FROM MAY 1, onwards, residential property leasing became a “contract-regulated business”.
This means lessors need to check their agreements fully comply with the criteria in the Committee on Contracts’ notification.
Making those checks isn’t easy, especially for the commercial terms and conditions. But this article will give you an outline of the major changes and how they could affect your property lease business.
To what extent does the non-compliance affect business operators?
Lessors should ensure that the agreements contain mandatory provisions and do not include any prohibited provisions. Non-compliance will lead to the limit of force and effect of the agreement as well as punishment of imprisonment and a fine of up to Bt100,000 being imposed on the company, directors and responsbile persons in the case of juristic lessors, or directly to the individual lessors/owners.
Specifically, the provisions are different from those specified by law will be interpreted to have the same force and effect as those specified by law and prohibited provisions will not be legally enforceable.
Who does the notification apply to?
Companies or individuals with a residential property lease business that leases or subleases five or more property units to individual tenants. Property types include houses, condominiums, apartments and other units used for residential purposes. It doesn’t include dormitories and hotels. This notification has no retrospective effect, so only agreements made on or after May 1 are affected.
For an agreement to meet the new criteria it must be made in Thai and in duplicate. It also has to include at least the following items:
l Details of the business operator, tenant and the leased property.
l The term of the lease, the start date and the end date.
l The rental rate showing the method used to calculate the rent and payment due date.
l The public utility fee rates, showing the method used to calculate them and the payment due date.
l Service expense rates and any other expenses rates, showing the method used to calculate and the payment due date.
l The security deposit amount.
l Specific obligations of the lessor and the rights of the lessee, eg advance invoices, return of the security deposit, right of lessee to terminate the agreement, conditions of material breach of agreement, and handover of the signed agreement.
l Lessors need to also be aware of the prohibitions, limitations and waivers that need to be covered in the agreement. Some of these are:
l Waiver or limitation of the business operator’s liabilities arising from breach of agreement or tort.
l Limitations to the business operator’s commercial rights, eg to collect advance rent, to change the rental rates, to confiscate prepaid rent or security deposit, to overcharge for utility services, and to receive a contract renewal fee.
l Limitations to the business operator’s rights relating to operations and claiming of compensation, eg to inspect the premises without prior notification, remove and seize the tenant’s property if the tenant fails to pay rent, to terminate the lease without reasonable grounds, oblige the tenant to be liable for normal wear and tear, or damage not attributable to the fault of the tenant.
What do the changes mean for property lease businesses?
The changes may increase risks and decrease profits. From now on, lessors would be right to be more cautious when selecting tenants since their options for dealing with defaulting tenants have been limited. It’s possible the one-month security deposit won’t cover damage by a reckless tenant.
As lessors can no longer collect utility charges exceeding their actual cost this will lead to a decline in profits. Some business operators may decide to increase rent to make up for this shortfall but this will lead to more land and house taxes.
It’s possible that, in the course of business, lessors will notice other indirect impacts of the changes. It’s important to be observant and to keep track of your tenants and profits so that you will not be severely affected by the change of the law.
Contributed by VUNNIPA RUAMRANGSRI, Partner and ANUWAT NGAMPRASERTKUL, direcor, PwC Tax & Legal, Thailand.