Thai nominee landownership – illegal but valid
Under Thailand’s foreigner legislation, foreigners are not allowed to own land. As a consequence, the registration of a land transfer at the local land office will be rejected by the officers, if the buyer shows his non-Thai passport. The similar rules for juristic persons are not subject to this article.
A land acquisition is also not in compliance with Thai laws when the acquirer has Thai citizenship but acts as a nominee for a foreigner. This requires under Section 96 of the Land Code that “it appears that the Thai owner acts in place of a foreigner”. As a consequence, the land can be seized by the government and the Thai nominee is punished with l imprisonment not exceeding two years, or a fine, or both (Section 113 Land Code). While the Thai nominee is the offender under criminal litigation, the foreigner is his partner-in-crime (Sections 111, 86 Land Code).
As a result, the nominee investment structure becomes illegal, although it is registered. It is our legal view that the transfer of ownership is and remains legally binding and effective. Non-compliance does not result in ineffectiveness. The statement that a foreigner “can’t” acquire Thai land, is incorrect.
However, under a recent Supreme Court decision #5449/2560, a land purchase contract has be deemed as void under Section 150 CCC because its object is expressly prohibited by Section 96, 96 Land Code, stating that both clauses are relating to public order and the parties acted in bad faith.
More than a side note are the consequences of notifying the official doing oneself’s duty to make any false entry in the public or official document for the aims to be used as evidence. Under Section 267 of the Criminal Code, the offender shall be imprisoned not more than three years or fined, or both.
The nebulous definition of a nominee structure
The law does not clearly describe when “it appears that the Thai owner acts in place of a foreigner” and, therefore, a nominee structure exists. To enter into a usufruct or lease agreement with the foreigner, to grant a mortgage, or to enter into a bundle of other contracts is by itself not illegal. Additional negative aspects have to be included to fulfill the qualification as nominee ownership.
The following structures provide a dangerous foundation to assume an illegal misuse of Thai laws:
#1. Long-term use rights: The arrangement of a long-term lease or usufruct with below-market rent or usufruct price, especially without any remuneration.
#2 Financing the land: The granting of a foreigner’s loan with the purpose to finance the acquisition of the land, especially in case of the registration of a mortgage.
#3. Factual situation: An overall legal and factual arrangement which significantly reduces the landowner’s possibilities to sell, mortgage, transfer or exchange the property.
Experiences show that it is the practice of the local land offices to examine whether there is a personal relationship between the parties, especially within mixed Thai/foreign families and couples. Although this approach seems not to be logical and consistent, this risk has to be taken into consideration.
Implications of Thailand’s family laws
If a Thai spouse acquires real estate, it is the normal consequence that the land will be a marital asset, belonging to husband and wife equally, even if only one of them is registered on the land document. This is true for a Thai-Thai couple, but also for Thai-foreign spouses.
To avoid foreign fractional land ownership, the land office will request from a mixed couple a confirmation that the land will belong to the Thai wife’s personal assets and the foreigner has no rights in Thai real estate (Section 1472 CCC).
Under Thailand’s family laws, each spouse has the option to void any contract between husband and wife at any time, including one year after the divorce. However, this is a separate legal issue, although it is often improperly mixed with Thailand’s foreigner legislation.
The registration process and its consequences
Section 74 of the Land Code gives the land officer practically unlimited flexibility. If he sees a reason to believe that the Thai person is purchasing land “on behalf of” a foreigner, all parties can be interrogated and the land office has the discretion to refuse the land transfer. The same is true for other registrations, like the lease, usufruct or mortgage.
The registration can’t be qualified as final approval of a procedure to be in compliance with the laws of Thailand. Any later enforcement of the lease, the usufruct, the mortgage or any other problematic element can be the reason or occasion for a denial of the registered rights.
Under a worst-case scenario, lease, usufruct, mortgage, etc can result in the illegality of the previous land transfer. In such a case, the registration is not only illegal but may jeopardize the total property investment.
Many problematic property investment structures have not been taken up by the government for many years. This does not mean that they are future-proved in case of more precise enforcement of existing laws. It might make sense to be quicker than the authorities to avoid a total loss of the investment in the land of smile.