Freehold, Leasehold, Key Money: What Is It All About?

If you are considering starting or buying a business in Thailand, understanding the property market’s terminology and regulations is essential. Here’s a deep dive into the key concepts of freehold, leasehold, and key money, and how they impact business operations in Thailand.

Understanding Freehold Ownership in Thailand

Thai law prevents land or commercial property from being sold to foreigners in order to protect the rights of its citizens. Therefore, in order to purchase commercial property, business owners need to set up a Thai ltd company with majority Thai ownership. 

One of the first things to confirm when purchasing commercial property in Thailand, is the availability of the Chanot. The Chanot is a document which states the true owner of the property, the size of the property,, characteristics, layout, purchase and leasehold history. It is not unlike a title deed in other countries. If the vendor cannot produce the Chanot, you should proceed with caution as the property may not legally belong to them or have other issues. 

If the Chanot has not been issued, then the legal owner should have a Certificate of Use, bear in mind that this certificate is only issued when a Chanot cannot be issued so it is necessary to find out the reason behind this certificate being issued instead of a Chanot.

It is strongly recommended to take legal advice when considering any property purchase in Thailand, whether commercial or domestic. 

How does Commercial Leasehold work in Thailand?

Leasehold properties provide an alternative to freehold ownership, and are especially appealing to foreign entrepreneurs. In Thailand, foreigners can secure lease agreements typically up to 30 years, with options to renew. This arrangement is particularly advantageous for business operations as it involves lower upfront costs compared to freehold purchasing, and leases can often be structured to include multiple renewal options, ensuring long-term stability for businesses.

Lease agreements in Thailand are legally binding contracts that must be registered with the relevant government office if the lease term exceeds three years. For business owners, securing a leasehold property can be a strategic move, especially in prime commercial areas where purchasing freehold may not be feasible due to high costs or legal restrictions.

Leasehold is the most common way for foreigners and even Thai businesses to acquire commercial property. 

What is Key Money in Thailand?

Key money is a concept not widely used outside of Asia but is prevalent in Thailand’s commercial real estate market. It is an upfront payment made to secure a lease, typically in highly competitive areas. Key money does not equate to a deposit; it is a non-refundable payment that grants the lessee the right to rent the property. The cost can vary significantly depending on the property's location and the terms negotiated between the lessee and the landlord.

Key money can represent a substantial financial commitment, so it's crucial for business owners to weigh this cost against the strategic value of the location. Businesses often consider key money as part of their initial investment in entering a new market or expanding their presence.

Legal Considerations

Navigating the property market in Thailand involves complex legal considerations, particularly for foreigners. The differences in property laws can present challenges, such as understanding the nuances of Thai real estate law, which may include specific restrictions and obligations that are not commonplace in other countries.

It is advisable for foreign investors to engage with local legal experts who specialise in real estate. Legal professionals can provide invaluable guidance on the specifics of property purchases, lease agreements, and the implications of key money. They ensure compliance with Thai law and help secure the best possible terms in property agreements.

Strategic Implications for Business Owners

Choosing the right type of property ownership or lease can have significant strategic implications for a business. For instance, a freehold property might be preferable for businesses looking for a permanent headquarters or long-term stability in the Thai market. On the other hand, a leasehold might be more suitable for new entrants testing the market or those who prefer not to tie up capital in real estate.

Additionally, the decision between paying key money for a prime location versus opting for a less costly area without such fees should align with the business’s operational strategy and customer access needs.

In conclusion, whether opting for freehold, leasehold, or navigating the complexities of key money, foreign business owners in Thailand must undertake thorough due diligence. Understanding these elements not only aids in making informed decisions but also aligns business strategies with the unique aspects of the Thai market. 

Engaging with local experts and considering the long-term implications of each option will provide a solid foundation for successful business operations in Thailand.