Buying Property: Two issues to consider before buying a land

February 1 2010 Categories: Property General Issues, Thailand Property No comments yet

The Land tenure and access to land ownership issues

While surfing the internet I found a post on a Thai forum. I found the questions asked by this person under the username of “Samuisoul” interesting because they address two of the first issues that a careful investor should consider prior to purchase real estate into a foreign country.

From: Samuisoul

“I am about to move out to Thailand and purchase a house but have become unnerved and confused by the recent thread on land ownership via Thai nominees. My (English) wife and I have paid a deposit on a newly built house which, following our Thai lawyers advice, we are purchasing via a limited company with Thai directors. We were informed that the standard procedure is for the Thai directors to resign once the purchase has gone through. The house comes with a Chanote title.

My questions are:-

1. Is what we are doing legal?
2. As the law currently stands are we running the risk of losing our house at some point in the future?
3. If farangs can never own land what exactly does a Chanote title offer?
Any informed help with the above would be greatly appreciated.”

To make this post more comprehensible the reader I will not follow SamuiSoul order when answering to his questions.

Our answer to SamuiSoul third question

Question: “If farangs [Note: "farangs" is the local slang for foreigners] can never own land what exactly does a Chanote title offer? “

Answer: Whenever an investor is interested to purchase real estate into Thailand the first thing this investor must verify is whether the country of destination has a modern titling system because it is simply impossible to properly trade and secure rights in land or real estate property in the absence of such system.

Thailand for example has a modern titling system which has been reformed several times over the years and the Chanote titles (Nor Sor 4 and Nor Sor 3 Gor) are the produces of said reforms. However Thailand titling reforms are not yet complete and there are still in Thailand lands that are not represented by propert title and on which one can only acquire lesser rights assimilable to “squatter rights”.

Now titling is one thing, access to land ownership is another. The second thing that a careful buyer should consider is the range of the rights he may acquire on land in Thailand. As a matter of fact, Thailand seriously restricts foreign land buyers access to land ownership.

But for the exception allowing foreign investors that have invested more than 40,000,000 THB in Thailand to purchase 1 rai (1600 square meters) of land freehold, foreign buyers may not own land for residential purpose

Which bring me back to the second part of “Samui Soul” third question“What does then a Chanote title offer?”

A Chanote title will offer evidence of unrestricted ownership rights of the land owner. Chanotes are issued by the Provincial Land Office and based upon a geometrically accurate survey of the land made by the Land Department geometer. The exact boundaries are marked by concrete or metal plot markers and the map is charted in relation to a national survey grid with an overall land plot map.

The fact that a land plot is represented by a Chanote means that this land may be securely traded and that rights may be securely registered on it.

Of course this will not help “SamuiSoul” much because being a foreigner he may not buy land freehold for residential purpose.

But even if “SamuiSoul” may not own land freehold the fact that the land he is contemplating to purchase is represented by a Chanot will benefit him anyway. Because while a foreign buyer may not (but for one exception) own land freehold for residential foreign buyers may acquire and register leasehold rights on land.

Therefore while “SamuiSoul” may not own land freehold in Thailand, he will however permitted to register leasehold rights on said land and in this context the fact that the land is represented by a Chanot offers him the security to know that the land he will be leasing has been geometrically surveyed and that the owner of this land has unrestricted ownership rights including the right to lease out this land.

Now unfortunately, SamuiSoul will not lease the land plot but on the advice of his lawyer he will purchase it through the intermediary of a Thai company with Thai directors and Thai shareholders that may be deemed nominees which bring me to SamuiSoul second question

Our answer to SamuiSoul First Question

Question: “(…) following our Thai lawyers advice, we are purchasing via a limited company with Thai directors. We were informed that the standard procedure is for the Thai directors to resign once the purchase has gone through. (…) Is what we are doing legal?”

Our Answer: Unfortunately to incorporate a Thai company with Thai shareholders that may be deemed nominees for the purpose of purchasing land freehold on behalf of a foreign buyer is not legal and never was.

While this practice was never legal successive Thai governments have for more than 30 years [until 2006] failed to enforce both laws prohibiting the use of Thai nominees and the use of Thai persons to hold property on behalf of foreign investors.

This failure to enforce the law was so obvious that we reached the point where an illegal practice had become an acceptable business practice with lawyers explaining to potential buyers:

“It’s technically’ illegal to do so, but so far no foreigners have ever been punished in so doing.”

Hence, this illegal practice became widespread and there are nowadays thousands of foreigners in Thailand who own land with companies listing Thai shareholders who might be deemed nominees.

Two years ago, the government finally took notice of the situation and started progressively closing one loophole after the other that permitted foreign investors to circumvent the prohibitions made on foreign residential land ownership so easily.

In conclusion the structure of ownership proposed to “SamuiSoul” by his lawyer is illegal and always have been.

It is true that in the past it was widely practiced, but it was so because of Thai autorities failure to enforce the law until 2006. The fact that Thai autorities were looking somewhere else did not make it right.

Within the current context of renewed scrutiny by Thai authorities I would recommend “SamuiSoul” to disregard his lawyer recommendation and not in the current context use a Thai company to purchase his property but instead to go for the safest but less satisfying option of the Leasehold.

Our answer to SamuiSoul First Question

Question: “As the law currently stands are we running the risk of losing our house at some point in the future?”

Answer: So what would happen to Samui Soul if he was caught red handed by Thai authorities after having purchase his land through a company with Thai shareholders that may be deemed nominees.

SamuiSoul, his wife, his Thai shareholders and Directors could all potentially face criminal charges including jail terms and fine and the company may also be forced by the Land Department to sell the properties to a real Thai buyer within a delay from 180 to 365 days.

Now my guess is that SamuiSoul and his wife are purchasing a property in Thailand because they want to spend there a peaceful and quite retirement.

Now I don’t think that following their lawyer advice will bring them the peace of mind they are in right to expect after a life of work. I dont think that to purchase a property throught this scheme is the best way to invest “SamuiSoul” hard won life saving.

Note: A version of this post was first published by Rene-Philippe Dubout on the 19/06/2009 and was first posted on his former blog www.howtopurchaserealestateoffshore.com. This post has been edited and modified

About the Author:

The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.

http//:www.renephilippe.com

Originally posted 2009-07-26 00:44:12.

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