Commercial Lease Agreement for Businesses in Thailand

What is a commercial lease agreement?

A commercial lease agreement in Thailand are legally binding contracts that grant businesses the right to use property for commercial activities. These agreements specify the terms and conditions under which the property can be used, including the lease duration, rent, and responsibilities of both parties. Understanding the components and legal implications of these agreements is crucial for businesses to ensure they comply with Thai laws and protect their interests.

The governance of commercial lease agreements in Thailand falls under the Civil and Commercial Code (CCC) and the Lease of Immovable Property for Commercial or Industrial Purposes Act of 1999. The CCC sets forth the general principles governing leases, while the 1999 Act specifies provisions for commercial and industrial leases. Together, these regulations ensure the fairness and transparency of lease agreements, protecting the rights of both landlords and tenants.

How long is a commercial lease agreement?

In Thailand, a commercial lease agreement typically has a maximum term of 30 years, though it’s possible for parties to arrange for renewal beyond this period with precise legal drafting to ensure the agreement is enforceable. Specific legislation, such as the Eastern Economic Corridor Act and the Lease of Immovable Property for Commercial and Industrial Purposes Act, may permit extensions up to 50 years. Any lease longer than three years requires registration with the Land Office to remain enforceable after that period. Generally, commercial leases are set for three years with an option to renew, and those not exceeding three years do not need registration to enforce rights against third parties.

Before a lease starts, tenants commonly secure a rent-free period to prepare the premises. It’s important to note that any extension of the lease can only be registered after the initial term has ended, which necessitates careful planning by businesses for ongoing operations. Once a lease is up, tenants have no inherent right to stay on the property unless the landlord informally allows continued use, which would extend the lease indefinitely under the original terms, depending on the agreement between the parties.

What land and activities are eligible for this lease?

To qualify for a commercial lease agreement, a piece of land must adhere to stringent zoning and activity criteria outlined in relevant regulations. These requirements encompass various stipulations, including appropriate land use classifications and compliance with specific environmental standards.

• Approved under relevant Town Planning laws
• Located in an industrial estate managed by the Industrial Estate Authority of Thailand
• Investment of at least THB 20 million
• Eligible for promotion under the Investment Promotion Act
• Beneficial to Thailand, as endorsed by the Minister of Interior and Cabinet
• Compliance with the Foreign Business Act

For leases over 100 Rai (unit of area used in Thailand to measure land, one Rai equals 1,600 square meters), additional conditions include:

• Adding value to exports
• Supporting local employment
• Introducing unique or high-tech processes
• Providing significant economic or social benefits

What is the 3-year commercial lease agreement?

In Thailand, three-year commercial lease agreement is popular due to several practical reasons. Thai law mandates that leases exceeding three years need to be registered with the local Land Office. This registration requires disclosing rental income, which could affect tax calculations, and incurs a fee of 1.1% of the total lease value, generally split between the landlord and tenant. For extensive leases, such as those lasting 30 years, this fee can be significant. While all leases necessitate that landlords report their income, shorter, unregistered leases are subject to less scrutiny from the Revenue Department.

Landlords often favor three-year leases to bypass the registration process, sometimes offering options to renew or arranging multiple consecutive short-term leases for extended durations. Although this approach might appear beneficial, it carries risks for tenants, particularly if landlords do not fulfill renewal agreements or if conflicts occur during business sales. Registered leases offer more robust security, preserving tenant rights even when property ownership changes through sale or inheritance. This level of protection is vital, as a registered lease is included on the property title, ensuring it transfers to new owners or heirs.

What are the rentals, security deposits, and fees?

Rent for commercial lease agreement properties in Thailand involves specific arrangements between the landlord and tenant, which can vary widely:

• Fixed Rent: This remains constant throughout the lease term, aiding in predictable budgeting for tenants and providing steady income for landlords.
• Variable Rent: Linked to the tenant’s business revenue or market rate changes, this allows rent to adjust according to economic conditions or business performance.

Security deposits are crucial for protecting the landlord’s interests:

• Range: Typically one to three months’ rent, these deposits are meant to cover potential damages to the property or instances of unpaid rent.
• Conditions for Return: Clearly detailed in the lease to prevent disputes at the end of the lease term.

Tenants generally incur several additional costs:

• Maintenance Fees: Cover the upkeep of common areas and services within the building.
• Property Taxes: Often passed on to the tenant by the landlord.
• Registration Fees: For leases longer than three years, a fee (usually 1.1% of the total lease value) must be paid, typically split between the landlord and tenant.

Can you transfer and sublease a commercial lease agreement?

Transferring commercial lease agreement or subleasing by the tenant can only occur with the landlord’s prior approval. Additionally, subleasing is strictly prohibited without the landlord’s consent.It’s important to understand that if the landlord sells or transfers ownership of the leased property to another party, the lease agreement remains in effect. The new owner assumes all rights and responsibilities previously held by the original landlord and becomes the new lessor.

Can commercial lease agreements be terminated?

A commercial lease agreement can be terminated if either party breaches the terms of the agreement. When tenants breach lease terms, such as failing to pay rent, landlords are contractually entitled to terminate the lease and retain any security deposits. However, most leases include a remedy period, usually between 30 and 90 days, which was agreed upon during initial negotiations. This period allows tenants a chance to rectify any violations before eviction proceedings may begin.

On the other hand,tenants generally do not have the right to terminate the lease early on their own accord unless the landlord breaches the agreement. If the lease doesn’t specifically allow for early termination, tenants must stick to the lease terms until the end.

Understanding commercial lease agreements is vital for businesses in Thailand, as they establish the legal basis for securing commercial properties and define the responsibilities of both landlords and tenants. For expert legal guidance, it’s advisable to consult with specialists in commercial lease agreements. At Benoit and Partners, we excel in real estate law and offer services to draft and review lease agreements, ensuring they are legally robust and customized to your business needs. Contact us for assistance in navigating Thai law and safeguarding your interests throughout your lease.