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Phuket court rules 'secured' or 'collective' leases are void

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Phuket court rules 'secured' or 'collective' leases are void
The Phuket News

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The terms may look tempting, but will the courts agree?

PHUKET: -- In a shock decision by the Phuket Civil Court, backed by the Region 8 Appellate Court, it has been ruled that the so-called “secured leases” offered by some real estate developers to allow foreigners to secure a cast-iron 90-year lease are not valid.

The case is now to go to the Supreme Court.

The Phuket News’ legal correspondent, Jerrold Kippen, has revealed that not only has the structure been ruled invalid but the courts’ decision may mean that the original underlying 30-year lease, even if registered with the Land Office, is now void – it never existed, leaving the buyer with two handfuls of nothing.

Mr Kippen explained, “As a general rule foreigners cannot own land and apartment units but it is possible for foreigners to lease them and that is the reason why these are commonly marketed to foreign buyers on a leasehold basis.

“Under Thai law the maximum lease term is 30 years, which may be renewed upon expiration of that term.

“The leases marketed to foreigners typically provide for an initial 30-year term plus two additional successive 30-year renewal terms.

“However, the renewal of a lease in Thailand is by no means assured even if it is provided for in the original lease agreement.”

He explained that in order to overcome this issue the “Secured” or “Collective” Lease was devised and marketed to foreigners. This is meant to ensure that the lease is renewed, twice, as originally agreed.

The way this “security” is supposedly provided is by the buyer not only entering into a lease agreement with the Thai company that owns the developer’s land/apartment, but also entering into a share-sale-and-purchase agreement for shares that control the Thai company that owns the developer’s land/apartment.

Now, however, two Thai courts have concluded that the “Secured” Lease is “void” as a matter of law.

A contract that is found to be void is considered never to have existed.

If other courts confirm these two courts’ opinions, then not only will any renewal term of “Secured” Leases be invalid but also the current lease terms.

“This would be the case regardless of whether such a lease was already registered,” Mr Kippen said.

“Why? Because a finding that a lease is void means that it never legally existed and, therefore, as far as the law is concerned, a void lease cannot be, nor ever could have been, registered.

“Even if the legally void lease went through the Land Office formalities of registration, with registration fees paid, papers signed and stamped by the land officials, it simply does not change the legal non-existence of the void lease because, legally, nothing happened by such acts.”

In the test case now headed for the Supreme Court, the buyers entered into the project’s “Secured” Lease structure. Leases, in this case for apartments, were registered several years ago.

The lessees filed a civil case against the developer of the project in the Civil Court to protect their leasehold rights. Neither the buyers nor the developer argued that the leases were not valid.

Quite the contrary: they both relied on provisions of the leases to support their respective arguments.

However, the court decided on its own that the leases – when considered in light of the share-sale-and-purchase agreement for the shares that control the Thai company that owns the developer’s land/apartments – were actually fictitious agreements made to conceal what the parties had actually agreed: to sell and buy the relevant real estate.

“Section 155 of the Civil and Commercial Code of Thailand (CCC) provides that if two parties enter a fictitious agreement in order to conceal their real agreement, the fictitious agreement is void.

“It goes on to state that although the fictitious agreement is void, the hidden agreement that the parties actually made must then be evaluated under the provisions applicable to it,” Mr Kippen explained.

“In this case, the courts ruled that the parties had entered into fictitious lease agreements through the “Secured” Lease structure and had done so in order to hide their actual agreement to sell and buy the properties.”

The court, he said, decided this meant that the leases were void and that the provisions of Section 456 of the CCC applied to the “real” sale and purchase agreements.

Section 456 provides, in pertinent part, that “a sale of immovable property is void unless it is made in writing and registered by the competent official.”

The court then concluded that since these sales were not made in writing nor registered with the competent official, they too were void.

This ruling, by a sole trial court judge, was then appealed to a three-judge appeal court panel. The Appellate Court confirmed the trial court’s decision on the very same factual and legal grounds as the trial court outlined above:

- The “Secured” Leases with their lease-plus-share-sale-purchase agreements were fictitious agreements meant to conceal actual sale-and-purchase agreements for the real estate; thus

- The leases and share-sale-purchase agreements were void; as were

- The actual concealed real estate sale-and-purchase agreements because they were not made in writing or registered with the competent official.

“Taking these new decisions into account the “Secured” Lease not only does little if anything to address the very real insecurity that your long-term lease will not be renewed, but it also could have the disastrous consequence that your current lease could be considered legally void,” Mr Kippen said.

“And according to these courts’ analysis, anyone who has already invested or is considering investing in such a structure is facing the immediate loss of the investment.”

The good news, he said, is that secured leases can be restructured to provide actual long-term lease security legally and without any downside to the developer by securing the pre-paid renewal terms with a mortgage over the land involved.

“It is a simple and straightforward legal structure that provides security for the investor. A current ‘Secured’ Lease can be restructured into this better and genuinely secure alternative, before it is too late.

“As always,” he added, “you should engage competent legal and tax counsel in order to implement this mortgage-based security structure successfully.”

Source: http://www.thephuketnews.com/phuket-court-rules-secured-or-collective-leases-are-void-51183.php

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-- Phuket News 2015-02-27

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And why is this 'news'? Only the seriously stupid fell for this.

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And why is this 'news'? Only the seriously stupid fell for this.

There must be a lot of seriously stupid people then.

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So all those who "bought" the 90 year lease now need to change it to the legal 30 year lease? That's the way I read the last couple of paragraphs, but I wonder how many original developers and sellers will just make a new lease contract without consideration?

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And why is this 'news'? Only the seriously stupid fell for this.

There must be a lot of seriously stupid people then.

Oh believe me, there are. A cursory glance through any expat forum will confirm this.

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And why is this 'news'? Only the seriously stupid fell for this.

There must be a lot of seriously stupid people then.

They do indeed exist. Many many years back there was the case of a farang who agreed to 'temporarily' transfer his 49% share in a Thai company to his farang lawyer (office here in Thailand) so that the lawyer could use his lawyer status to maybe get a loan but with no guarantee and nothing documented and no witnesses. The said farang was my neighbor at the time, he had originally set up the Thai company to buy / gain control over a big piece of land and the expensive house on the land.

He did indeed effect the share transfer then of course the lawyer insisted it was a gift for past services. The case went to court, the judge decided the case within 5 minutes, the original farang lost.

Why? Simple, the original farang agreed that it was his signature on the share transfer documents and he agreed that he had not been harassed or coerced or whatever into signing. And he also had no evidence whatever that he was due any consideration (payment etc.) for the shares.

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Quote

"“It is a simple and straightforward legal structure that provides security for the investor. A current ‘Secured’ Lease can be restructured into this better and genuinely secure alternative, before it is too late.

“As always,” he added, “you should engage competent legal and tax counsel in order to implement this mortgage-based security structure successfully.”"
end quote
Any chance the lawyers said that before?
Any chance the lawyers that did the original deal are liable?
Any chance if you did a new "genuinely secure alternative" and a future court rules it bogus the lawyer would be liable? Please find me a lawyer that puts the value of the deal in a bond payable to the customer if it all goes tits up.

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And why is this 'news'? Only the seriously stupid fell for this.

There must be a lot of seriously stupid people then.

God loves stupid people. That's why he made so many of them. biggrin.png

David

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The whole issue stinks of serious corruption. If indeed the land was sold to the buyer from a corporation, which should know Thai law and a profit was made then there should be compensation from the seller to the buyer that was duped. In most democracies there are numerous consumer protection laws that would make the seller responsible. But alas this is Thailand and probably little consumer protection. Hope the homeowners the best.

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Well I've said it before ... You'd have to be a complete and utter moron to buy property in Thailand. Who in their right mind would think about handing over 51% of their assets to what is little more than a nation of thieves?

It's a shame the UK, US and EU countries don't apply the same rules to Thais but of course we understand the importance of foreign investment and we also know that they can't dig it up and take it with them.

The other issue has for many years been pricing; in most cases the property market especially in areas such as Phuket, are so over the top it beggars belief anyone would think they are buying a home / villa or apartment of good investment value.

I honestly cannot understand how anyone could be stupid enough to buy property in Thailand ... there again the Nigerian 419 Scam continues to catch the very stupid and greedy and I can only conclude that the expats who brought property in Thailand fall into both categories.

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And why is this 'news'? Only the seriously stupid fell for this.

There must be a lot of seriously stupid people then.

Oh yes!

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And why is this 'news'? Only the seriously stupid fell for this.

My Cardinal rule never buy/lease property here even a condo. Rent a month at a time. The rules here on property are like the movie 50 Shades of Grey.

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Well I've said it before ... You'd have to be a complete and utter moron to buy property in Thailand. Who in their right mind would think about handing over 51% of their assets to what is little more than a nation of thieves?

It's a shame the UK, US and EU countries don't apply the same rules to Thais but of course we understand the importance of foreign investment and we also know that they can't dig it up and take it with them.

The other issue has for many years been pricing; in most cases the property market especially in areas such as Phuket, are so over the top it beggars belief anyone would think they are buying a home / villa or apartment of good investment value.

I honestly cannot understand how anyone could be stupid enough to buy property in Thailand ... there again the Nigerian 419 Scam continues to catch the very stupid and greedy and I can only conclude that the expats who brought property in Thailand fall into both categories.



It depends when you bought, what the exchange rate was when you bought, where you bought and if the asset was in your name.

I have done very well out of it overall.

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This is not new. Some have been predicting this for years. Now that it's finally happened though I feel sad.

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