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What happens to your long lease when you die?

Bangkok Post/By James Finch and Nilobon Tangprasit Aug 9, 2009

Part I: How to prepare for the problem

Many foreigners in Thailand have built houses on leased land, because under Thai law only Thai citizens and Thai companies can own land. Also, some foreigners live in condominiums on a long-lease basis because only 49% of the usable space in a condo building can be owned by foreigners, and this may already have been taken at the time a foreign buyer acquires his or her interest. In other cases the developer may have wanted to save the 49% for later buyers, because freehold condos are easier to sell than leased ones. And foreign customers are not always aware that they can own condominiums rather than just lease.

What happens to one of these leases if the tenant dies, however, and what’s the best way to make sure the tenant is protected?

Under Section 1600 of the Civil and Commercial Code of Thailand, certain rights are not automatically contained in the estate of someone who has died; they are purely personal to him or her. The rights of a tenant are an example of such a purely personal asset. Thus the Thai Supreme Court has ruled that if a tenant dies during the term of his or her lease, and the lease does not provide otherwise, the tenants rights are extinguished. If there’s only one tenant, these rights revert to the landlord (Supreme Court decision No 100/2531).

Here’s an example of how this would work. Let’s say you are the sole lessee of land from a developer for 30 years, and the developer built a house on it for you. Most leases with foreigners in Thailand make no provision for the tenant’s death, so let’s say your lease doesn’t. You die after two years of the lease of elapsed. What happens?

The lease goes back to the landlord.

Unfair? Maybe, but that’s the law.

How do you prevent this from happening? There are two answers.

First, Section 544 of the Civil and Commercial Code provides that a lease may be assigned to another person if the lease itself contains a provision that it may be assigned. Of course, agreeing to assignment between living people is not exactly the same as agreeing that an interest may go to an estate. And this issue has not been decided by the Supreme Court. Most legal commentators believe, however, that if the lease contains a provision giving the rights under the lease to the tenant’s heirs, if the tenant dies during the term of the lease, that this would be upheld in court.

And that’s step one – make sure your lease contains language to the effect that your heirs succeed to the lease if you die during its term.

Second, have more than one person sign as tenant. The Supreme Court has ruled that if there is more than one tenant, the death of one of them doesn’t terminate the lease. What is terminated is that mentioned above – the rights of the tenant who has died. This is because these rights are purely personal and don’t automatically become part of the deceased’s estate. The other tenant still has their own personal rights in the lease and can continue on with it.

So step two is that you should have more than one tenant.

People always ask us which of the above options is better. In fact, you should have both, to make sure the lease is not lost.

The above is the short version of answers to some common questions on the issue of long leases and estates. In the near future we will ho into more depth on these questions and long-term solutions.

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