This is a very specialised post and geared entirely to the expat looking to buy land here and build. For others it might be interesting just to see how things work in Thailand compared to the process back home, wherever that might be.
The reason I have added this subject as a stand alone post is that the information contained within it is absolutely vital for any farang in a relationship with a Thai person who wants to gain security over their investment in some land and a house here. In the majority of situations it is the farang that is making the major if not total financial investment in building a home and while houses are pretty secure in the long term, relationships aren’t!
The base reason for this type of security is quite simple. Foreigners CANNOT OWN LAND IN THAILAND. There are exceptions but are so extreme that it will never apply to you and me. Land can only be owned by a Thai so when “you” buy a block of land you aren’t. You are buying your Thai partner the land and crossing fingers, hoping to hell, trusting in good luck etc etc that the relationship holds together and you aren’t on the street anytime soon.
Usufruct takes a lot of this worry out of the equation so please read and understand this article and apply it. If your partner doesn’t like the idea tough. If like me you are retired in Thailand the capital you have is probably irreplaceable. This is a once only chance to secure your future so don’t blow it on the excitement of an early romance (if that is what it is) or even a longer term relationship.
My strongest advice is when buying land in Thailand you should AT THIS POINT then register your usufruct as well as registering the transfer of title. If you don’t you are offering yourself up to be included on the list of “Disaster in Thailand” stories, and there are plenty of those. In the next village to ours a farang broke up with his Thai partner and then literally bulldozed the house to stop her getting control of it. True story. Extreme I know but he obviously didn’t have a usufruct contract in place!
Building in Thailand – STEP 1 Only buy land with a Chanote title, STEP 2 Register a Usufruct.
Finally I can reassure you that, certainly in my case, the usufruct documentation was simple and very inexpensive to obtain. Registration was super simple at the local land office and the cost marginal. This is a standard option in Thailand not some dodgy set up a Thai company with directors you’ve never met option! It should be standard practice at your land office to register unless you are totally in the sticks.
Let me quickly add that the following words aren’t mine. I have extracted them from an article published by an Australian lawyer based in Chiang Mai called Joe Lynch. He has a range of very useful topics on his Facebook site, which you can find HERE. Joe has given his permission for me to publish this.
Usufructs in Thailand – a trust by any other name
Foreigners are forbidden from owning land in Thailand by the Thai Land Code. There are number of exceptions to this rule (eg: investment of 40 million baht, BOI approval). Notwithstanding the rule against foreign land ownership there are ways in which a foreigner can secure the right to occupy land and/or houses for a significant term or for the foreigner’s life. A Usufruct agreement can secure the right to possess and enjoy a property without being the full owner. And it is entirely legal.
A Usufruct is a real property or real estate right that originates from Roman law. Under Roman Law a wife had very limited rights to own property and, in particular, real estate owned by her husband. To remove this injustice the right of usufruct was created under Roman law. A usufruct interest gave the wife of a Roman citizen the right to occupy real estate during her lifetime and typically the property would then pass to their children. The concept of a usufruct interest has been adopted under the Thai Civil and Commercial Code.
What Is a Usufruct Agreement?
The word Usufruct comes from the Latin words “usus” (meaning the use or possession of) and “fructus” (meaning fruit). So it can be seen that a Usufruct gives the person holding that interest (called a usufructuary) the right to use and occupy the house and/or land for the term of the Usufruct or for the life of the usufructuary. If you think that sounds like what is called a trust in Western law and your right. The Usufruct is nothing more or less than a limited trust.
Usufruct contracts are governed by sections 1417 to 1428 of the CCCT. A Usufruct is a right granted by the owner(s) of the land/house in favour of a Usufructuary in which this person has the right to possess, use and enjoy the benefits of immovable property (section 1417 CCCT). The Usufructuary also has the right to manage the property (sect 1414 CCCT). It can be on a piece of land, on a house or on both of them.
Besides possession and enjoyment of the property, the Usufructuary has also the legal right to use and derive benefits from the property that belongs to another person, as long as the property is not damaged. “Fruit” should be understood not only in its natural meaning (fruits, livestock, etc) but also its legal meaning (rent, etc.).
Section 148 of TCCCT defines what can be the legal fruits in Thailand: “Legal fruits denote a thing or interest obtained periodically by the owner from another person for the use of the thing; it is calculated and may be acquired day by day or according to a period of time fixed.”
So if you have a Thai wife or girlfriend she can buy a parcel of land and grant to you a usufruct interest in the land for free. You then have the right to enjoy the use of the property. You can require her to leave the property. You can lease the property and receive the rents. A Usufruct can be for a specified term, of up to 30 years or it can be for the life of the usufructuary but terminates on his death. But the term of the life interest is NOT restricted to a 30 years maximum. In addition if you decide to build on this land, it is possible for you be the full owner of the buildings and constructions. A usufruct interest is a very valuable and strong property right.
In Thailand, a Usufruct can be created for a limited time (5 years, 10 years, etc.) or the life of the Usufructuary (see Section 1418 TCCCT). If no time has been fixed, it is presumed that the Usufruct is for the life of the Usufructuary. In such a case, the Usufruct ends at the death of the Usufructuary.
The Usufructuary can Lease the Land/house
A Usufructuary has the right to enjoy, use and possess the land. He/she is acting like the real owner but cannot sell or destroy the property as he/she is NOT the full owner. However, he/she can transfer rights on the land/house to a third party. Even if the Usufruct will end at the death of the Usufructuary (or a fixed period of time), the Usufructuary can lease the land to a third party and this second agreement will NOT end when the Usufructuary dies as determined in Supreme Court ruling 2297/1998: “the lessor does not have to be the owner of the property”. In this way, the Usufructuary can grant a thirty year lease to a third party. In this way, you could pass on your rights to your children or other relatives even after death if the lease was entered into before death. Do not forget that all leases over 3 years must be registered at the Land Office and taxes have to be paid.
By decision of the Supreme Court of Thailand, all Usufruct agreements must be registered to be valid (Supreme Court decisions 6872/2539). Once registered at the Land Office where the title deed is located, the Usufructuary’s interest will be recorded on the title. After registration, the land/house can only be sold provided the buyer respects this Usufruct. This is why it will be difficult for the owner to sell the land/house after a Usufruct is registered as nobody wants to buy a property in which they could not live. But be aware that Land Offices in Thailand have different rules and requirements. Most Land Offices will ask to see the usufructuary’s passport and visa. A translation of the passport might also be requested. They will also ask the usufructuary to provide his/her father’s and mother’s name. Some Land Offices will only register a usufruct between married couples even though the law does not require the parties to be married.
The land (title deed) must unencumbered in order to register a usufruct. That means a usufruct cannot be registered on land that is mortgaged. The mortgage needs to be discharged or the Usufruct registered after discharge of the mortgage. Bear in mind however that it may not be binding in the meantime against third parties.
Copyright . All rights reserved
Contact Joe for more specific advice at: [email protected]
Specialist Australian Family Lawyer, Consultant Lawyer with Lanna Lawyers in Chiang Mai, Thailand and Lewis and Bollard Migration Lawyers in Sydney, Australia. Experienced in Thai law for expats, surrogacy law in both Australia and Thailand and property law, wills and estates, estate planning and business law in Thailand.
Thanks for reading.
P.S. I am not an expert in Thai law or Usufruct so all I can do is tell you what worked for me. If you want professional advice then please contact Joe.