is, they openly offer to conclude an agreement, which, in accordance with Article 155 of the Civil and Commercial Code of Thailand, is interpreted by the court as a fictitious one, and is recognized by the court as a void agreement.

Next, they lead us to another situation, where we are offered to register all this property on Leasehold (long-term lease) for 30 years, as well as sign an additional agreement with a two-fold priority extension of 30+30+30, that is, a whopping 90 years. Later, it turned out that the additional agreement is not registered with the Land Department, but only the purchase-and-sale agreement itself is registered, for 30 years. And according to the legislation of Thailand, the lease of a land plot can only be for 30 years — now remember the cost of land in the agreement.

! Important note: you should be especially careful in the first place when you are told to trust and give a deposit as soon as possible, and to study/receive the agreement later. In Thailand, it’s really customary to receive a agreement after a deposit, but you must write in the deposit agreement that if you are not satisfied with the terms of the main agreement, 100% of the deposit will be returned to the Buyer, i.e. to you. The usual standard condition for this situation is prescribed by them: return at the discretion of the developer, or completely non-refundable.

We continue, here is what we specifically see in their terms of the Leasehold agreement:

«Clause. LEASE TERM. The term of the lease shall be a period of 30 (Thirty) years (the “Lease Term”) commencing from the date of Buyer’s Land Lease registration. All taxes duties and fees including but not limited to any and all expenses incurred in relation to the registration of the lease shall be equally borne by the Buyer and the Seller. The Seller shall be responsible for income tax resulting from rental incomes.

1. The Seller irrevocably and unconditionally represents and warrants that the Buyer shall have an absolute right to exercise his option to renew this lease hereunder for two further periods of 30 (thirty) years or the maximum period as permitted by law by serving a notice in writing on the Seller at least 90 (ninety) days prior to the expiration of the Lease Term. All terms and conditions of this Agreement shall automatically apply to the renewed lease save for this renewal clause.
2. The renewal of the lease terms under Clauses 6.1 shall be granted without any additional Rental or consideration to be paid by the Buyer. All taxes, duties and fees including any and all expenses incurred in relation to the registration of the renewal of lease over the Premises shall be borne solely by the Buyer.
3. If the Buyer is prevented by any circumstances from exercising his option to register Land lease under this Clause, the Seller shall, within 30 (thirty) days repay to the Buyer the amount equivalent to the total amount of the Purchase Price payable to the Seller with 10% interest p.a.
4. During the Lease Term and the renewed lease term under Clause 6.1, if the registration of the lease of the Land is permitted by relevant law for a period longer than 30 (thirty) years, the Buyer shall, within a reasonable period, proceed with the new registration of the lease of the Land in order to reflect the longer period. The Buyer shall be responsible for all taxes, duties, fees and expenses incurred in connection with the new registration of the lease of the Land».

I will briefly translate the text of the agreement: you are given an agreement for 30 years of lease, in accordance with the law of Thailand, and they promise that if you are allowed by law to extend the lease period, then you are obliged to bear at your own expense all costs incurred for registration, and you, as the Buyer (Attention! Not the Lessee) will have to independently apply for re-registration of the renewal of the Lease. And further, in point 4, again, if the registration of the lease of the Plot will be allowed by the relevant law for a period of more than thirty (30) years. The word «if» inserted everywhere in the agreement is disconcerting, as well as continuous legal verbiage with the terms “Seller”, “Buyer” (there is no Lessor and Lessee here), which is contradictory.

To all my uncomfortable questions to the other party about cases, for example, of the sudden bankruptcy of the Lessor “Seller” or his refusal of the contractual terms, from our part we put forward a counter offer and presented in the terms of the agreement as follows: in the case that the agreement is not extended/terminated/canceled , as well as in the case of refusal at the second/third re-registration of the renewal of the lease with the Land Department, the Lessor “Seller” or his successor will reimburse the entire difference from the cost of the paid Lease for 90 years, as well as 10% per annum for each such year. And also, from our side, we proposed a second variant for consideration: we and/or our successors will pay the Lessor “Seller” in installments of ~ 14 million baht, for every 30 years when re-registering the Leasehold Agreement with the Land Department. Well, of course, no one agreed to this, they simply fell into a stupor, only the initial conditions were offered and nothing else. As it turned out, there was actually no trust. After long disputes, various arguments, we came to an agreement that these are risks for us, as well as troubles with a possible loss of money in the future for our family.

! Important note: The Leasehold Agreement in Thailand, must be written in such detail and worked out with lawyers, just know — this is a huge job. Even a small missed detail can have a catastrophic effect in the future on the termination of the agreement with you both by the Lessor “Seller” and by his new assignee (for example: bankruptcy; sale; death, etc.). And the model agreements provided to you do not protect your right in any way. English law does not work in Thailand, and when they tell you that here is like it is England, know that here: it is Thai legislation with its many nuances, which has nothing in common with English law. In England, you are openly written in Leasehold agreements for a specific Lease period from 99 to 999 years and this is the real right to own real estate for this period. In Thailand, it is legal 30 years, during which the risk is not excluded.

As a result, after numerous negotiations, consultations with lawyers (there was more than enough time and money spent on the opinions of different lawyers from different countries, and believe me, this is not a modest amount and I think not everyone will spend such money for different written opinions), we came to a decision, that we would choose for ourselves an apartment in a condominium only in the full ownership of Freehold. And also, several apartments and commercial premises in Freehold for investment (for rent). It is worth noting here that your investment is completely dependent on the purchase price and the calculation of the return period of your funds. In our dealings, the average cost per square metre ended up at 65,000 baht/m², when the market price of the developer was 115,000 baht/m², since we bought several property objects in volume, which of course had a positive effect on the value of assets. We understood that at that time the cost of development by a turnkey developer was 25,000 — 35,000 baht/m². As a result, our value of all agreements was satisfactory to us as investors. Briefly and honestly, an income of 5.3% (COVID times) to 7.53% per annum is brought by self-rental, but keep in mind that this is a well-known modern complex where expats live permanently, and during high season it is 100% filled with tourists.

! Important note: concerning everything that they will tell you and promise you about guaranteed income, here is a recommendation: first calculate all your costs (maintenance), repairs, etc. And also, if you cannot independently control the renting out of objects, then you will definitely be able to be misinformed in some situation and you are unlikely to be able to immediately react. This was especially acutely reflected in the times of COVID, when all agreements with high percentages of income fell through and companies unilaterally refused to fulfill their obligations. The conditions were met only by some well-known developers, who initially indicated your annual amount of income, and it was, of course, lower in comparison to other companies.

Until now, our choice and priority in buying is only Freehold and only in ready, fully completed objects in Thailand, and I always tell my clients about all the risks. There is not a single client who would have acquired a problem in Thailand because of me. This is not my main business, and is more of a hobby, which has grown into a meticulous and detailed study of all situations and laws (thanks to the Soviet school for this experience — Physics and Mathematics).

Anticipating numerous questions about advertising the purchase of real estate for cryptocurrency by a well-known real estate agency in Phuket, I honestly answer that you will not be able to register this property in Freehold, since, in accordance with Thai law, funds should only come in by bank transfer from another country, with the purpose of payment for specifically this object and with your data (in the absence of such, the Land Department refuses to register such agreements in Freehold). Subsequently, only with a document from the bank will you be able to withdraw your funds back after the sale of your property. Surprisingly, no one from the “real estate specialists” will tell you this either. And as a result, you will also be led to the Leasehold form, through the Bitkub exchange. One simple question for such companies: let them show you an agreement with the exchange company that through cryptocurrency it is allowed to make investments through third parties in Thailand, and watch their reaction further.

And so, having seen Al’s article, in his objective telegram channel “Real Phuket”, he raised this acute and, I think, fundamentally painful issue for many, which clearly describes the current situation on Leasehold, and that court cases are currently underway, of which no one knows how many to expect in the future. Everything that is written in this article, I think, is true and fully confirms everything that I have been arguing about for so long and myself have come across in conversation with “professional consultants” in Phuket who, all these years, have openly urged all people to buy cheap, but for some reason highly liquid apartments in Leasehold at a commercial price, and which are cheaper and more profitable than Freehold, putting out loud advertising on YouTube channels. And suddenly, it turned out that for some reason they abruptly stopped liking the climate or they made justifications saying that they wanted to develop in Europe, or in America, safely leaving our paradise island, leaving all their clients alone with their problems, answering them verbally that they will always be in touch. Or, they change the letter in the names of their new companies, but the website remains the same. As it is known, there is no answerability for such companies, but if something comes up, they will set you up with lawyers out of your own pocket (after all, this is the only way in investments, right?). I assume their customers have themselves already made all the conclusions about them.

 

«Buying a Property. Dangers of Leasehold. #1

Article «Real Phuket»

Source, full version at the link: https://t.me/REAL_PHUKET/12693

(author’s spelling and punctuation preserved)

Little stories that are usually not shared. I recommend that investors read carefully.

2015

Phuket Court Rules Collective Leasing Illegal

Source

The final decision on the issue of long-term leasing, which is popular with foreigners, must be made by the Supreme Court.

At the request of The Phuket News, lawyer Jerrold Kippen looked into the matter and concluded that the agreements of many foreigners who own long-term leases in Thailand are at risk. The decisions of the Supreme Court in Thailand do not automatically have the force of law, but for many judges, the presence of a verdict in a similar case can be a powerful argument (although the law does not oblige them to issue a similar decision).

A dangerous precedent arose during the consideration by the Phuket Civil Court of the dispute between a local developer and a property owner. During the litigation, both parties referred to a signed collective lease agreement (such agreements are known as secured leases or collective leases), moreover, each of the parties to the dispute considered the document to be legal. The court made an unexpected decision — instead of making a decision in favour of one of the participants in the litigation, the judge declared the agreement itself null and void. An attempt to challenge the verdict in the Court of Appeal of the eighth region was unsuccessful. As a result, now both the developer and his opponent are left in a situation where, from the legal point of view, the first of them did not sell anything, and the second did not buy.

Collective leasing agreements are a popular investment protection option for leasehold property buyers (it is legally correct to call such buyers lessee). The fact is that long-term leasing of real estate in Thailand is limited to 30 years with the possibility of two extensions for the same period. Since the lessee cannot by law oblige the owner of the property to guarantee him an extension, in many cases a secure lease is concluded, under which the lessee becomes a shareholder in the company that owns the asset.

In the case cited above, the court invalidated the agreement on the grounds that the formally agreed on collective lease agreement was in fact a cover for the purchase of real estate. The conclusion of fictitious agreements in order to hide real agreements is directly contrary to article 155 of the Civil and Commercial Code of Thailand. In accordance with the law, a fictitious agreement must be recognized as void, that is, as one which has never been concluded and has never taken place.

«In this case, the court ruled that the parties [the developer and his client] had entered into a fictitious lease agreement through the “Secured” lease structure, and had done so in order to hide their actual agreement to sell and buy properties», — explains Jerrold Kippen.

The Regional Court of Appeal, in turn, affirmed the following:

1. The concluded secured lease agreement which involved the leasing of real estate and the acquisition of shares in the company-owner of the object, was a fictitious agreement designed to hide the purchase-and-sale of real estate.
2. The agreement is void both in terms of leasing and in terms of the purchase-and-sale of shares.
3. The sale of real estate, which the parties tried to disguise, is also void, since it was not executed in writing and was not registered with the relevant departments.

«Taking these new decisions into account the “Secured” lease not only does little if anything to address the very real insecurity that your long-term lease will not be renewed, but it could also have the disastrous consequence that your current lease could be considered legally void», — Jerrold Kippen sums up.

However, according to the lawyer, there is good news for the investor, even if he has already signed a similar secured lease agreement. The agreement may at any time be re-registered into a legally clean ordinary long-term lease. And a guarantee of extending the lease term after 30 years can be obtained, for example, by registering a mortgage (which tourists will not be given)».

As you can see, the article is from 2015, but that’s not all, we read further.

«Buying a Property. Dangers of Leasehold #2.

2017

Source

The Phuket Court recognized another leasehold agreement as invalid, considering it a cover for a purchase-and-sale agreement.

Investing in real estate in Thailand on a leasehold basis is a common practice among foreigners in view of the strict rules that exist here, designed to limit the ownership of land and apartments in the country by citizens of other countries.

Under Thai law, the maximum lease term is 30 years with the possibility of renewal after this period. And since 30 years is relatively short, foreigners are usually offered a 30-year lease with two subsequent renewals, that is, the 30+30+30 system, as it is often called here.

The problem with such leasing for the investor is that renewals are not guaranteed. If the owner of the leased property changes, then the obligation to renew the agreement for the new owner will not apply. As a solution, some developers offer so-called «secured lease» to foreigners, however, in 2015, a judicial precedent was already created in Phuket, when such an agreement was declared legally void, and this decision was upheld after the appeal, about which we wrote then, in 2015. The judges concluded that such a lease is the legal equivalent of a purchase, and the parties entered into a lease agreement to hide another agreement, namely an agreement for the purchase and sale of real estate.

Now the Phuket Court has delivered another unexpected verdict in another case. On similar grounds, the court declared null and void a regular 30-year lease with two renewals. The court concluded the 30+30+30 agreement void, since the agreement was purchase-and-sale, not a lease.

It is of interest — and, perhaps, concern — that in both of these cases, the plaintiff and the defendant were not arguing with each other about the nature of the concluded agreement, the court found a discrepancy between the letter and spirit of the agreement on its own.

In the latter case (with a 30+30+30 agreement) the court appealed to Article 155 of the Civil and the Commercial Code of Thailand (CCC). Its content — in simple words — boils down to the following.

If two parties enter into a fictitious agreement (for example, a leasing agreement), but in fact they imply and conclude a different agreement (for example, a purchase-and-sale agreement), then the fictitious agreement (in our case, a leasing agreement) is legally void, that is, it has no force from the very beginning. From the point of view of the law, this agreement never existed, which means that the lessee (buyer) does not have any legal rights to the property and may be evicted from there at any time in accordance with Article 127 of the CCC.

A void agreement cannot be ratified, and any interested person has the right to draw attention to the fact that an agreement may be void, and at any time. The return of the same asset to the rightful owner is governed by the provisions of the Illicit Enrichment Code.

As we have already explained in the article on the invalidation of a «secured lease» agreement, it is of no significance whether it was registered with the Land Department or not. The recognition of the agreement as void means that it simply did not exist, which means, from the point of view of the law, there was nothing to register. Even if this happened in practice, all the formalities were observed, paid for, and the seals and signatures of officials were put in place — this does not change the fact that the agreement did not exist. If you have a legally void agreement in your hands, then you have nothing in your hands.

And what about the purchase-and-sale agreement, the fact of hiding of which, under the guise of leasing, has already been confirmed twice by the Phuket court? Does the lessee have rights to his property on the basis that the court confirmed the conclusion of such an agreement by the parties?

The answer is negative.

Section 456 of the CCC states that «A sale of immovable property is void unless it is made in writing and registered by the competent official». In both cases cited above, the Phuket Court concluded that since the written purchase-and-sale agreement of was not made and was not registered, there was no fact of purchase-and-sale.

So far, we are aware of only two cases where the Phuket court declared long-term lease agreements legally void. And the appearance of the second case cannot but be alarming news for foreign investors investing or intending to invest in real estate in Thailand. Even though the government of the country is discussing the possibility of increasing the maximum lease term from the current 30 to 50 years, the problem of void agreements does not disappear».

End of article.

 

And finally, looking ahead of the curve, with questions about lawyers. Here, a priori, there can be no foreign lawyers to help you. In Thailand, there is an official register of lawyers and law firms — and, these are only Thai citizens. You need a good professional translator. By the way, we found our lawyer, old and experienced, one of the first in the register list, who more than once came to the rescue with break-downs and understanding of all situations, which, although not so numerous in seven years, have given me enough knowledge and experience to share with you.

Remember, so that there are no disappointments and financial losses in the future, that no one except you is responsible for your actions and purchases. Well, for those who have already purchased a Leasehold under the advice of “professional consultants” with such conditions, in order for you to be morally ready to accept that you bought a 30-year lease, calculate the amount of your investment based on these years, and that, in fact, you will be spending 30 happy years on the island for this amount, and as it was said in a wise saying «If money is lost, has disappeared or been stolen, wise Jews say: Thank you, Lord, for taking money! Money, not human lives!».

But, you and I are not gullible Farangs, let it be them who trust us. Don’t do anything to hurt yourself legally.

Conclusions: also study the legislation carefully, using the services of professional translators and lawyers in Thailand. Compare all situations, ask uncomfortable questions, I’m sure that then everything will work out in the best way for you.

October 12^th, 2022