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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.


Paul said...

Nice article Harry. A your supreme court ruling was a good find and you put together an intersting analysis. I am curious how you came across the ruling . . .

In addition, would you care to comment on the current challenges facing Samui's poperty market and how you see it going in the future?

Harry said...

Thank you for the comment Paul – it is gratifying to know that the blog does get read at least!

I spend a great deal of time researching all aspects of the Thai legal system essentially through the Web and this particular ruling was found on a legal site and of course was only a summary so I did not get the full text.

With regard to the future property market on Koh Samui, I am optimistic although I think it will take a few more months for things to shake out and return to normal. As I have stated before, much depends on the way the government moves with regard to foreign ownership, and not just of land but all foreign investment. They promised a statement of intent which we expect early in the New Year and then I think things will become clearer.

Even if we stick with the present situation a long leasehold with options is the way to go for the time being. If they completely outlaw what are now nominee shareholders then a certain amount of company restructuring will have to take place and I can envisage wholly owned Thai funds being set up for the purpose of holding land to lease to foreigners and through which lease renewals would be guaranteed within the Articles of Association. When this whole issue blew up earlier in the year my immediate reaction was that, whichever way it went, the cost of ownership in Thailand for foreigners has just gone up. And in all honestly why should it not? Too many people in my opinion want to live here at no cost and making no contribution to the environment in which they live. We would all expect to pay rates or council tax in our home country, why should we not do so here as well?

Samui has many issues facing it but they are struggling manfully to deal with them. This is visible in the drainage systems now being laid and the new undersea electrical cable due to be connected very soon. Roads are still a problem but I hear that at least they are considering completely re-laying the ring road with tarmac.

Is there too much development? Today, probably yes. I doubt there is the demand to take up all the supply in the short term. Will this have an effect on prices? Only if someone has to sell within a certain time frame and few do.