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Friday 29 December 2006

Buying a business in Thailand

I am still amazed at the number of people who think that running a business in Thailand is going to be easy – in particular in the entertainment and hospitality industry. We get enquiries from people looking for a beer bar at the one end of the scale to a full scale resort at the other. The former we do not deal with nevertheless we still get young men in particular who walk through our door looking for a bar to buy with their latest girlfriend. She will run it and he will sit back and take the profits, drink and have a good time with his mates. I send them on their way with the names of a couple of bar owners I know who may be able to advise them of the pitfalls they will encounter. A few heed the warnings, but many do not and end up losing a significant amount of their savings. Those that get through the first couple of years discover that sitting at a bar seven days a week with no time off is not the same as sitting at the bar for your two week annual holiday. And if you are not there all the time you will get ripped off big time.

Moving up market to Pubs and Restaurants, there are many people who want a change of lifestyle, about to retire but want something to do. A Pub or Restaurant seems a good idea. Without experience they are going to have a problem and many have no idea of how the economics of these businesses work or how they can assess the potential revenue they can achieve and consequently the price they should pay. Few businesses will open their books to you and you have to be wary of how accurate the figures produced actually are. I treat revenue figures with a great deal of caution. I am much more interested in the running costs and in particular the cost of supplies. If the owner buys ten cases of beer a week on a regular basis then it is likely that he sells ten cases on a regular basis.

The next major hurdle we face is the changes that will be made to the Foreign Business Act which should be announced soon. The old multi class shareholdings may be on the way out and control will based on voting rights, not shareholdings. As a foreigner you can only own 49% of the shares in your business and so can be out voted by the majority Thai shareholders. This surely will have a negative effect on anyone considering investing in a business here for the first time. It will be interesting to see what new angles the Thai Lawyers come up with to deal with this one.

Wednesday 13 December 2006

Buying a house on Koh Samui

I would estimate that the majority of sales we achieve are for properties different to that which the purchaser first told us they were looking for. It is a recurring theme that when you show them what they first described as being their ideal they say that is not what they are looking for. I believe this is for two main reasons.

Firstly, they do not really know what the want but have to say something to start the ball rolling and it is only when you sit in the car driving round and actually inspecting houses that their true hot and cold spots become apparent and eventually you can start to show them properties suitable for them.

Secondly, they know exactly what it is they want, but it is simply not available. Then they have a choice – compromise or build to suit. So in this instance they will buy a property which is not in their original brief or they will acquire land which also was not what they originally intended.

Either way I constantly tell my staff to look for the signs that indicate which type of client they are dealing with so that we do not waste their time and we identify quickly what they really will buy.

Monday 4 December 2006

Koh Samui - Supreme Court ruling on renewal of lease

I came across an interesting Supreme Court Opinion during the month which, whilst in itself is not directly relevant to our concerns over Lease Options, did give an insight into the way the Supreme Court might go. The basic case involved a contract of hire for fifteen years of a building and the owner had agreed with the tenant in the contract that at the end of the fifteen years he would renew the contract of hire every 3 years. Unfortunately a year before the end of the fifteen years the owner died. His successors did not want to renew the contract and consequently the matter ended in the courts. The Supreme Court held that the right to a new Contract of Hire was a promise only and did not in itself make a new Contract of Hire come into place. The reasoning behind this decision appears to be that the promise was an offer made by the owner, but which at the time of his death had not been accepted by the tenant, therefore in basic contract law of offer and acceptance, no contract existed and the tenants had to leave.

The implication as I read it is that if there had been offer and acceptance, a contract would have existed and the Supreme Court would have enforced it. Therefore if I look at this from the point of view of an option after a 30 year lease it seems likely that if a proper contract for renewal exists including all the terms for renewal including consideration, then the Supreme Court would probably enforce it. The argument in Thailand is always about registration and that a lease can only be registered for 30 years and that therefore is the maximum enforceable term. If my interpretation of the above case is correct it seems to me that there is a good chance that correctly formed options would be enforceable in the courts. Of course very few leases have reached anything like 30 years and therefore the test in the Courts is a long way away.

This is of course just my opinion extrapolated from a decision which in this case went against the tenant, but I do see some logic in the argument and how it might be applied in other cases.

Meanwhile we await the Interim Governments pronouncement on how they intend approaching the problem of Foreign Ownership in Thailand, although I doubt we will hear much on this before the New Year.