Understanding Lease Agreements in Thailand
:Key Insights from the Supreme Court Ruling
Introduction
A 30-year lease with a renewal clause may seem like a standard practice in Thailand—commonly found in lease agreements provided by developers and major real estate companies. However, what many lessees, particularly foreign investors, don’t realize is that such agreements have always been illegal and unenforceable under Thai law.
Section 540 of the Civil and Commercial Code strictly limits lease terms to a maximum of 30 years, with any attempt to prearrange extensions beyond this period considered void. Despite this clear legal restriction, many lease contracts continue to include renewal clauses, misleading tenants into believing they have long-term security.
The Supreme Court ruling in Case Number 4655/2566 (2023) has reinforced this legal stance, making it clear that any lease renewal clause guaranteeing an extension beyond the initial 30 years is unenforceable. This decision serves as a critical reminder that lessees should not rely on contractual promises of automatic lease renewals, as they hold no legal protection under Thai law.
Background: The Case at a Glance
A property owner in Phuket leased out land and a house for 30 years, starting on May 10, 1990, with a payment of 1.5 million baht. A separate agreement promised an additional payment of 1.2 million baht in return for two lease extensions, totaling 60 more years.
However, when the initial 30-year lease expired in 2020, the property owner refused to recognize the extensions and demanded the lessee vacate the property. The dispute eventually reached the Supreme Court.
Key Legal Issue: Section 540 of the Civil and Commercial Code
Thai law strictly limits lease agreements to a maximum of 30 years under Section 540 of the Civil and Commercial Code, which states:
“For immovable property, it is prohibited to lease for a period exceeding thirty years. If a contract is made for a longer period, it shall be reduced to thirty years. […] When the lease period mentioned above expires, it may be renewed, but the renewal period must not exceed thirty years from the date of renewal.”
This means that any lease term exceeding 30 years is automatically reduced to 30 years. Renewals are possible, but they cannot be predetermined and contractually guaranteed beyond the initial term.
Court Rulings: What Happened?
Trial Court Decision
Initially, the lessee won. The court ruled in favor of the defendant and ordered the property owner to register a new 30-year lease starting in May 2020.
Court of Appeal Region 8 Decision
The decision was overturned. The lessee was ordered to vacate the property, dismantle structures, and pay damages.
Supreme Court Decision
The Supreme Court upheld the appeal court's ruling, confirming that:
The original lease renewal agreement was void because it circumvented the law.
The lessee's refusal to vacate was considered a tort, requiring them to pay damages (30,000 baht per month).
Lease agreements beyond 30 years cannot be enforced—even if a separate contract was signed.
A lease may be agreed and registered for only 30 years at a time, the remaining renewal duration are also unenforceable under personal obligations.
Implications for Lessees and Property Investors
1. Lease Extensions Are Not Guaranteed
Even if a contract includes an agreement to extend a lease, it will not be legally enforceable beyond the 30-year limit.
2. Upfront Payments for Future Renewals Are Risky
Paying for lease extensions in advance is not advisable, as courts may not recognize such agreements.
3. Legal Uncertainty for Long-Term Foreign Leases
Foreigners purchasing leasehold properties should be aware that leases beyond 30 years are not protected under Thai law, even if they appear to be legally drafted.
Conclusion
The Supreme Court's ruling serves as a critical reminder that Thai lease laws strictly enforce the 30-year limit on lease agreements. Anyone considering a long-term lease should carefully assess their legal position and avoid relying on agreements that attempt to bypass this rule.
There may be other legal risks and hidden clauses beyond the lease duration. To safeguard your investment and avoid costly disputes, our firm can assist in reviewing lease agreements before signing, ensuring your rights are fully protected.