Written by Nadia Henderson
Succession by inheritance of lease rights in Thailand
Real estate (land and house) in Thailand is often bought by foreigners under a long term land leasehold structure. Lease or hire of real estate is governed by the 'Hire of Property' section in the Thailand Civil and Commercial Code and is in principle a personal right of the lessee. As a personal right under Thai law a real estate lease will in principle NOT transfer to the heirs of the lessee (e.g. scj. 1108/ 1994).
If the owner of the property dies the lease agreement is not terminated and remains in force against the heirs of the owner, however, ONLY in so far it concerns true hire of property or lease rights. Contractual rights in the lease that are not in essence lease rights (e.g. renewal option) will be lost.
To allow succession to the heirs the lease agreement should have specific clauses granting the right of succession to the heirs of the lessee. The transfer or assignment of the lease to the heirs of the lessee requires registration at the land department and for that reason cooperation of the owner. The heirs have the right to claim such performance directly from the lessor if a 'succession clause' is included in the lease agreement.
It should be noted that a succession clause in the lease agreement under Thai law is a PERSONAL contractual promise between the parties to the contract and in principle it will not follow the property when the property is transferred during the lease term. This means that transferee owners (e.g. the heirs of the owner) are not bound by a succession promise made by the previous owner. In this case the succession clause will not be enforceable by the heirs of the lessee upon the death of the lessee and there is in principle no obligation on the transferee owner to assign the remaining term of the lease to the heirs of the lessee. In this case, as the lessee is the essence of the agreement, the lease agreement is terminated upon the death of the lessee.
The Supreme Court of Thailand has in some specific cases gone beyond the normal principles of the law to protect the rights of the lessee and the lessee's heirs in case the lessee has made a substantial investment in the improvement or development of the property that in the end of the lease will benefit the owner. In this case the lease will not be terminated and will continue after the death of the lessee (without assignment or registration) and the FULL contract of hire will automatically transfer for the remaining term to the heirs of the lessee. It is however ESSENTIAL that the contract is drafted according the principles of Supreme Court rulings and the leasehold purchase is structured with freehold ownership over the building.
With regards to succession by inheritance or assignment of the lease to the heirs of the lessee there are 3 options:
Nothing is arranged regarding succession and the lease is terminated upon the death of the lessee (e.g. only a standard land office lease agreement has been signed by the parties or the lease agreement between the parties is not registered on the title deed);
A valid succession clause is included in the contract which is enforceable against the original owner party (lessor) of the agreement;
Following the Supreme Court judgments in certain situations the contract for hire or lease goes beyond normal hire of property laws and the contract and its rights will in this case transfer to the heirs.
In a normal lease or hire of property the normal principles of hire of property under the above 1 and 2 apply and in this case it is recommended to have MORE THAN 1 person as the lessee in the contract for hire to prevent termination upon the death of 1 of the lessees. In case of No. 3 the lease agreement MUST be drafted according to the Supreme Court judgments by a legal professional familiar with hire of property laws and who is up to date with the Supreme Court judgment governing lease and hire of property in Thailand.
A lease or leasehold is a registered long term hire of property in Thailand for a fixed period of time whereby rent for the whole period is paid in advance.
We draw up or review contracts for hire and lease and can assist in drafting a Thai last will and testament.
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