Usufruct Agreements in Thailand
Everything you wanted to know about Usufructs in Thailand.
Written in March 2008. Updated in March 2014.
By Sebastian H. Brousseau, LLB, B.Sc.
Managing Director of Isaan Lawyers.
Isaan Lawyers has recently registered Usufruct agreements in more than 30 provinces in Thailand.
The following text is aimed to give you objective and accurate information about this right included in the Civil and Commercial Code of Thailand (hereafter CCCT). Don’t hesitate to contact us should you have any further questions or inquiries.
As you probably know, Foreigners are forbidden to own land in Thailand by the Land Code. There are few rare exceptions to this rule (investment of 40 million baht, BOI approval, etc.). This is why many Foreigners are looking into ways to secure a real estate investment or at least, give them the right to enjoy a property even if they are not the “full” owner. A Usufruct agreement can give you this right: to possess and enjoy a property without being the full owner. And it is perfectly legal.
A Usufruct is a real right (‘real’ means in Civil Law “attached to a thing”) that originates from Roman Law. In Roman Law, the wife wasn’t entering legally in the family of her husband. At the death of her husband, the wife had no rights of inheritance in the estate. To bypass this injustice, Roman Law created the right of ‘Usufruct’. This Usufruct was giving the widow the possibility to enjoy the assets of her husband after his death even if she wasn’t an heir and the owner. The assets were normally devolved to the children at that time. This right of Usufruct is also known in Civil Law and Thailand adopted it.
By essence, the right of Usufruct is temporary and has roots in family relationships.
WHAT IS A USUFRUCT AGREEMENT?
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 favor of a Usufructuary whereby this person has the right to possess, use and enjoy the benefits of an immovable property (section 1417 CCCT). The Usufructuary 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.
A Usufruct is a real right (real means in Civil Law = attached to a thing) that originates from Roman and Civil Law. The holder of a Usufruct, known as “Usufructury”, has the right to use, possess and enjoy the property, as well as the right to receive profits from the fruits of the property. The Usufructuary could be a person or an entity (eg: a company).
In Civil Law, a property is divided into three parts. They are called in latin “usus” (use), “fructus” (fruits) and “abusus” (abuse). The word Usufruct is normally unknown in Commonwealth Countries. It combines the two first parts of the property in Civil Law, the usus (use, or possession) and fructus (fruits, or as we will see, more or less the “profits”). In French, it is called “usufruit” and in Thai “See-tee-kep-kin”. It is interesting and useful to know that Thai Civil Law was largely inspired by French Civil Law. (see “the work of codification in Siam” by Rene Guyon, 1919.)
In Civil Law, the owner who gives the Usufruct is called in French “nu-propriétaire” or by literal translation in English “naked-owner”. It means that the owner has nothing else than the ownership: He can’t use his possession, even if he is the owner. Besides possession and enjoyment of the property, the Usufructurary 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. “Fruits” should be understood as its natural (fruits, livestock, etc) and/or its legal definition (rent, etc.).
If you would like to use this right for industrial purposes, be aware that some taxes might be required.
Let’s see some examples of Usufruct agreements.
Imagine that you have a Usufruct on a piece of land, an orchard. The apples (natural fruits) will be your assets and do not belong to the ‘real” owner of the land. But in our days, fruits are more or less the legal fruits, like a rent from a lease. Section 148 of CCCT 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.”
Now imagine that you have a Thai girlfriend. She buys the land and gives you a Usufruct on this land for free. It means that you can enjoy this property, even ask her to leave the property, can sublease and get the money from the rent, and this, until the end of your life. It is NOT restricted to 30 years maximum. On top of that, if you decide to build on this land, it is possible for you be the full owner of the buildings and constructions. It is really a strong right.
Short video about usufruct agreement in Thailand
THE END OF A USUFRUCT CONTRACT
In Thailand, a Usufruct can be created for a limited time (5 years, 10 years, etc.) or the LIFE of the Usufructuary. (sect. 1418 CCCT). If no time has been fixed, it is presumed that the Usufruct is for the life of the Usufructuary. In any 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 can not sell or destroy the property as he is NOT the full owner. However, he/she can transfer their 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 out the land to a third party and this second agreement will NOT end when the Usufructuary dies as per the Supreme Court ruling 2297/1998: "the lessor does not have to be the owner of the property". By this way, the Usufructuary can grant a thirty year lease to a third party. By this way, you could pass on your rights to your children or other relatives even after death if the lease was done before the demise. Do not forget that all leases over 3 years must be registered at the land department 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 you register a Usufruct at the Land Department where the title deed is located, your name will be registered (written in Thai) on the Title Deed. After this 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: nobody wants to buy a property where they can’t live. Be aware Land Departments in Thailand have different rules and requirements. Most land departments will ask to see your passports and visa. They will also ask for the father and mother’s name of the Usufructuary. We have seen in the past land departments that were only approve usufruct between married people even if the law doesn't require parties to be married. A translation of your passport might also be requested.
You can also get a Yellow Book which is a House Registration Certificate (Thor. Ror 13) with a Usufruct but many other documents will be required. Again, each amphur can have their own rules about the "yellow book".
Be aware that the land (title deed) must be clear to register a usufruct. That means you can't register a usufruct if the land has a mortgage on it. You would need to pay the mortgage in order to cancel it, and register the usufruct later.
A usufruct without registration is valid but would not bind third parties. In other words, the owner of the land could sell the property and the new owner would not have to respect your usufruct. You could sue the person who sold the land because your contract is void but your right to remain in the property toward third parties would be extinct. it is the registration that makes your usufruct strong.
MYTHS AND FACTS ABOUT USUFRUCT AGREEMENTS
1) Usufructs can be done for a maximum of 1 rai
False. We registered Usufruct agreements for more than 100 rai with one contract and multiple Title Deeds. However, the Usufruct must be registered on EACH Title Deed separately.
2) Usufructs have never been tested by the Court
False. There are Court decisions about Usufructs (for example: Supreme Court of Thailand 2783/2516, 6872/2539, 2297/2541, 2380/2542, etc.). The Land Department has also published a small guideline about Usufruct agreements. Usufructs originate from Roman Law and they are known in Civil Law countries for centuries. It has nothing to do with some old agricultural laws or customs. Remember that leases where mostly used in the 18th and 19th centuries by farmers as they were not rich enough to fully buy land.
3) Usufructs are not as safe as Lease Agreements:
False. There is no legal, historical or factual grounds for this affirmation. If a Lease is safe in Thailand (section 537 and following), a Usufruct is safe. Both of them are in the CCCT, just as a gift agreement (section 453 and following) or a Loan Contract (section 640 and following). Unless the Thai law changes, Foreigners are fully allowed to make Usufruct agreements, just as they are allowed to purchase condominiums or to make a Lease Agreement. Some Law Firms prefer to register Lease Agreements as Lease Agreements are normally more expensive. There is even some legal grounds in civil law to say that a Usufruct is stronger than a Lease Agreement.
4) You must pay taxes to register a Usufruct Agreement
True. If the Usufruct Agreement is done for an amount of money, taxes of about 1.5 % on the value of the contract will have to be paid. Some Land Departments don’t like to register Usufruct Agreements for free as they see that their Government is not making as much money as a Lease Agreement. On a Lease Agreement, you will also have to pay taxes on the value of the rent for the total agreement. Rent must be based on the assessed value
of the property. Most of the time, it is cheaper to register a Usufruct Agreement than a Lease Agreement. If you register a Usufruct Agreement involving a company, the land department might ask for some value on the contract. They won’t like to see it done for free. It is the discretion of the Land officers to accept an agreement even if by law, it is clear and Usufruct Agreements can be done for free.
5) The owner can’t borrow money or sell its property if a Usufruct is registered.
False. Even if you register a Usufruct Agreement on a title deed, the owner can sell his property to anyone. But in reality, nobody is interested in buying a property where they will have to maintain your right and won’t be able to use this property until you die. This is why a Usufruct is a good protection for you as it allows you to live there for the rest of your life, whatever happens. If you want this right to be passed to your heirs. It can also be done by a Lease Agreement it might be a better option depending on your case.
6) It is possible to cancel or void a Usufruct Agreement?
If you are NOT married to the owner granting you the Usufruct, we believe it is not possible to cancel a Usufruct and you are legally protected.
If you are legally married to the owner, Thai Lawyers disagree on the application of article 1469 CCCT. This article mentions that all agreements made between spouses can be cancelled by the Court at the request of one party, unless agreements affect third parties. According to one interpretation, “publicity” or registration affect third parties and a Usufruct can’t be cancelled. According to the other interpretation, we have to search for the spirit of the law and it looks like Thai law wanted to end all relations between spouses in case of divorce, even Usufruct Agreements. A way to avoid the application of 1469 CCCT would be to have a second agreement (like a lease) affecting a third party before the Court could cancel your Usufruct Agreement.
** Addition: Following this remark, we had a lot of emails and we saw many things written on Internet. We are not saying that it's easy to void a Usufruct. Opposite, it will be very difficult, especially if your contract is well written. Any registered agreement, like a lease or Usufruct, will have to go to Court in order to be cancelled and that will take time. A good law firm should be able to find ways to protect you, and if you are worried by this possibility, do consult professionals.
7) I will be fully protected with a Usufruct
False. Imagine that you bought a big house in a small village near the family of your girlfriend. Now, imagine that things go wrong with her and you decide to expulse her from this house. You have the legal right to do it. But do you really think your life will be nice and quiet near her family, in a big house, in the middle of nowhere? Usufruct will legally protect you but there are situations where even a legal protection won’t have any authority in face of the reality.
8) Usufruct Agreements can be done anywhere in Thailand
False. Usufruct Agreements must be registered and you can register a lease or a Usufruct only on Title Deeds equal or superior to Nor Sor Sam. It means that Usufruct can be registered for Chanotte or Nor Sor Sam, but can NOT be registered in some rural areas without proper Title Deeds.
9) A Usufruct Agreement is a simple form.
False. It is a contract, like a loan or a lease. All contracts can be adapted or constructed around the situations of the parties. For example, some clients prefer limitations to their Usufruct right for their own and personal use. However others want to be able to transfer their rights without any prior notice or notifications. Some Usufructs are done for free, some for an amount of money. Any clause can be written if it is not against public order. Usufruct Agreements are a strong protection as they let you possess, use and manage a property in Thailand. We believe they will give you some piece of mind while you enjoy all the other aspects of Thailand. They can be a very good alternative to Lease Agreements, as they can be for your lifetime, with lesser taxes. Don’t hesitate to consult a Lawyer if you want to know your best options according to your needs and your personal situation.
(Mr Alan McAdam (British solicitor) and Mr Nattawut Intarakhamhang (Thai Attorney-at-Law)
helped the author for the redaction of this text).