What to Expect from Thailand's New Leasing Law

June 19, 2018

All sides are expected to come to terms with the new requirements

Thailand Property | New Leasing Contract

On February 15, the Royal Gazette made an announcement that received mixed reactions from property owners, developers and operators nationwide. The government shared details about a new leasing law, set to protect lessees again unfair residential leasing contracts starting May.

The new law divided rental communities across the country. Many were concerned about handling tenants, which may become difficult after the law's enactment.

Others lamented the likely loss of investment opportunities. Condo investors planning to rent out units may find the new leasing conditions detrimental to their interests.

At present, the law is in its infancy stage and property owners are still warming up to it. However, some points may need clarification for the better understanding of lessees, lessors and property investors.

First, the new leasing law only applies to rental businesses and individual property investors that rent out at least five units in a building for residential purposes. Rental properties under this law do not only include condominiums or apartments. Houses or any other property leased for residential purposes should also comply with the new requirements.

There are separate laws for dormitories and hotels.

How the New Leasing Law Will Affect Thailand Properties

JLL, a global real estate services based in Bangkok and Phuket, zooms in on three aspects of the new law that worry lessors:

1. Lessors can collect up to one month's rent deposit and one month's security deposit – anything more is prohibited.

Deposits serve as buffer in case tenants damage the property or are unable to pay their utility bills. In addition to lessee's rental fee for the first month of moving in, most lessors require a rent deposit and a security deposit. Lessee pays a total of three months.

Under the new law, three months is excessive. One month's rent should be enough. As long as a lease contract is in place, the landlord will still receive the final month's rent upon the contract's expiration. Unfortunately, some lessees are delinquent with their rent payment. They either fail to pay their rent for months or refuse to move out even after their contract expires.

2. Lessees can terminate their lease agreement before their contract's expiry date, provided they inform their lessor a month or not less than 30 days before termination date.

The new leasing law has yet to shed some light on key issues and many lessors misunderstand. They are still under the impression that lessees have no right to terminate their contract before the expiry period. In the event of premature termination, lessors deduct from the rent and security deposits or, in some cases, confiscate them.

3. Lessors cannot impose rates beyond the rates charged by their primary.

This requirement would benefit lessees residing in properties with changing utilitly rates because lessors do not stick to one operator. If utility meters are supplied by a middleman rather than a direct provider, the law requires property owners to set an agreement with the property juristic person committee (otherwise known as the board).

This particular provision seeks to promote transparency so that utility charges will not put lessees at a disadvantage. It also encourages lessors to revisit their utility policies. They need to decide whether a middleman operator is more practical in the long-run than a direct utility provider.

Long-Term Benefits

The law stipulated more restrictions but JLL prefers to leave it to the legal experts instead of taking part in the debate.

There is by no means any intention to discourage investors or upset lessors. The law will hopefully facilitate lease transaction processes and provide clear leasing guidelines between lessors and lessees.

Both sides – renters and property owners, developers or investors – are advised to read more about the new leasing law. More awareness of the newly enacted law may lead to mutually beneficial lease contracts in the future.

Find more information about the new leasing law here.

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