Legal pitfalls of purchasing a brand new condominium in Thailand
There are pros and cons of buying a condominium unit in a brand new project, a brand new product is always good. However, it is advisable not to use your brand new brain to buy a condominium in Thailand because a brand new brain means that it has never been used. In Thailand, you have to use your brain more than you normally used it in your own country.
The pros for buying the brand new project are:
1. The starting price of a condominium unit in a brand new project is quite low comparing to the finished project. Many foreign buyers of a brand new condominium unit can easily make good speculative profits in the short term especially for a renowned project or well positioned.
2. Some demanding buyers feel obliged to check the construction from the foundation until finishing stage to see if the quality is in compliance with the specification.
The cons for buying the brand new project are:
1. Some developers may have problems with their contractors which may cause a delay in construction, and some unscrupulously construct more buildings in the common areas.
2. Some developers hand over condominium units, which are defective or units where the quality has not complied with the specifications.
3. If you have to make a down payment for one or two years, it is risky that a change of the economic situation could adversely affect the high profile developer. As we are aware “Everything is impermanent”. The cost of construction depends on many factors which sometimes suffer from an “Act of God” or “Force Majeur” which are beyond our control. Many developers become bankrupt by the laxity of their financial management, and a project becomes a “Non Performing Loan” (NPL) with a bank, you will be involved in a time consuming judicial process. You may not draft a contract requiring the Developer not to become bankrupt. The good developer should have a good financial record, e.g., Rattanakorn or Viwtalay who always keep their promise as goodwill which is their great assets.
4. Some crooked operators in the guise of developers may easily set up a “paper company” and put banners in an empty plot of land with a cabin sales office. They may arrange for the classy grand opening parties with good food and wine with a fancy show and a rhetorical MC to get reservation money from gullible foreigners and then disappear. If the crooked developers are foreigners, you cannot find out their whereabouts easily, because they just pack their bags and clandestinely leave Thailand.
We strongly believe in the old maxim that “Forewarned is Forearmed”. To avoid a legal dilemma, it is advisable to comply with the following advice:
1. It is advisable to have a due diligence search for the corporate and financial information of the company who is the developer of the project. In this regard, you may retain a qualified lawyer and accountant to check the corporate documents and balance sheets. You may verify who are the shareholders and directors, and some prudent buyers even check the credit background of each incumbent director. If the development project is financially supported by a bank or financial institution, you may discuss this with the bank or finance company concerned.
2. Most of good projects will have a signboard showing the details about the registration number of the land title deeds (Cha Nod) and a construction permit of the project. It is advisable to retain a qualified lawyer to check the details of the land with the Land Office to verify if the land for the project actually belongs to the developer. The mortgage on the land should be also checked.
3. With the title deeds and the construction permits, some prudent buyers check all the common areas and utilities to ensure that the developer will not use for its own commercial purposes, e.g., parking lots, recreation areas, club houses and swimming pool, etc. There are many developers using the common parking lots for the weekend market.
4. The developer of the project has to apply for the construction permits with the “Civil Works Office” (Sum Nuk Ngan Yo Tha) of the Pattaya City Hall. If the project is of more than 80 units, the developer will have to get a clearance certificate from the Office of the Environmental Protection, and it is advisable to check these permits have already been granted to the developer.
5. You should get a clear confirmation from the developer that the percentage of foreign ownership is not more than 49%. You cannot register the ownership of the condominium unit under your name if there is more than 49% foreign ownership in your project. This restriction is currently applied without exception. If the foreign ownership is more than 49%, many foreigners circumvent the restriction by setting up a Thai company to own the condominium. Incorporation of a company will be definitely burdensome for you to absorb expenses for incorporation plus preparation of annual balance sheet.
6. To register the ownership of the condominium unit under your name, you have to show the documents with the Land Registrar proving that the money you pay for the condominium unit is from your offshore source. Accordingly, you have to bring the foreign currency into your bank account in Thailand and convert it into Thai currency. The receiving bank will issue a “Certificate of Remittance” or “Thor.Tor. 3 (Sam)” if the remitted amount is more than $20,000. This Certificate of Remittance or Thor.Tor. 3 has to be produced to the Land Registrar for registration of ownership under the name of a foreigner and given to the Immigration Office for one-year visa. Many foreigners mistakenly transfer money directly into the bank account of the developer, and in this case, these foreigners cannot get the “Certificate of Remittance” or “Thor.Tor. 3” from the bank. Consequently, these foreigners cannot register the ownership of the condominium unit under their names. You should keep all remittance documents in good order to be able to justify all transactions with the “Anti Money Laundering Office” (AMLO) for repatriation of money to your country once you sell your condominium unit in the future.
7. The payment for the price of the condominium unit should be made by bank draft or cashier checque payable to the name of the developing company, and it is strongly advisable not to pay by cash.
8. The Consumer Protection Act requires that a contract to buy and sell a condominium unit must comply with the requirements under the “Announcement of the Consumer Protection Board” which ensures all clauses are fair for all buyers. There is a standard form drafted by the Consumer Protection Office.
9. The contract should be signed by with the authorized director of the developing company. However, as most of the authorized directors do not sign the contract in your presence. How do you know that it is the real signature? This problem can be solved if you make every payment by cashier checque or bank draft payable to the company who is the developer. If the company cashes the checque, the company cannot deny or raise the point that the signature in the contract is not the real signature of its authorized director.
10. The standard contract specifies that the buyer should share with the developer only the transfer fee of 2% from the appraised price. The income and business taxes including stamp duties should be solely absorbed by the developer. Most adhesion contracts drafted by developers always contain clauses in favor of the developers for their non-liabilities for breach of contract. You should have a proper English translation of the sale contract to compare with the standard form drafted by the Consumer Protection Office.
11. Once the construction is completed and approved by Pattaya City Hall, the developer will have to register the Condominium Juristic Person with the Land Office to separate title deeds (Cha Nod) for all units. At this stage, you will make a final payment by cashier checque or bank draft to the developing company at the Land Office in exchange for the title deed (Cha Nod) and house register book (Tabien Ban).
12. After the transfer of ownership, the co owners of condominium units in the project may join together to set up a committee to look after the management. The committee should control all the common areas and utilities to ensure that the developer will not abusively use these common areas for their own purpose. The committee may call for the general assembly of all co owners to draft a constitution and by-laws to protect the rights of all co owners.
The above protective measures are the minimum prudence you should have if you wish to avoid the legal dilemma in this land.
You should not be fatalist to believe that your fate is dependent upon only an “Act of God” or “Force Majeur”.
We believe in the axiom that the “Power of Knowledge” can save you from all dilemmas in this land.