The current COVID-19 pandemic has brought a number of Thai real estate legal questions to the forefront. It is important for property buyers to understand how they are protected under the law as well as what actions developers can take during this time.
One term you may have heard recently is force majeure. This is a clause in a contract that frees both parties from liabilities and obligations should something unforeseen, such as the COVID-19 pandemic, occur. Khun Sirichot Chaiyachot, Partner at Law at LAFS Legal Company Limited, points out force majeure clauses can be found in most real estate contracts in Thailand.
“Pursuant to the standard agreement issued by the Thai Consumer Protection Committee, developers are entitled to delay construction in the event of force majeure or government order. Any delay may last for the entire period of the force majeure event or the government order but will not be exceeding a period of one year,” Khun Sirichot explains. “In addition, developers must notify buyers of the delay and its cause after the situation has passed. In the absence of such notice, it will be deemed that developers have waived their lawful rights to any delay.”
In theory, property buyers are entitled to claim a full refund plus interest should a developer cancel a project. However, the reality may be different with Khun Sirichot noting two scenarios usually emerge in these situations.
The first scenario involves projects launched by large developers with the means to continue operating its business in Thailand. According to Khun Sirichot, these developers will normally agree to refund any monies paid by buyers as well as any interest or penalties as outlined in the purchase agreement.
Situations involving smaller developers unable to keep operating is one of the most common Thai real estate legal questions from property buyers.
“Smaller developers or companies often simply let their companies go bankrupt. Banks of developers and government authorities will become first-tier creditors, leaving buyers and other common creditors far down the queue with little option but to join the case and attempt to share whatever the remaining proceeds from the sale of the developer’s assets with other creditors,” Khun Sirichot says.
Thai real estate legal questions regarding guaranteed rental returns
There is arguably no more popular property type in Thailand than freehold condo units in resort locations with guaranteed rental returns. But with tourism grinding to a halt, some developers may not have enough cash in reserve to deliver on the agreed upon returns. There have been rumors circulating that some developers are invoking force majeure to stop payments.
LAFS Legal envisions three types of cases unfolding when it comes to properties with guaranteed rental returns. All three are related to the language found in the purchase agreement.
“In the event that there is a specific contractual provision relating to rental returns and no clause in any relevant agreement regarding the limitation or restriction on the liability of a developer in case of force majeure, or any accompanying definition of force majeure, the buyer will most likely be entitled to claim for any loss of rent or compensation from the developer for loss of rent during the relevant contractual period,” Khun Sirichot notes.
In layman’s terms, this means if force majeure hasn’t been cited as a reason to delay or cancel the returns guaranteed in the contract, the developer has no legal recourse to stop payment. However, the situation becomes complicated if there is a contractual provision in place regarding the limitation or restriction of rental returns in the event of force majeure.
“Whether or not an event, such as COVID-19, qualifies as force majeure is determined on a case-by-case basis having regard to the terms of the particular contract, the applicable law and other relevant facts,” Khun Sirichot states. “There is no one-size-fits-all answer to this question and property owners should contact a lawyer with experience in this area to determine the likely effects on the liability of developers who are claiming delay or an inability to perform contractual obligations.”
Finally, if there is no specific written contractual provision between the buyer and the developer regarding guaranteed rental returns, Khun Sirichot believes that it is unlikely there are legal grounds to claim for any compensation from the developer.
What happens if a developer stops responding to you?
Of all the Thai real estate legal questions you may have, this may involve the worst case scenario. Developers don’t disappear often in Thailand. That being said, you should know your options given the unique circumstances currently unfolding.
“As soon as developers stop responding for more than a month or fail to complete the project within the due date as specified in the sale and purchase agreement, buyers should contact lawyers on an urgent basis,” Khun Sirichot says.“Ideally, buyers should seek legal advice prior to entering into the sale and purchase agreement or paying any money to developers. An experienced property lawyer will be able to help buyers evaluate all risks and advise buyers on how to avoid or reduce such risks prior to paying any money to developers.”
The short-term legal challenges
The COVID-19 pandemic hasn’t stopped the property market in Thailand. Many developers are offering discounts and other incentives to attract buyers. Anyone considering a purchase during this time needs to be aware of the legal challenges that could slow down the closing process.
“Due to the current COVID-19 situation, many government offices in Thailand, including land offices are partially closed. Thai embassies and notary publics in many countries are closed. Travelling around Thailand is restricted. It may not be possible to complete all legal aspects of a property transaction within April or May 2020,” Khun Sirichot reports. “However, some work such as drafting or reviewing and entering into a reservation agreement, or a sale and purchase agreement can be done.”
About LAFS Legal
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