Generally, lease agreements remain valid and binding regardless of the transfer of ownership of the leased property. This is of course on the presumption that (i) a written lease agreement was executed between the lessee and the lessor — owner of the property at that time — and (ii) it is duly registered in the Land Office when the lease term exceeds 3 years. However, unbeknownst to many, there is an exception to this rule which can effectively cut short the agreed lease term without the consent of the parties involved.
I am not referring to breaches of the agreement’s terms and conditions which usually prompts one of the parties to file suit and cause the termination of lease prior to the expiration of its term. Neither am I talking about the possible scenario where the Land Office may issue a directive that 90 year leases are void and the ensuing departmental orders reducing lease terms to 30 years, renewable for another 30 years as per current legislation — I am not saying that this will actually happen, but there are certainly no guarantees unless such 90 year lease period is finally mandated by law.
I am referring to Section 502 of the Civil and Commercial Code of Thailand which states:
“A person who redeems the property recovers it free from any rights created by the original buyer or his heirs or transferees before redemption.
If a hire of property held subject to a right of redemption is registered by the competent official, it shall be valid for not more than one year of its remaining duration, provided that it is not made for the purpose of injuring the seller. “
This provision contemplates a situation involving a property sold with right of redemption. This means that the original owner of the property is given a fixed period to redeem or buy back the property from the buyer. When the buyer leases out the said property to third persons during the redemption period, and it is subsequently redeemed from such buyer, the terms and conditions of the lease over the said property will not be binding to the redeeming owner except for the specified one year period after the date of redemption. However, it should be noted that when the Lease Agreement is not registered in the Land Office, the one year margin does not apply, which means that the Lease Agreement will cease to have effect.
The moral of the story: due diligence is indispensable prior to any property transaction. Make it sure that the land is without any restrictive covenants such as the right of redemption which can adversely affect your interest thereon.
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