30 November, 2019
The Notification of the Contract Committee Re: Business of Leasing Buildings for Residential Purpose to be Contract-Controlled Business, B.E. 2562 (2019) (the "New Notification") was published in the Royal Gazette on 31 October 2019. It will become effective on 30 January 2020 — 90 days after its publication — and will void the previous notification, which was published on 16 February 2018 (the "Previous Notification"). However, the New Notification will not be applied retrospectively.
The New Notification introduces an updated set of regulations, applicable to operators who lease five or more property units to individual tenants for residential use (the "Residential Lease Business"). These include rooms, houses, condominium units, and apartments — with the exception of dormitories and hotels.
The updated regulations are substantially similar to those under the Previous Notification. Contracts for the Residential Lease Business must include the provisions required by the New Notification. These provisions will — by virtue of law — be deemed as incorporated into the contracts, even if the parties fail to specify them. Additionally, the New Notification forbids the Residential Lease Business contracts from having certain types of provisions. These prohibited provisions will not be recognized if found in the contracts.
Key changes pertain to the tenant's and operator's termination rights, as well as prohibited provisions.
Tenant's termination rights
One of the provisions that must be included in the Residential Lease Business contracts is the tenant's right to terminate the lease before the term expires. The tenant must notify the operator at least 30 days in advance, provided that the tenant has occupied the property for at least half of the total lease term and not defaulted on rent payment or any other expenses.
This amendment seems to be in favor of the operator, as the Previous Notification had no requirement on the tenant having occupied the property for at least half of the total lease term.
Operator's termination rights
Another key change is the operator's termination rights. Provisions that allow the operator to terminate the lease must be included in the Residential Lease Business contract and displayed in a format that is clearly visible, such as typed in red, bold and black, or italic and underlined. The New Notification categorizes the operator's termination rights into the following:
- if the tenant breaches a provision in the contract (as specified in a clearly visible format), the operator can terminate the lease by serving a written notice to the tenant at least 30 days in advance;
- if the tenant's action directly disturbs the peaceful living of other tenants, the operator can terminate the lease by serving a written notice to the tenant at least seven days in advance; or
- if the tenant does not comply with the laws relating to public order or good morals, the operator can terminate the lease, effective immediately.
These updated provisions give more flexibility to the operator than those under the Previous Notification, which states that the operator must notify the tenant to remedy the breach within 30 days from receiving the operator's notice.
Prohibited provisions
The New Notification updates the list of provisions that cannot be included in Residential Lease Business contracts. A comparison of the prohibited provisions between the Previous Notification and the New Notification are as follows:
| Previous Notification (2018) | New Notification (2019) |
| Provision excluding or limiting the operator's liabilities from a breach of contract or act of tort. | Provision excluding or limiting the operator's liabilities from a material breach of contract or act of tort without any justifiable reason. |
| Provision permitting the operator to collect an advance rent payment for more than one-month's worth of rent, or to collect a security deposit equivalent to more than one-month's rent. | Provision permitting the operator to collect an advance rent payment and security deposit, a combined amount of which exceeds three-months' rent. |
| Provision allowing the operator to confiscate the security deposit or advance rent payment. | Provision allowing the operator to confiscate the security deposit or advance rent payment due to a reason which is not the tenant's fault. |
| Provision permitting the operator or its agent to access the leased property for inspection, without prior notice to the tenant. | Provision permitting the operator or its agent to access the leased property for inspection, without prior notice to the tenant. This excludes emergencies which, without such access, would cause damage or impact to the operator or other tenants. |
| Provision enabling the operator to block the tenant from using the leased property, or to enter the leased property for seizing or moving the tenant's assets, should the tenant default on rent payment or any other lease-related expense. | Provision enabling the operator to block the tenant from using the leased property, or to enter the leased property for seizing or moving the tenant's assets, before the operator has duly exercised their lease termination right. |
The New Notification also contains other requirements that are slightly different from those under the Previous Notification. In summary, the New Notification appears to update the requirements on the Residential Lease Business to be more practicable and compatible with actual market practices. Similar to the Previous Notification, the New Notification does not state whether its requirements would apply to contracts for long-term lease of residential projects (such as those with a term of 30 years). The operators who are subject to the New Notification should look into these requirements, in order to fully understand the rights, obligations, and liabilities which may arise from the New Notification.
For further information, please contact:
Sorachon Boonsong, Partner, Baker & McKenzie
sorachon.boonsong@bakermckenzie.com
