QUESTION & ANSWER

Laksamon

Laksamon Dhamminch is Managing Partner of Fusion Break Ltd., a law firm based in Bangkok. She specializes in Property Law, and advises clients on property acquisitions, development planning and construction regulations. She can be contacted via laksamon@ fusionstatute.com

Buying property to do business in Thailand

Q :I have just returned from Pai last month and am interested to stay long-term there. I understand there is a retirement visa valid for one year which I can easily apply myself provided I keep THB800,000 in a Thai bank account. In that one year, prior to application to renew within 3 months of the expiry date, apparently I could withdraw the money as per your answer in Asian Property Review. I am thinking of withdrawing the money (together with my other savings) to use it either to:

1. Buy a guesthouse (double up as my own accommodation) or,

2. Rent a guesthouse

I am thinking of somewhere near the Walking Street or not more than 3kms away. What possible problems do you think I would face as a foreigner? E.g. harassment from local Thai businessmen, gangsters – protection money, harassment from government officials.

How legal would Option 1 and 2 above be if it was solely in my own personal name?

Alternatively, what suggestion can you give to optimise the THB800,000 in order to pay for my expenses as a retiree in Pai?

Since Pai does not have any condominium (not that I have seen so far), what options does the foreigner have if they want to purchase a home in Pai e.g. long-term leases??

LD :Pai is such a beautiful and romantic place, I have no doubt why people fall in love with this place. As you know, foreigners are not entitled to own land in Thailand. If you still wish to acquire land and/or houses, there are some legal vehicles that you may use. It depends on the level of risk you could take because every option has its own risks.

  1. The first option would be taking a long-term lease of land and buying the house.
    The most difficult part of this option is how to convince the land owner to agree with you. Most land owners want to sell freehold property. If the land owner agrees to sell leasehold property, then it’s how your lawyer drafts the contract for a long-term lease (30 years) and sale of house built on the leased plot.

Please note that renewal of lease clause is still controversial. Many lawyers believe that under Thai law, the renewal clause of the 30-year lease is unenforceable. I do not have clear answers for this argument since the Thai court has been empowered to decide such an issue at its absolute discretion on a case to case basis with justice and fairness as the main considerations.

I recommend you to calculate the value of your investment based on a 30-year period only. A lease which has a term of more than 3 years must be registered at the Land Office. The sale of the house must also be registered at the Land Office. However, before registering the sale of the house, the Land Officer will announce the sale at a public place in that area at least 30 days before accepting the registration. If nobody objects to the sale of that house, the Land officer will register the sale of the house in your name.

The lease registration fee is 1.1% of the total rental value (rent required to pay for 30 years). The registration fee for sale of house is 2% of appraisal value of the house.

What will happen to your house at the expiry of the lease (if it is still in good condition)? There are two ways to deal with this depending on the mutual agreement between the land owner and lessee. The land owner could buy the house at market value or the lessee demolishes the house at his own expense.

You may also choose to lease both land and house for 30 years but if you want to do business in that house, I recommend you to buy the house rather than lease it because then you won’t need the land owner to issue a consent letter for your business licenses.

  • The second option is setting up a Thai company that has a Thai citizen holding a majority of the shares.This option is accepted by land offices in most areas of Thailand. Therefore, to exercise this option, I suggest your checking the possibility with the local land office first.Some land offices accept the registration of land ownership through a Thai company with some conditions, for example, the Thai company must have been formed for more than 2 years and must have generated profit with proof of Corporate Income Tax payment. Some land offices accept the registration of land ownership through a Thai company only if all shareholders are Thai citizens. However, upon completion of the registration, you can then transfer 49% of the shares back to a foreigner.In regards to investigation and harassment, there will be less in the case of the first option because the land is still owned by a Thai citizen while the foreigner is just a lessee. The house will depreciate one day so there is no hidden attempt to acquire land ownership.

    However, if you choose to set up a Thai company and use nominee Thai shareholders, you cannot avoid the risk of being investigated and in a worst case scenario, being blackmailed by your own Thai partner unless your Thai partner genuinely owns 51% share in your company.

 

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Dato’ Pretam Singh Darshan Singh practises at Pretam Singh, Nor & Co in Kuala Lumpur.

Can you KEEP BIG DOGS IN A CONDO IN KL?

Q : My uncle who is sight-challenged has owned a ‘seeing eye’ service dog for the last 4 years. He has previously stayed in a house so there was no issue with the dog’s presence. However, since 2 months ago, he needed to move to a condominium in Kuala Lumpur. The agent informally told him that it is okay for him to keep his dog; but nothing about the dog was ever mentioned in the tenancy agreement. My uncle has not met the landlord as the latter is based overseas. Two weeks ago, the condo management sent him a letter informing my uncle that he cannot keep his dog as there were complaints from the neighbours. What should my uncle do?

A : It was common practice previously that all strata parcels in the country are governed by Deed of Mutual Covenants (DMCs) which spell out the do’s and don’ts in a strata community, both high rise and landed.

Before 1st June 2015, each condo had its own DMC drafted by lawyers, some spanning up to 80 pages long. This is despite case law stating that the terms of the Sale and Purchase Agreement prevail over the DMC in cases where the terms clash.

However, from 1st June 2015, all DMCs including those signed before June 2015 henceforth were deemed invalid and the only governing rules for condos are those contained within the new Acts namely the Strata Titles (Amendment) Act 2013, Strata Management Act 2013 (enforced from 1st Jun 2015), Strata Management (Maintenance & Management) Regulations 2015 (enforced from 2nd June) and Strata Management (Strata Management Tribunal) Regulations 2015 (enforced from I July).

The new law also strictly prohibits contracting out of the Strata Management Act, namely one cannot sign contracts and deeds contrary to any provision of the Act. Also, the new law effectively provides that the Third Schedule of the Strata Management (Maintenance & Management) Regulations 2015 will be the only applicable regulations for condos. Therefore, from 2nd June 2015, the only surviving “DMC” is the Third Schedule of the Regulation thus making the Third Schedule the standard bylaw for all strata parcel owners in the country.

‘No annoyance or nuisance’

In relation to keeping of pets, Bylaw 14 of the Third Schedule provides that parcel owners may keep animals in his own unit or on the common property provided that they do not cause any annoyance or nuisance to other owners/ residents or pose a danger to the safety or health of other residents in the condo.

It also provides that if the owner receives a written notice from the management to remove the animal, he must do so within 3 days.

What constitutes “nuisance” and “annoyance”? The words are often used together, but they have different meanings. The classic definition of nuisance was given in a 19th century case as “an inconvenience materially interfering with the ordinary physical comfort of human existence”. So, for example, an activity which causes excessive noise or dust or smoke might constitute a nuisance.

“Annoyance” has no technical legal meaning but it is clear that it is wider than “nuisance”. The leading case on the point, Tod-Heatley v Benham (1888) 40 CH D 80 concerned the use of a building as a hospital for patients with contagious diseases. Medical evidence was given that there was no significant risk of infection from the hospital and the court held that the use was an annoyance although not a nuisance.

Annoyance was defined as anything which “really does bring an objection to the mind of a reasonable being” or “reasonably troubles the mind and pleasure, not of a fanciful person, or of a skilled person who knows the truth, but of the ordinary sensible English inhabitant of a house”. There need not be any “physical detriment to comfort”.

Regardless, since annoyance has been included as a valid cause for removal of an animal from the stratified property, this means a broad range of reasons can be given including if it “reasonably troubles the mind and pleasure” of a neighbour.

Issue: Can the Management Corporation (MC) prohibit the keeping of dogs in the stratified parcels?

Section 70 (2) of the Strata Management Act 2013 allows an MC to make any additional bylaws or amendments thereof as long as these are not inconsistent with the Third Schedule of the Regulations. Hence, the MC can’t absolutely prohibit the keeping of dogs since the Third Schedule clearly allows it.

However, it is a requirement that dogs have to be licensed by the local authority. In Kuala Lumpur district, the Licensing of Dogs and Kennel Establishment (FT of Kuala Lumpur) By Laws 2011 allows one ‘small dog’ to be kept, harboured or maintained in a flat (By Law 8A).

SCHEDULE II (By-law 2) defines small dogs to mean: Miniature Pinscher, Bichon Frise, Pekingese, Papillon, Poodle (Toy), Japanese Chin, Maltese, Pomeranian, Chihuahua, etc.

Since the definition does not cover many other types of dogs including those of unknown breed or other breeds, nor mentions the maximum weight of a “small dog”, it is my view that the provisions of the Strata Management Act 2013 which allows the keeping of any animal provided it is not an annoyance or nuisance will override the licensing requirements set by DBKL (Kuala Lumpur City Council) in its bylaws.

Any proprietor (including resident) aggrieved by the decision of the MC that prohibits the keeping of dogs may well be advised to challenge it in the Strata Management Tribunal set up under the Ministry of Urban Wellbeing, Housing and Local Government.

Hence, in this case, the tenant can challenge the MC in the tribunal despite the Tenancy Agreement not mentioning anything about the keeping of dogs and despite the fact that the guide dog is not a “small dog” as required under the council’s licensing requirement.

NEGLIGIBLE IMPACT FROM EARTHQUAKE

Q: How would the recent deadly earthquake in Southern Japan affect the property market in Japan?

ZNM : Japan’s property market is, sadly, well versed in natural disaster, as are its’ insurers and property holders. From that particular aspect, and for individual property owners, it’s business as usual, and no effect overall.

From a more local perspective, a singular earthquake or even a series of closely occurring earthquakes and aftershocks would not cause any serious dent in market fundamentals. Kumamoto was, and will most likely remain, a very attractive market with a growing population. It also boasts socially aware local governance which supports its ageing population in a much better fashion than many of Japan’s municipalities, and some interesting industries to watch out for – not the least of which is one of the world’s largest mega-solar farms, built in rural Kumamoto prefecture and drawing many employees and businesses to the area.

However, if this were to become a repeated occurrence of some concern, with the area officially declared more earthquake-prone than others, it would most likely have a deeper localised effect on its property market as well.

On this note, we would like to take the opportunity to announce that NTI has been assisting our clients in donating directly to the Kumamoto earthquake relief efforts, by donating directly to local municipalities, with little to no overhead involved. Please feel free to contact us if you wish to participate – all donations are welcome.

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