PROPERTY LAW THAILAND
Buyer’s Interest in the Apartment:
The buyer will acquire a long-term registered lease over the Premises of the Apartment. Their interest will be registered at the Land Office and will therefore constitute a secure and legally recognised right over the Premises. Under current Thai law, the longest registered lease period is 30 years. Therefore, in addition to an initial lease for 30 years, the buyer/lessee will also be granted irrevocable lease renewal options for three (3) further thirty (30) year periods, for a total lease period of 120 years. These lease renewal options are contractual rights only and therefore it is important that in addition to acquiring a registered lease, the buyer also acquires protection to ensure the Lessor honours its lease renewal obligations. This is accomplished with a protected leasehold structure whereby purchasers acquire indirect equity in the Lessor company.
Shares in a Foreign Registered Company:
In addition to a long-term registered lease, the Developer will establish a company based in Hong Kong. This HK Company will acquire special “Golden Shares” in the company that holds the project land, and the building. Consequently the HK Company will hold equity and voting rights in the “Lessor” company through these shares. Each purchaser in Nautilus will acquire a number of shares in the HK Company and will therefore acquire indirect equity in the Lessor company. This means that apartment owners will therefore acquire control/protection in the Lessor company over their lease renewal rights. Buyers in Nautilus Apartments take control of their legal interests through the HK Company, resulting in secure ownership with minimised transaction costs.
On investing in Nautilus the buyer will acquire:
• a registered and secure lease over the apartment for 30 years, in addition to protected lease renewal rights for a further ninety (90) years
• Shares in the HK Company.
Protected Leasehold Structure
Current Thai law only permits a residential lease to be registered for thirty (30) years, however it is possible to obtain contractual lease renewal options for further thirty (30) year terms. These lease renewal options, being contractual rights only and which are not registered at the Land Office, can create potential problems, for example, in the event of the death of the Lessor, or if the Lessor sells it’s interest in the apartments. It is important, therefore, that in addition to acquiring a registered lease, the purchaser also acquires an interest in the Lessor company to ensure the Lessor company honours its lease renewal obligations.
Using this structure, the purchaser acquires a registered lease over the unit in addition to contractual renewal rights. The purchaser also acquires an indirect interest in the land-owning “Lessor” company through the acquisition of shares in the foreign registered company, which owns equity in the Lessor company.
Using a foreign company has several benefits:
- it limits the required number of Thai investors in the Lessor company. Note that a Thai company must have more Thai shareholders than foreign shareholders. In the context of a residential development, there may be several foreign buyers. If each buyer were to acquire shares directly in the Thai Lessor company, that company would be required to source a greater number of Thai shareholders than there were foreigners, e.g. for 10 foreign buyers there would need to be 11 Thai shareholders. Given the law against using Thai “nominee” shareholders, it is difficult to source this number of Thai investors in any particular project. Therefore, instead of investing directly in the Thai Lessor company, it is recommended that foreign buyers acquire shares in a designated foreign company. That foreign company can then be the sole foreign shareholder of, and acquire “Golden Shares” in the Thai Lessor company.
- these so called "Golden Shares" acquired by the foreign company in the Thai Lessor company may take several forms, e.g as shares carrying additional voting rights, such as ten votes per one share, or in the form of negative veto rights. The former is self-explanatory and the latter effectively prevents the Lessor company from entering into any significant legal acts or transactions without the positive written consent of the “Golden Shareholders”. Effectively this means that purchasers can collectively block any decisions adverse to their interests and assists in securing lease renewal rights.
As a result, the protected leasehold structure provides a thirty (30) year registered lease with subsequent lease renewal options. The lease renewal options are secured for buyers by the “Golden Shares”, held indirectly through the foreign company.