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.

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. (Note that an exception exists with regard to foreigners holding a valid Permanent Residence Certificate).

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.

b. Ratio of 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.

Foreign businesses classified as “foreign” according to the Foreign Business Act (see Chapter 3) are generally not allowed to own any interest in land. One of the ways in which a company may be classified as “foreign” is if non-Thai parties hold 50% or more of its shares. Ownership of land is included under the category of ‘Land Trading’ as specified in List 1 of the Foreign Business Act. 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. (Note that exceptions may be granted to those companies that are promoted by the Board of Investment or the Industrial Authority of Thailand).

Many foreigners avoid the above restrictions associated with owning land by instead leasing the designated 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 assigning those rights to the land to a third party assignee (fi 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.

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.

The above is an excerpt of Chapter 7 of the book “Doyle’s Practical Guide to Thailand Business Law”. The book is currently for sale at bookstores throughout Thailand.