The royal Thai government gazette issued on the 16th February 2018 created a wide panic among condominium owners who rent out their assets, condominium developers, and apartment operators across the country.
The gazette unveiled the government’s plan to enact a new law that will turn residential leasing into a contract-controlled business from the 1st of May 2018. While it is apparent that lessees of residential property would be better protected from unfair contract terms, landlords are questioning if the new law would make it more difficult for them to handle bad tenants. In addition, developers are worried that the new law may scare off investors who are looking for an opportunity to buy a condo unit to rent out.
Our April edition provided an overview of the provisions of this legislation. As a follow-up, one of the country’s largest international property services firms, JLL, has provided a review of the implications of this significant change in leasing requirements from a property agent perspective.
First and foremost, it should be clear that the new law will affect only individual investors or business entities that lease at least five property units in one building or more to individuals for residential use. Property types to be covered by the new law are not limited to condominiums and apartments but also houses and other property types that are leased for residential use, except dormitories and hotels that are subject to separate laws.
Among many requirements/restrictions by the new law, there are three provisions that are widely discussed among lessors as well as property agents and condominium developers.
1. The lessor will be prohibited to ask for any more than just one month’s rent deposit and one month’s security deposit. Deposits are taken as security for the tenants’ liabilities in respect of rent and damage to the property as well as unpaid utility bills. At present, lessors typically ask for a rent deposit and a security deposit, equivalent to two months’ rent and one month’s rent, respectively. A deposit of one month’s rent should suffice to assure the landlord will receive the final month’s rent when the lessee vacates at the end of the lease contract. However, there are cases where lessees fail to pay rent for more than one month or, in fewer cases, fail to move out and pay rent after the leasing contract expires.
2. The lessee has the right to terminate the lease agreement prior to contract expiry, but must notify the lessor at least 30 days before the intended termination date. The new law should provide better clarity to lessors, some of whom misunderstand that the lessee has no right to terminate the contract prior to lease expiry and thus confiscate the rent and security deposits in case of early lease termination.
3. The lessor is prohibited to stipulate electricity and water charge rates exceeding the rates applied by the main utility providers. This new requirement should be most welcomed by lessees, particularly in apartments where many operators have their own utility charge rates that vary from operator to operator. In most condominium buildings, and some apartments, the rate of utility charge can be set by an agreement between the co-owners and the juristic person committee if the meters are not supplied directly by the utility provider. The new regulatory requirement should help create more transparency on utility charges to the lessee. There are a number of other restrictions or requirements that worry the lessors and on which JLL declines to provide an opinion and leaves them to law specialists to comment.
Implications for Real Estate
For lessees, the new law has been designed to provide greater protection and consequently the confidence that should help accelerate lease decision and the transaction process. The new law is not expected to scare off investors who are looking for opportunities to purchase residential property in Thailand for rental returns. On the other hand, investors should have a greater comfort, realising that definitive guides to lease arrangements will be put in place.
As lessees will be better protected, lessors are expected to adopt a more cautious approach in screening prospective tenants as well as agents that introduce them. There will be a need for juristic persons and property managers to understand the changes in the law as it is usually the property managers who are asked questions from co-owners and tenants alike. Having said that, it must be made clear that neither juristic persons nor property managers are responsible for the governance of leases that are a contractual agreement between the owner of the property and the relevant tenant thereof. Hiring or consulting with a qualified legal firm if there are any doubts about the new law or lease agreement is recommended. Any lessor or lessee however must still adhere to any articles of association or registered rules and regulations of a condominium. It is also advisable that both parties should be aware of these rules and regulations when they enter into an agreement.