Phuket Law: Thailand’s revised, more landlord friendly, residential lease law

10/02/2020

In March of 2018, we detailed a Previous Notification under the Consumer Protection Act (1979) that went into effect on May 1, 2018 and which regulated residential structure leases, for example, leases of houses, apartments and condominium units. However, that notification raised significant questions regarding its applicability, as we also explained.

Then, on Oct 31, 2019, a New Notification of the Contract Committee Re: The Stipulation of Residential Property Leasing as a Contract-Controlled Business was issued.

The New Notification went into effect on Jan 30, 2020 and repealed the Previous Notification. And although the New Notification largely followed the provisions of the Previous Notification it significantly revised and reduced the rights and protections of the lessees (and, thereby, increased the rights and protections of the lessors) covered by the New Notification. Unfortunately, however, the New Notification did not resolve some of the most significant unanswered questions raised by the Previous Notification.

The New Notification provides the following:

• “Residential property leasing business” means a business that leases five or more property units to individual lessees for residential proposes. “Lessor” means anyone who leases property for residential purposes and receives a rental fee from the lessees in return. This remains unchanged from the Prior Notification.

• “Property” means a house, apartment, condominium or other residential property. However, dormitories, hostels and hotels that are regulated under separate statues are excluded. This too remained unchanged by the New Notification.

• A tenant or “lessee” can terminate the lease agreement by giving 30 days’ notice. However, unlike the Previous Notice, the New Notice requires that at least half of the lease term be expired before the lessee can exercise this right.

• With regard to termination by the landlord or “lessor”, the terms under which he can do so must be displayed in the lease agreement in a format that is clearly visible, such as typed in red or bold and black font, or font that italic and underlined. But the New Notification further provides and categorizes the landlord’s termination rights as follows:

• If the lessee breaches a provision in the lease contract the lessor can terminate the lease by serving a written notice to the lessee at least 30 days in advance;

• If the lessee’s action directly disturbs the peaceful living of other tenants, the lessor can terminate the lease by serving a written notice to the lessee at least seven days in advance; or

• If the lessee does not comply with the law relating to public order or good morals, the lessor can terminate the lease, effective immediately.

These new provisions make it much easier for a landlord to terminate the lease contract than under the Previous Notification, which required the lessor to provide the lessee with 30 days’ notice of any breach of the contract during which the lessee could cure the alleged breach.

The New Notification has also significantly revised, in a largely landlord-friendly manner, what a covered lease agreement is not allowed to include as follows:

Under the Previous Notification, the lease agreement could not exclude the lessor’s liability for breach of the agreement or tort against the lessee. However, now the lease agreement may exclude the lessor’s liability for any “non-material” breach of the agreement or any “justifiable” tort against the lessee.

The New Notification allows the lessor to require a total advance rental payment plus security deposit in an amount equivalent to three months of rent payment. This provides more security for the lessor than the Previous Notification’s one-month advance and one-month security deposit limitations.

Under the Previous Notification, the lessor could not confiscate the security deposit or advance rental payment. However, the New Notification allows the lessor to do so if the reason for doing so is due to the lessee’s fault.

The Previous Notification did not allow the lessor to enter the property without prior notice to the lessee. But the New Notification allows the lessor to do so to avoid harm to the lessor or others.

Under the Previous Notification if the lessee defaulted on the lease agreement, the lessor could not prevent the lessee from entering the property nor could the lessor enter the property and seize the assets of the lessee. Under the New Notification, however, the lessor can do so as long as the lessor first properly terminates the lease agreement.

However, although the New Notification provides that lease agreements “made under” the Previous Notification before this New Notification comes into force will be valid until their termination date, it still fails to clarify crucial questions as to its applicability.

For example, what does “made under” mean. As we explained there is a strong argument that the Previous Notification applied retroactively to lease agreements entered prior to the effective date of the Previous Notification. If that is the case, then all agreements made prior to the effective date of the New Notification were “made under” the Previous Notification. Consequently, are all relevant landlords, including those whose relevant lease agreements were entered into prior to the effective date of New Notification and who have been, for example, charging a premium for utility service, now obliged to stop charging their mark-up from that date forward?

Furthermore, it remains unclear how the New Notification applies to real estate projects, particularly condominiums, that have marketed long-term prepaid leaseholds to foreigners. Are they now required to return all pre-paid rent save for up to one to possibly three months in advance? And are such long-term prepaid lessees now allowed to also terminate their lease agreements for good cause per the New Notification?

In any event, the New Notification (like the Previous Notification) certainly appears to end the common long-term prepaid leases in developments that are marketed to foreigners in Thailand.

Undoubtedly the New Notification provides significant, and arguably fair, protections to residential lessees in Thailand. It also strikes more of a balance with regard to the rights of covered lessors than the Previous Notification. And, ultimately, the applicability of the New Notification to contracts entered before May 1, 2018 may not withstand judicial scrutiny, particularly a constitutional challenge.

But, for now and in any event, the potential for disruption in Thailand’s real estate sector due to the New Notification appears to remain just as significant as under the Previous Notification.

Courtesy: Published at The Phuket News on February 9, 2020 by Duensing Kippen

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