What are the Legal Issues Associated with Foreign Ownership of Land?

Contrary to popular belief, land ownership rules in Thailand as they apply to foreigners are pretty straightforward. Foreign individuals and foreign companies are not allowed to own any direct interest in land unless an exception to the general rule applies.

This restriction is disappointing to many foreign investors who ideally would like to own the land occupied by their business premises or their individual home. The above stated general rule is, however, quite clear and allows for only limited exceptions, the most common of which are discussed below.

1. Condominium Ownership

Foreign individuals and foreign companies are allowed to hold title to condominium units in buildings that qualify. There are some conditions, however; the most potentially significant are listed below.

a. Financing

The foreign individual or foreign company purchasing the condominium unit is generally required to bring into Thailand 100% of the amount of the purchase price from a source offshore. This rule is quite significant because it precludes the foreign purchaser from obtaining local financing in Thailand for the purchase.

Normally what happens when a foreigner wishes to buy a condominium is that on the date scheduled for the transfer of title, the foreign purchaser and seller of the condominium unit meet at the Land Office in the district where the condominium is located. The presiding official will require the parties to produce a number of documents, including evidence of receipt of the foreign purchaser does not present this document, the official will not approve the transfer of title.

There is an important exception to the above rule. Foreign individual condominium purchasers holding a Permanent Resident Certificate are exempt from the above foreign remittance requirement.

A Permanent Residence Certificate is issued to long-term foreign residents of Thailand who qualify. Note that in recent years, it has become more and more difficult to obtain a Permanent Residence Certificate.

b. Ratio Foreign Ownership

The presiding official at the Land Office will also require the seller of the condominium unit to produce a letter from the condominium juristic person (the body that manages the condominium building) stating the ratio of foreign condominium owners to Thai Condominium owners in the building.

The general rule is that foreigners may own no more than 49% of the total units in the building at any one time. If the proposed transfer would cause the building to exceed 49% foreign ownership it would violate the above rule, and the official would reject the transfer.
There are exceptions to this rule for condominium buildings in Bangkok and Pattaya. Condominium buildings in those cities, if they satisfy certain requirements, are not subject to the 49% rule stated above.

2. Land Ownership by Foreign Companies

Foreign business classified as “foreign” according to the Foreign Business Act are generally not allowed to own any interest in land. You will recall one of the ways in which a company may be classified as “foreign” is if non-Thai parties hold 50% or more its shares. Ownership of Land is included under the category of ‘Land Trading’. This means foreign companies are completely prohibited from owning land unless the government grants a special exemption from this restriction.

If, on the other hand, Thai parties hold more than 50% of the company’s shares and more than half of the company’s shareholders are Thai nationals, the company technically should have the legal right to hold title to land according to the law. In this situation the company would not technically fall under the definition of “foreign”; therefore, the restriction would not apply. In practice, however, it is not quite that simple. When a Thai party wishes to sell land, the parties must go to the Land Office of the district in which the land is located to transfer the title. At the Land Office, the presiding official will request the purchasing company’s list of shareholders. In practice, if the company’s foreign shareholders hold more than 39% of the shares of the purchasing company the official will not approve the transfer.

EXAMPLE: Suppose a Thai Majority – held company with inactive foreign shareholders holding 45% of the total shares, wishes to purchase land. Even though this company technically qualifies as a Thai company (non-foreign) according to applicable law, when the parties attempt to transfer the title at the local Land Office the presiding official may withhold approval. This is because of the foreign shareholders hold 45% of the shares of the purchasing company. 45% is more than 39%; therefore, the proposed transfer is unlikely to be approved.
If the foreign shareholders instead would have held only 39% of the total shares and the transaction otherwise qualifies, the presiding official would likely have approved the transfer of title.

3. Industrial Estate Authority of Thailand – IEAT

Industrial Estates are developed and managed by the Industrial Estate Authority of Thailand (IEAT), which is a state enterprise attached to the Ministry of Industry. IEAT is authorized to grant foreigners rights to own land within these estates. Industrial Estates are equipped to provide infrastructure necessary for industrial operations (such as ample electricity, water supply, flood protection, waste water treatment, solid waste disposal, etc).

In order to purchase land in an industrial estate the foreign applicant must receive a series of approvals from the IEAT in Bangkok. This is normally not so difficult as long as the foreign applicant’s primary activity on the property to be purchased will be manufacturing. Purchasing land for speculation purpose is not allowed.

The first approval the applicant must receive from IEAT is a Land Utilization License. In order to receive this license the applicant must already be established as a company with the Ministry of Commerce. An Applicant may not generally purchase such land as a branch, representative office, or regional office. The applicant must then complete necessary forms and submit them together with the application fee (10,000 baht) to the IEAT office in Prathunam in Bangkok.

This license is usually issued within one or two weeks of the submission of the application. After the license is issued, it must be renewed every four years.

After the Land Utilization License is required, the next step is for the applicant to apply for the Land Ownership License. The Land Ownership License serves as the notification to the Land Department in the district where the land is located that the applicant has been granted permission by IEAT to own the land. Once the applicant obtains this Land Owner License the purchaser and the seller may go to the Land Office in the district where the land is located and effect transfer of title.

If the applicant intends to construct a factory on the Land purchased he will also be required to obtain a Construction License from the IEAT. The final step is for the purchaser to submit a Notice to Start Industrial Operation with IEAT. Note that other licenses and/or approvals may also be required depending upon the company’s intended operations.

4. Board Of Investment – BOI

The BOI is the branch of the Thai Government set up to encourage specific types of business projects in Thailand. Foreign companies that engage in these special types of projects, and otherwise qualify, may receive special privileges, including the right to own land. Unlike the land right granted by IEAT, the BOI is authorized to grant the right to own land outside of Industrial Estates. This can be quite significant from a pricing standpoint because the purchase price of land outside an Industrial Estate is generally much less than inside. There may be other direct advantages in obtaining the right to own land outside industrial estates as well, such as less likelihood if staff turn over and logistic advantages.

5. Title Search

A very simple step that many foreign purchasers of property in Thailand overlook is performing a title search. This seems like common sense, but many foreigners make mistakes by not doing this. You will almost always learn something new about the property by performing a title search.

The legal status of the title is accessible to the general public at the local Land Office where the land is located. By conducting a title search one can determine the land’s legal boundaries, whether the land has registered liens, mortgages, leases, etc.

6. Long Term Leases

Many foreigners avoid the above restrictions associated with owning land by instead leasing the designed land over the long term. This option is generally completely acceptable and the foreigner may be afforded very broad rights to the land during the term of the lease. There are, however, some legal and practical limitations associated with this option.

Foreigners are generally allowed to lease land (outside an industrial estate) for up to thirty years. Foreigners may (depending on the terms of the lease) also own improvements erected on the leased property. However, no matter how broad the rights the foreign tenant has to the land during the lease period, the foreigner does not own any interest in the land. This is a very important distinction.

If the foreign tenant wishes to divest his rights to the land he will be limited to assisting those rights to the land to a third party assignee (if the terms of the lease permit such assignment) or waiting until the conclusion of the lease term. Because of this, the foreign tenant’s interest in the land is generally regarded as much less marketable than if he owned the land outright.

Also, in order to be enforceable after the initial three-year lease period, all leases of Land for a period of longer than three years must be registered with the local Land Office where the land is located. After registration, the lease appears on the land title. If the lease is not registered, the terms of the lease are enforceable for the initial three-year period only.

EXAMPLE: Suppose a foreigner enters into a thirty-year lease of a plot of land, but does not register the lease with the local Land Office. The lease would be enforceable by the foreign tenant for the initial three-year period of the lease only.

Registering the lease with the Land Department effectively places prospective third party purchasers of the land on notice of the tenant’s rights to the land during the period of the lease.

EXAMPLE: Suppose a foreign individual leases land for a period of thirty years and registers the lease with the local Land Office. The owner of the land then sells the land to a third party without mentioning the lease to the purchaser. That purchaser would acquire the land subject to the foreign registering the lease the foreign tenant placed all future purchasers of the land on notice that any purchase of the land during the lease period would be subject to the current tenant’s rights.

Written by Mr. Michael Doyle
US lawyer and author of the book “Doyle’s Practical Guide to Thailand Business Law (3rd Edition)” and “Doyle’s Practical Guide to Intellectual Property Law”
www.serimanop.com