11 March, 2018
On 16 February 2018, the notice of the Committee on Contracts Re: Residential Leasing Business To Be Contract-Controlled Business (the Notice) was published in the Royal Gazette. Effective from 1 May 2018, the business of leasing premises for residential purpose where the operators lease out any building (rooms, houses, condominium units, apartments or any other kinds of residence except for dormitories and hotels) of five premises or more, whether or not such units are located within the same building, to individual tenants for residence (the Residential Lease Business) must be contract-controlled business under the Consumer Protection Act B.E. 2522 (1979).
The Notice has set out requirements for contracts used for the Residential Lease Business, including contract terms and conditions that must and must not be contained therein.
Contracts for Residential Lease Business
Under the Notice, contracts for the Residential Lease Business must contain provisions in Thai language with font size as specified under the Notice. Such contracts must contain details of operator; details of tenant; name and location of the premises; details of the premises as well as assets and equipment in the premises; contract term with lease commencement date and lease expiry date; rate of rent, public utilities, services and other fees with calculation methods and payment term, and deposit. Service charges in connection with the lease must be at the actual rate with justified reasons.
In addition to the above, contracts for the Residential Lease Business must contain the following key provisions:
- At the end of the lease, the operator must immediately return to the tenant any deposit paid, except in the case where the operator wishes to inspect damage incurred to the premises for which the tenant must be responsible. If the tenant did not cause any damage to the premises, the operator must return to the tenant his/her deposit within seven days after the expiration or termination of the lease;
- The tenant shall have the right to early terminate the lease with at least 30-day advance notice on the conditions that the tenant is not in default of payment obligations, and has a reasonable cause for doing so; and
- Provisions on breach of contract that entitle the operator to terminate the lease shall be in red or bold or italics. The operator shall grant the tenant at least a 30-day remedy period from the date that the tenant receives the default notice from the operator. If the tenant fails to remedy the breach, the operator shall then be entitled to terminate the lease.
Contracts that do not contain the provisions as required by the Notice may render such contracts as if they have duly incorporated the provisions or required mandatory provisions.
Negative Covenants
The Notice has also specified that contracts used for the Residential Lease Business that the operators entered into with tenants shall not contain the following provisions:
- Any term excluding or limiting the operator's liabilities that may arise from a breach of contract, or any tortious acts the operator may commit;
- Any term permitting the operator to collect an advance rent payment of more than one-month's worth of rent;
- Any term permitting the operator to amend the rate of rent, public utility, provision of services, and any other payments before the end of the lease;
- Any term permitting the operator to collect a deposit which is equivalent to more than one-month's worth of rent;
- Any term entitling the operator the right to confiscate the deposit or advance rental payment;
- Any term permitting the operator, or any of the operator's agents, to inspect the premises without prior notice to tenant;
- Any term permitting the operator to charge for public utility at a higher rate than that which the operator is being charged from the public utility providers;
- Any term entitling the operator the right to prohibit the tenant from using the premises, or the right to enter the premises to seize or move assets that belong to the tenant, in the event that the tenant defaults on payment of rent or any other lease-related fees;
- Any term entitling the operator the right to demand consideration for lease renewal from the current tenant;
- Any term entitling the operator the right to terminate the lease in absence of breach of the lease agreement, or any significant terms therein by the tenant;
- Any term imposing liability on the tenant for any damages arising from the ordinary uses of any assets and equipment in the premises;
- Any term imposing liability on the tenant for any damage to the premises arising from any cause not relating to the tenant's fault or force majeure; and
- Any term imposing liability on the tenant for any defect in the premises, assets, and equipment in the premises arising from normal wear and tear.
Contracts that contain the prohibited provisions under the Notice shall render such contracts as if they have not contained the prohibited provisions.
Impacts on Residential Developers
The Notice does not provide any exemptions to the Residential Lease Business, meaning that all kinds of residential lease agreements which fall within the definition of the Residential Lease Business, whether short-term or long-term, will be subject to the requirements under the Notice. This will surely effect ongoing development projects having long-term leasehold sale structure.
This raises an alarming question as to what this Notice means to the existing leases that have already been executed since there is no grandfather clause clearly provided for the benefit of existing leases.
Also, the Consumer Protection Act imposes criminal penalties on operators who use contracts that contain prohibited contract terms provided under the Notice. Therefore, it is advisable for leasehold residential developers to revisit lease agreements with their tenants/customers, prepare the lease agreements that are in compliance with the Notice or explore alternatives for residential lease agreements in order to avoid any problems in contract enforcement and penalty.
For further information, please contact:
Sorachon Boonsong, Partner, Baker & McKenzie
sorachon.boonsong@bakermckenzie.com
