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His Majesty the Contract
How to properly draw up a contract.
All you need to know before signing.
It is not an exaggeration: a contract in a liberalistic (legally speaking) country as Thailand, is a real Majesty. The law, since immemorial time, in any 'corpus lex' (body of laws), whose origins lay as far in time as the ancient Romans, literally recites: "A contract has force and effect of law between the parts". If it is true that in most western countries, this principle of 'freedom of contract' has been eroded over time by an overwhelming bureaucracy and unnumbered laws that 'de facto' limit the real "contractual freedom", in Thailand this liberty is still quite relevant. Consequently, and for this very reason, here, before signing any contracts, we should use double cautiousness.
Even though seeking professional legal advice is in most cases advisable, you can find useful the essential points here listed, to protect your interests before signing any written agreement should you choose the 'do-it-yourself' way or in case you don't trust with full confidence your legal assistant.
- make sure to clearly indicate all parts and to include a signed copy of their passports or ID cards and addresses.
- always demand to sign a contract at the presence of two witnesses and to include signed copies of 'their' documents as well.
- The parts must sign all pages of the agreement not just the last one.
- always specify all the dates, including the "limits" of time within the contract should be respected.
- Clearly specify the penalties or the consequences should one of the parts do not respected all the clauses of the contract within the agreed dates.
- Always specify as many details as you can.
- Specify the competent court in case of litigation which should preferably be the one where the contract has been signed or were the assets or activities are located.
- Try avoiding an arbitration clause. As we wrote in our last article, 'arbitration' is generally advisable to protect the interest of big corporations (usually in order to avoid never-ending court cases), but I would not suggest to private people to subscribe to such a clause for it can become a real double-edge sword (see L'Indicateur N. "Title.........). The Thai courts of Justice are more then fine to protect you and they always seek compromises and agreements before commencing a court litigation.
- remember that if a contract is written in two languages, English and Thai for example, the Thai language will prevail by law. This is, in fact, a very essential point: a contract well written in Thai, will avoid ambiguities and safe you further costs of translations, but you should always demand a certified translation in English or in the language that you understand.
- Be sure that what you are signing is not against the law for, in this case, the contract will be null. No private agreement can be made against the law.
- Avoid using pre-printed contracts. A contract is always personal and using a pre-printed one can cause you more troubles then benefits.
- In case you are asked to sign a contract proposed by a large company (for instance a condominium-developer) you would better seek the assistance of a trusted lawyer to find out if your interests are fully protected.
- always pay any sum of money with traceable methods: bank transfers or checks. Never, ever in cash!
If it is true that a well done contract is essential to protect your interests and your rights, (it is indeed a benchmark and master-pillar of any agreement), You should keep in mind that, as in all modern countries, in Thailand, the arbitrary exercise of your rights is strictly forbidden.
You must in fact always recur to a public authority, in your case the court, to see your rights enforced.
Finally remember that stop paying the sums requested or expected as specified in a contract with any excuse (for instance stop paying a rent because your landlord doesn't take good care of the garden or stop corresponding the agreed installments for the purchase of a condo or, even worse, the alimony to a wife, children etc.) such a behavior will put you in the wrong, even if you are right, and you will be in most cases considered the part in default.
In other words a good contract will establish your right, but to have them accomplished by the counterpart in case of litigation or in case should one of the part miss to comply with one or more points, only a tribunal can enforce it and order a constraining action. Not you!
As we have often underlined, Thailand is a country that allows a wide freedom in relation to private agreements; today we will analyze and dispel all possible doubts about renting a property in Thailand from a double point of view, i.e. that of the lesser and the lessee.
The rental agreements regarding immovable properties are totally flexible in Thailand with a few important established rules. Here the most relevant:
1) A lease contract cannot last for more than 30 years.
In fact, according to the law "The duration of a hire of immovable property cannot exceed thirty years.” If it is made for a longer period, such period shall be reduced to thirty years. The aforesaid period may be renewed, but it must not exceed thirty years from the time of renewal. Make no mistake: The last paragraph of section 540 of the Thai Civil and Commercial code doesn't mean that you can make a 30+20 years contract! It simply means that the contract can be renewed at any time for another 30 years maximum obviously with a new written contract which will then have to be registered at the Land Office.
2) A contract with a duration of more than three years it is enforceable only for three years unless it is made in writing and registered by the competent official (read the Land Office again!)
In other words, all those "three-years-plus-three" contracts that are so much in fashion here, especially for commercial buildings, are legally a total load of nonsense. The law couldn't be more clear (Section 538) which also establishes that "A hire of immovable property is not enforceable by action unless there be some written evidence signed by the party liable". This might seem self-evident, but you would be surprised at how many people think that they can stand on their rights with a simple oral agreement or a handshake, maybe in front of witnesses!
3) Non-payment of rent. Well, this is a very common issue all around the world. In case of non-payment of the rent, Section 560, establishes that "the lessor may terminate the contract...but, if the rent is payable at monthly or longer intervals, a letter must first notify the lessee (hirer) that payment is required within a period of not less than fifteen days. On the other hand a contract of hire is terminated at the end of the agreed period without notice.
If at the end of the agreed period, the hirer remains in possession of the property and the lessor knowingly thereof does not object, the parties are deemed to have renewed the contract for an indefinite period. Again make no mistake "indefinite period doesn't mean forever or for another period tantamount to the length of the original contract, it means "indefinite" namely until the letter will consent to the lessee to stay.
We have also to keep in mind that A contract of hire of immovable property is not extinguished by the transfer of ownership of the hired property while the transferee is entitled to the rights and is subjected to the duties of the transferor towards the hirer. In other words if the owner sells a house for example, the buyer of the house must respect the legally binding lease contract and he will have the right to collect the rent.
This is another extremely popular and important point very often, too often I dare say, totally misunderstood.
Provided that the lessor has solid grounds to terminate the contract, it doesn't mean that he can easily evict the lessee as in the far west movies or shutting down the utilities as electricity or water. Not at all. The only authority that can evict a tenant in breach of the contract is, as always, the court.
And the procedure could be not as easy as one may think: the court will not fix a hearing before at least 45 days and , of course, you normally need a lawyer to start a lawsuit.
Finally do not forget that a contract is, by definition, an agreement made between two or more parties and that it bonds both. Even though it rarely happens due to the expenses necessary to revert to a court of justice and to the fact that he normally holds two months rent upfront as guarantee, a landlord might sue a tenant to not have entirely respected the contract in all its clauses.
The bottom line then, or if you wish "the moral of the story", is : be very cautious and distrust the cheap pre-printed contracts to spare a few baht. As usual, prevention is better then cure. The assistance of an expert is, even in this case, highly recommended.
Lease Contract Second part
The eviction, the trespassing... and when a Prince wants to become a King, but finds himself as a frog!
The dangers of "self made" expulsion
In the first part of our article we have called the hire contract the " The Little Prince" for, in a country like Thailand that guarantees the free agreements between parties, any contract has a very high relevance and must be cautiously done.
We have also briefly mentioned the right procedure of expulsion including the case of delinquency. For the sake of our readers, we want today to remind you as to a recent sentence of the supreme court which has established how, locking out somebody that still has the legal right to occupy a premises, shall be considered "trespassing". Make no mistake: the fact that a tenant hasn't paid the rent doesn’t "automatically" means that he has no rights to occupy the rented premises if a lease contract still stands and it hasn't yet been legally cancelled.
To give a clear example: if you rent out your property to somebody that doesn't pay his rent on time, you have no right to lock him out of the premises and if you do, you will risk to be sued for trespassing. Trespassing in Thailand is a serious crime, punished with a sentence that can reach one year of prison, if committed during the day, and up to 5 if perpetrated at night!
Tough, among many other reasons this is possibly one of the most important reasons why, before signing a lease contract, you should seek the advice of an expert in order to protect yourself and/or your property from dangerous or, at least, ghastly surprises and unpleasant consequences.
When a Prince wants to become a King...
In our last article we have also emphasized that a lease contract with a length longer than 3 years, to be valid, must be necessarily be registered at the pertinent public office (Land Department).
However, there is an exception: "The Hire-Purchase Contract" or: when a Prince wants to become a king.
As the wording suggests, a "Hire-Purchase" contract is a sort of hybrid a "Luk-Krueng" we might say, or better, a combination between a hire contract and a purchase contract.
The Hire-Purchase is regulated by the Book II, Title V of the Thai Civil and Commercial Code and it literally recites:
`A hire-purchase is a contract whereby an owner of a property lets it out on hire and promises to sell it to, or that it shall become the property of, the hirer, conditionally on his making a certain number of payments (Section 572).” In other words, you can rent a property with the right to buy it after deducting the rentals from the price of the sale.
The contract of hire-purchase is void unless made in writing.
The hirer may at any time terminate the contract by redelivering the property at his own expense to the owner (Section 573). And finally.... The owner may also terminate the contract in case of default of two successive payments, or breach of any material part of the contract; in which case all previous payments are forfeited to the owner who is entitled to resume possession of the property.
In case of breach of contract by default of the last payment, the owner is entitled to forfeit previous payment and resume possession of the property only after the expiration of one installment period (section 574).
Et Voilà! You might think... as we say in Italy "fatta la legge, trovato l'inganno"... every law has its loophole! In fact the Hire-Purchase, not only provides both, landlord-seller and tenant-purchaser with clear and well established rules and guarantees, it doesn’t demand other requirements than to be made in writing. No registration is required, even for contract with a length much longer than tree years!
Somebody will then think: very good! We can easily fool the law making fake hire-Purchase contracts with any length we desire, then insert an impossible final price (to avoid that the hirer should really become the new owner) and rent a place for any period we wish without registering the act. But...t is really so easy? Well...
This is exactly when the Prince (the Hire contract) that wanted to become a King (a Hire-Purchase contract) will find himself to be only an ugly frog!
In Section 150 of the Civil and Commercial Code in fact we read: " an act is void if its object is expressly prohibited by law or is impossible ....
Furthermore section 155 recites: "A declaration of intent made with the connivance of the other party which is fictitious is void ........... If a declaration of fictitious intention...... is made to conceal another juristic act, the provisions of law relating to the concealed act shall apply".
Now that you know the law you can make up your own mind and remember that the wisdom of the local judges goes a long way...
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