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Thread: 90 year leases illegal

  1. #1
    Super Moderator LivinLOS's Avatar
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    90 year leases illegal

    Phuket court rules 'secured' or 'collective' leases are void
    The Phuket News
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    The terms may look tempting, but will the courts agree?

    PHUKET: -- In a shock decision by the Phuket Civil Court, backed by the Region 8 Appellate Court, it has been ruled that the so-called “secured leases” offered by some real estate developers to allow foreigners to secure a cast-iron 90-year lease are not valid.

    The case is now to go to the Supreme Court.

    The Phuket News’ legal correspondent, Jerrold Kippen, has revealed that not only has the structure been ruled invalid but the courts’ decision may illegallmean that the original underlying 30-year lease, even if registered with the Land Office, is now void – it never existed, leaving the buyer with two handfuls of nothing.

    Mr Kippen explained, “As a general rule foreigners cannot own land and apartment units but it is possible for foreigners to lease them and that is the reason why these are commonly marketed to foreign buyers on a leasehold basis.

    “Under Thai law the maximum lease term is 30 years, which may be renewed upon expiration of that term.

    “The leases marketed to foreigners typically provide for an initial 30-year term plus two additional successive 30-year renewal terms.

    “However, the renewal of a lease in Thailand is by no means assured even if it is provided for in the original lease agreement.”

    He explained that in order to overcome this issue the “Secured” or “Collective” Lease was devised and marketed to foreigners. This is meant to ensure that the lease is renewed, twice, as originally agreed.

    The way this “security” is supposedly provided is by the buyer not only entering into a lease agreement with the Thai company that owns the developer’s land/apartment, but also entering into a share-sale-and-purchase agreement for shares that control the Thai company that owns the developer’s land/apartment.

    Now, however, two Thai courts have concluded that the “Secured” Lease is “void” as a matter of law.

    A contract that is found to be void is considered never to have existed.

    If other courts confirm these two courts’ opinions, then not only will any renewal term of “Secured” Leases be invalid but also the current lease terms.

    “This would be the case regardless of whether such a lease was already registered,” Mr Kippen said.

    “Why? Because a finding that a lease is void means that it never legally existed and, therefore, as far as the law is concerned, a void lease cannot be, nor ever could have been, registered.

    “Even if the legally void lease went through the Land Office formalities of registration, with registration fees paid, papers signed and stamped by the land officials, it simply does not change the legal non-existence of the void lease because, legally, nothing happened by such acts.”

    In the test case now headed for the Supreme Court, the buyers entered into the project’s “Secured” Lease structure. Leases, in this case for apartments, were registered several years ago.

    The lessees filed a civil case against the developer of the project in the Civil Court to protect their leasehold rights. Neither the buyers nor the developer argued that the leases were not valid.

    Quite the contrary: they both relied on provisions of the leases to support their respective arguments.

    However, the court decided on its own that the leases – when considered in light of the share-sale-and-purchase agreement for the shares that control the Thai company that owns the developer’s land/apartments – were actually fictitious agreements made to conceal what the parties had actually agreed: to sell and buy the relevant real estate.

    “Section 155 of the Civil and Commercial Code of Thailand (CCC) provides that if two parties enter a fictitious agreement in order to conceal their real agreement, the fictitious agreement is void.

    “It goes on to state that although the fictitious agreement is void, the hidden agreement that the parties actually made must then be evaluated under the provisions applicable to it,” Mr Kippen explained.

    “In this case, the courts ruled that the parties had entered into fictitious lease agreements through the “Secured” Lease structure and had done so in order to hide their actual agreement to sell and buy the properties.”

    The court, he said, decided this meant that the leases were void and that the provisions of Section 456 of the CCC applied to the “real” sale and purchase agreements.

    Section 456 provides, in pertinent part, that “a sale of immovable property is void unless it is made in writing and registered by the competent official.”

    The court then concluded that since these sales were not made in writing nor registered with the competent official, they too were void.

    This ruling, by a sole trial court judge, was then appealed to a three-judge appeal court panel. The Appellate Court confirmed the trial court’s decision on the very same factual and legal grounds as the trial court outlined above:

    - The “Secured” Leases with their lease-plus-share-sale-purchase agreements were fictitious agreements meant to conceal actual sale-and-purchase agreements for the real estate; thus

    - The leases and share-sale-purchase agreements were void; as were

    - The actual concealed real estate sale-and-purchase agreements because they were not made in writing or registered with the competent official.

    “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 also could have the disastrous consequence that your current lease could be considered legally void,” Mr Kippen said.

    “And according to these courts’ analysis, anyone who has already invested or is considering investing in such a structure is facing the immediate loss of the investment.”

    The good news, he said, is that secured leases can be restructured to provide actual long-term lease security legally and without any downside to the developer by securing the pre-paid renewal terms with a mortgage over the land involved.

    “It is a simple and straightforward legal structure that provides security for the investor. A current ‘Secured’ Lease can be restructured into this better and genuinely secure alternative, before it is too late.

    “As always,” he added, “you should engage competent legal and tax counsel in order to implement this mortgage-based security structure successfully.”

  2. #2
    Super Moderator LivinLOS's Avatar
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    I always said that once it came around for the first of these 30 year leases to be tested, thats when the shit would hit the fan..

    But to create the situation where the original 30 year lease already registered is cancelled.. Thats even madder..

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    This is serious issue .... if Appeal Court keeps this ruling there are a lot of property lawyers in for a huge windfall .... which is probably the intention ...

    Fuzzy law in Thailand .... extra grease for the wheels that move the engine .... not mad at all ... just 'Thainess'!!
    Its My Life .....!

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    Now I do think its time to sell up ....
    or maybe about 30/90 years ago ....







    Ps Please don't reply to my 2nd line, I'm joking ....

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    Quote Originally Posted by SLeesy View Post
    Now I do think its time to sell up ....
    or maybe about 30/90 years ago ....
    Ps Please don't reply to my 2nd line, I'm joking ....
    Looks like your market just shrank significantly though, who's going to buy those properties now?

    Have to say I find it baffling when so many other countries are working hard to attract foreign investors Thailand looks increasingly blind towards the outside world.

    Do we have a 'baffled/WTF' smiley?
    SLeesy likes this.

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    Anyone who has actually got a dodgy 30 year lease backed up only with an "unwritten" and/or "unregistered" sale-and-purchase agreement needs to move fast and get a secured mortgage in place.

    The article starts with a bang and ends with a whimper.

    The Bang
    - The “Secured” Leases with their lease-plus-share-sale-purchase agreements were fictitious agreements meant to conceal actual sale-and-purchase agreements for the real estate; thus

    - The leases and share-sale-purchase agreements were void; as were

    - The actual concealed real estate sale-and-purchase agreements because they were not made in writing or registered with the competent official.

    “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 also could have the disastrous consequence that your current lease could be considered legally void,” Mr Kippen said.

    “And according to these courts’ analysis, anyone who has already invested or is considering investing in such a structure is facing the immediate loss of the investment.”


    The Whimper

    The good news, he said, is that secured leases can be restructured to provide actual long-term lease security legally and without any downside to the developer by securing the pre-paid renewal terms with a mortgage over the land involved.

    “It is a simple and straightforward legal structure that provides security for the investor. A current ‘Secured’ Lease can be restructured into this better and genuinely secure alternative, before it is too late.

    “As always,” he added, “you should engage competent legal and tax counsel in order to implement this mortgage-based security structure successfully.”

  7. #7
    Super Moderator LivinLOS's Avatar
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    ^^ However I would assume that requires the assistance and participation of the seller..

    I am unsure how many Thais who put those 90 year leases out, 15 or 20 years ago, re going to be so willing to 'give' that contractually agreed time period not that the courts seem to be willing to greenlight stealing the whole thing back now.

    Fact is this was always contract law, which is weak here, but what the court is saying is its not only weak but its null and void, which legally seems a questionable decision.. Yes only 30 years could be registered, but contracts for future agreements are very normal, all over the world, including Thailand.. What this says is Thailand considers contracts to be not only weak and hard to enforce, but non existent.

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    Absolutely no doubt it's a nasty proposition to be facing total loss of investment due to inadequate legal due diligence but TIT. Even more so where land ownership is skewed in favor of locals regardless of money and contractual considerations.
    I do see where the courts are coming from though in terms of "Sham" transactions and legal "Round Robins" whose primary purpose is circumventing the law. The best possible legal advice should always be factored into the overall cost of any worthwhile investment.

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    Member SLeesy's Avatar
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    Agreed, agreed and Dunno....
    But renting provides OK yields here (my friend told me.... )

    Quote Originally Posted by Steve@thaib View Post
    Looks like your market just shrank significantly though, who's going to buy those properties now?

    Have to say I find it baffling when so many other countries are working hard to attract foreign investors Thailand looks increasingly blind towards the outside world.

    Do we have a 'baffled/WTF' smiley?

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    Quote Originally Posted by SLeesy View Post
    But renting provides OK yields here (my friend told me.... )
    Sounds like an opportunity, know anyone who needs a quick sale?

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    Super Moderator LivinLOS's Avatar
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    Quote Originally Posted by Changone View Post
    Absolutely no doubt it's a nasty proposition to be facing total loss of investment due to inadequate legal due diligence but TIT. Even more so where land ownership is skewed in favor of locals regardless of money and contractual considerations.
    I do see where the courts are coming from though in terms of "Sham" transactions and legal "Round Robins" whose primary purpose is circumventing the law. The best possible legal advice should always be factored into the overall cost of any worthwhile investment.
    Inadequate diligence ??

    The Thai landowner still owned the land.. they or their family will still real the benefit.. Contracts are contracts.. They always defined legally (and on advice of the best diligence) that the first 30 years contracts was fully and clearly legally enforceable.. The other contracts were civil contracts, these are weaker but no less legal..

    What the court appears to be saying (and would need more detail and precision) is that a contracts in Thailand (a contract to enable a future lease) is not only difficult to enforce but illegal.. That has large ramifications in so many other ways.

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    Senior Member geir's Avatar
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    I thought anything more than a 30 year lease have been illegal all the time, and that it is up to the landlord if he wanted to make a new lease after the first 30 years.....So just like starting a brand new lease(includes a fee for new lease of cause).
    A blowjob is better than no job!!

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    Super Moderator LivinLOS's Avatar
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    Well the way I have had these explained is..

    The max registrable lease is 30 years. The is a 'real right' and cannot be broken.
    After 30 years you can have a contract between 2 parties. That is civil law (much weaker and harder to enforce) but still contractual obligation.
    So a private contract is written between 2 parties to ensure that future leases are registered once the time comes.

    Logically this seems clear.. But logic in this case sounds like being undermined by nationalism.. The idea that the lack of enforceability of the second and third 30 years, makes the initial 30 years null and void, is a stretch.. Especially as the whole argument was that these were registered leases, not based on only contract law, and unbreakable once approved and registered by the land office.

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    Super Moderator LivinLOS's Avatar
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    Quote Originally Posted by geir View Post
    I thought anything more than a 30 year lease have been illegal all the time, and that it is up to the landlord if he wanted to make a new lease after the first 30 years.....So just like starting a brand new lease(includes a fee for new lease of cause).
    Yes but the other issue is that many of these leases are granted from a company.. A company of which all the owners of an apartment all hold a % share of..

    Therefore the company is representing the apartment holders and not in effect a thai national but a Thai entity. This ensures the future 30/30/30 agreements..

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    Two things

    One
    The Court ruled that the contracts were void from the start because in its opinion they were designed to circumvent the law. This is just what Courts do.

    Two
    Had the whole arrangement included a mortgage any "Downside" could be avoided in the event of any problem like this.

    ....without any downside to the developer by securing the pre-paid renewal terms with a mortgage over the land involved.

    Just how I read it...

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    One. Yet they had continually stressed how a registered lease was 'unbreakable'.. In doing so they have radically undermined the value of them.

    Two. The 'new' suggestion I would assume requires the current assistance and support of the landowner, something many leaseholders will not have and not without increased costs and inducements.

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    Hindsight is a wonderful thing.
    A registered lease that doesn't circumvent the law still is "Unbreakable".
    The promoters of these deals sure do have a lot to answer for by second guessing the court with "Untested" schemes.

    I don't think anyone is suggesting that the now unenforceable contracts could be salvaged without the consent of the land owner, just that those who had put a mortgage in place at least have some redress at law.

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    Super Moderator LivinLOS's Avatar
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    Quote Originally Posted by Changone View Post
    Hindsight is a wonderful thing.
    A registered lease that doesn't circumvent the law still is "Unbreakable".
    The promoters of these deals sure do have a lot to answer for by second guessing the court with "Untested" schemes.

    I don't think anyone is suggesting that the now unenforceable contracts could be salvaged without the consent of the land owner, just that those who had put a mortgage in place at least have some redress at law.
    That doesnt circumvent the law ?? The issue is the law seems very variable.. Until before leases given did not circumvent the law.. The point of 'unbreakable' was just that.. Not that a new interpretation made the unbreakable suddenly breakable..

    The whole point of unbreakable was that it was 'if maybe but'.. Now it would seems if and but are very much in the issue.

    None of this is an issue for me personally.. But a clear predictable framework would help..

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    Taking this a bit of the legalize aspect.

    Would any of you do the 30 year lease if you were married or in a LT relationship?

    I've decided anything we buy will just be in her name. Things go pear shaped it is part of her settlement after what would be 15+ years at that point.

    I'd never buy anything more than 8-9mil( if even that) so not something I'd freak out over if that is part of the settlement.

  20. #20
    Super Moderator LivinLOS's Avatar
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    Quote Originally Posted by marc26 View Post
    Taking this a bit of the legalize aspect.

    Would any of you do the 30 year lease if you were married or in a LT relationship?

    I've decided anything we buy will just be in her name. Things go pear shaped it is part of her settlement after what would be 15+ years at that point.

    I'd never buy anything more than 8-9mil( if even that) so not something I'd freak out over if that is part of the settlement.
    A lease or usufruct done with your wife can (with a good lawyer) be annulled anyway. With a LT GF they can hold up..

    I also went the 'fuck it, not that worried' route.. We did get a usufruct drawn up, mostly in case of death..

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