TL;DR Commercial lease agreements in Thailand are governed by strict registration rules, common three-year terms, and varied landlord practices. Registering leases longer than three years is recommended for tenant protection. Renewal clauses, key money, due diligence, and tax obligations all need careful review to avoid costly risks and safeguard long-term business operations.
Introduction:
As foreign and local businesses continue to expand in Thailand, securing the right commercial premises is a fundamental step. Whether for office space, retail, or industrial use, the terms of a commercial lease agreement will significantly influence operations, costs, and long-term stability.
In this article, we examine the legal framework, standard practices, and practical considerations surrounding commercial lease agreements in Thailand.
Key Points
- Leases exceeding three years must be registered with the Land Office to remain enforceable; unregistered leases are only valid for up to three years regardless of the written term.
- Three-year leases are common practice to avoid registration, but they carry risks such as uncertain renewals, sudden rent increases, or forced relocation.
- Key money is a customary but unregulated payment in commercial leases, often demanded upfront or at renewal, and should always be carefully negotiated.
- Long-term leases require land to be zoned for commercial or industrial use and tenants to meet strict investment thresholds, ensuring projects contribute to Thailand’s economic development.
- Tenants cannot transfer or sublease without landlord consent, but if the landlord sells, the new owner is bound by the existing lease, making registration important for tenant protection.
- Leases typically allow termination by landlords for default, with a negotiated cure period, while tenants are generally bound for the full term unless the landlord breaches the agreement.
The Legal Framework for Commercial Leases
Commercial leases in Thailand are primarily governed by the Civil and Commercial Code and, for certain cases, the Lease of Immovable Property for Commercial or Industrial Purposes Act 1999. These laws set out the rights and obligations of both landlords and tenants, providing a regulatory framework for transparency and enforceability.
Under Thai law, the maximum lease term for land or buildings is 30 years. However, certain special laws, such as the Eastern Economic Corridor Act or the 1999 Lease Act, allow for leases of up to 50 years if the property meets commercial or industrial requirements.
Leases of more than three years must be registered with the Land Office to be enforceable. Without registration, a lease will only be recognised for three years, even if a longer term is agreed in writing.
Due Diligence
Before signing a lease agreement, it is advisable to conduct proper due diligence to confirm that you are dealing with the legitimate owner and that the property can legally be rented. Tenants should check to confirm that the landlord is the rightful owner of the property or an authorized representative of the landlord or company who owns the property.
Proper due diligence involves reviewing documents such as the land title deed (Chanote), the house registration book, and, if applicable, the company registration documents of the property owner. These records confirm ownership and the landlord’s legal right to lease the premises.
It is also important to ensure that no other leases or rights have been previously registered over the property that could conflict with your intended use. A lawyer can undertake a due diligence review to check the property’s legal status, confirm that the title is free from encumbrances, and verify that no third-party claims or prior lease registrations exist.
Lease Terms and Renewal Options
A standard commercial lease in Thailand typically runs for three years, sometimes with an option to renew for a further three. While parties may agree to renewal terms for longer leases, enforcement can be difficult if the renewal clause is poorly drafted. Renewal options must therefore be carefully structured to avoid disputes.
Businesses often negotiate for a rent-free fit-out period of one to three months before the lease commences, giving tenants time to prepare the premises for operations.
It is also important to note that once a lease expires, tenants do not have an automatic right to remain. If they continue occupation with the landlord’s consent, the law considers the lease to have been extended for an indefinite period, subject to the landlord’s right to terminate at any time.
The Common Practice of Three-Year Leases
In Thailand, it is common practice for businesses to structure leases as a three year agreement rather than a longer-term lease. This is often done to avoid additional registration requirements, as leases exceeding three years must be officially registered with the Land Department to be enforceable after the third year. Some businesses also structure leases in such a way in order to avoid certain fees, even though the registration fee is not especially high at just 1.1% of the total lease value.
However, if the premises are important to the businesses operations, the business should negotiate lease terms upfront during the acquisition process. Whenever possible, consider trying to obtain extended lease rights directly from the property owner. A registered lease provides stronger legal protection, allowing for a longer lease term and ensuring that your lease rights remain intact even if the landlord sells the property or faces legal issues.
As part of the purchase agreement, it is advisable to include a clause that allows you to negotiate a direct lease with the property owner.
Unprotected leases can lead to issues later, as there is no guarantee that the landlord will agree to renew the lease under the same terms, or at all. They may also choose to increase the rent or impose unfavorable conditions during renewal negotiations.
Without a long-term lease in place, the businesses ability to operate properly could be disrupted. Additionally, unexpected relocation expenses could be significant and have a big effect on the company’s profitability.
Renewal Risks
While many landlords or agents may offer renewal options for up to two or three additional terms, these arrangements can be misleading and unenforceable. Under Thai law, any lease that is longer than three years must be registered with the Land Department to be legally enforceable beyond that period.
Requiring leases longer than 3 years to be registered with the land office has a knock-on effect for renewal clauses. This is because a renewal clause is essentially extending the term of the lease beyond three years, which without registration, may be considered invalid or unenforceable.
It is also important to note that certain practices, such as pre-signing multiple three-year lease agreements with future dates, are illegal. Additionally, relying on multiple pre-signed leases can create significant risks for the lessee. For example, if the property changes ownership or the landlord refuses to honor the subsequent lease terms, the lessee would have no legal recourse and may be forced to vacate the premises.
If a long-term registered lease is not possible, tenants should at least negotiate a clearly defined option to enter into a new lease agreement upon expiry. This option should specify key terms such as duration, rental rate, and renewal procedure. Properly drafting this option agreement is highly important as it makes sure the option is a binding commitment rather than an invitation to renegotiate.
Finally, if a lessee has made a significant investment in the property, such as renovations or fit-outs, tenants are also recommended to negotiate protective clauses limiting potential rent increases upon renewal. For example, setting a cap on the new rental rate can help protect the business against unexpected rent increases.
What is Key Money in Thailand?
Key money is a common but not clearly defined concept in Thailand’s rental and lease agreements for commercial property deals. Key money can relate to different payments, including:
- A fee paid to an existing tenant for assigning a lease at a below-market rental price.
- A direct payment to a landlord,
- A security deposit (usually non-refundable).
In many cases, key money is simply part of the overall lease price, often used as an upfront lump sum payment in exchange for a lower monthly rent. Since key money is usually not declared as part of the renting price, the actual declared rental value is often lower than the market price. Landlords may also require key money again when renewing a lease.
It’s important to note that key money is not a legal requirement under Thai law. It is a common practice used by tenants or landlords to assign lease rights or secure access to a property, but there is no official regulation.
If you are asked to pay key money, it’s important to understand exactly what is included in the deal and whether it is actually necessary. Key money should always be negotiated carefully, ensuring that you are not paying for something you could otherwise obtain directly from the landlord or through a more favorable lease agreement.
Long-Term Commercial and Industrial Leases
In Thailand, long-term leases for commercial or industrial purposes are available however it is subject to strict regulatory conditions designed to balance investor interests with national economic development goals.
Unlike standard leases, which are capped by the Civil and Commercial Code, long-term leases for eligible businesses may be eligible for lease terms of up to 50 years in certain cases.
However, eligibility is not automatic. Both the land itself and the activities to be conducted must satisfy strict criteria set out in town planning regulations and relevant investment laws. To qualify for a long-term commercial or industrial lease, the land must be:
- Zoned for commercial or industrial use under town planning laws, or
- Located in an industrial estate zone managed by the Industrial Estate Authority of Thailand.
In addition, the tenant company must meet specific investment criteria. For example:
- Commercial activities with investment of at least THB 20 million;
- Industrial activities promoted under the Investment Promotion Act; or
- Projects deemed beneficial to Thailand and approved by the Cabinet.
Where the lease area exceeds 100 rai (160,000 sqm), the business must also demonstrate wider economic or social benefits, such as export promotion, advanced technology, or employment generation.
Language Requirements for Lease Agreements
Lease agreements can be drafted in English for private use. However, if the lease is to be registered at the Land Office, a Thai version will be required. Typically, a bilingual agreement is prepared, with the Thai text prevailing in case of discrepancies.
Land Officers may also review the agreement during registration and reserve the discretion to reject certain clauses. Parties should therefore ensure that the lease complies with local practice.
Language Requirements for Lease Agreements
Lease agreements can be drafted in English for private use. However, if the lease is to be registered at the Land Office, a Thai version will be required. Typically, a bilingual agreement is prepared, with the Thai text prevailing in case of discrepancies.
Land Officers may also review the agreement during registration and reserve the discretion to reject certain clauses. Parties should therefore ensure that the lease complies with local practice.
Rental Payments, Deposits, and Fees
Rental structures vary by property type. Office and industrial leases generally use fixed monthly rent, while retail leases may include turnover-based rent.
Security deposits are standard, typically between one to three months’ rent, provided either in cash or as a bank guarantee. Tenants are also usually responsible for ancillary charges, such as utilities, common area maintenance, and property taxes.
Where the lease exceeds three years, registration fees of 1% of the total rental plus 0.1% stamp duty apply.
Repair and Maintenance Requirements
In most cases, unless expressly stated otherwise, tenants will be responsible for minor repairs and maintenance, while landlords remain responsible for major structural repairs. In practice, however, especially in long-term or large premises leases, tenants may be expected to take on greater responsibility for major repairs.
In most cases, unless expressly stated otherwise, tenants are responsible for minor repairs and maintenance, while landlords remain responsible for major structural repairs. In practice, however, particularly in long-term or large-scale leases, tenants may be expected to assume greater responsibility for significant maintenance.
When negotiating a rental agreement, it is recommended to clarify responsibility for specific items such as air conditioning systems. While air conditioning repairs are normally the landlord’s responsibility, it is a good idea to expressly state this in the lease to avoid any potential disputes.
Other important areas to address in the lease agreement include provisions for issues arising from broken equipment or machinery that is not in proper working order. For example, if a lessee encounters a malfunctioning or leaking air conditioner, or other major problems such as structural defects that result in the premises becoming unusable, these should be clearly addressed in the contract. Tenants should make sure that the lease includes a clause granting the right to terminate the agreement if such a situation occurs and is not quickly repaired, as this would make the premises unfit for use.
Consent for VAT and SSO Registration
When leasing a property to be used as an office or place of business, it is highly likely that the company will need to register with the Social Security Office and, potentially, for VAT.
As part of the application process, officers may request photos of the office showing the company name and, in some cases, even request an on-site inspection to confirm the business location.
It is recommended that before agreeing to leasing an office to make sure that your landlord agrees to let you use the premises for VAT registration. This is important because the Revenue Department requires an original letter of consent from the property owner and, if the office is located in a managed building, an additional letter from the building’s juristic person.
As well as the written confirmation from the landlord/juristic office the Revenue Department required the following documents, a copy of the lease agreement, a business plan, and a map highlighting the location of the office.
Please also note that if you operate multiple businesses and wish to register each of them at the same address, this should also be included in the lease agreement. Each business registration requires separate written consent from the property owner (and, if applicable, from the building’s juristic person), so it is advisable to ensure these consents are clearly documented from the start.
Tax Considerations
When leasing commercial property in Thailand, both landlords and tenants must be aware of the tax requirements in relation to rent. It is important to have a clear understanding of how the payment of these taxes will be split between the landlord and lessee.
The most important tax to be aware of is the 5% withholding tax on rent (commonly referred to as the “building tax”). When the property owner is a registered company, the tenant is required to withhold 5% of the total rent payment and submit this amount to the Revenue Department on the landlord’s behalf.
This withholding tax is a mandatory obligation and is typically deducted from the rental price rather than added on top. However, some landlords may try to reduce the WHT tax amount by arranging the arrangement as a service agreement rather than a rental agreement.
Under Thai tax law, service contracts are subject to only 3% withholding tax, rather than the 5% for rental agreements. However, this approach may not be suitable for all businesses. For example, companies that have received a BOI promotion must record office rental costs properly in their accounting books as “rental expenses” to comply with legal and tax reporting requirements. Booking the rental payment as a service expense could create problems during audits or BOI reviews.
One potential solution would be to structure the lease as a type of hybrid agreement, where one section of the contract covers the actual lease of the premises and another section relates to additional services, such as building maintenance, common area fees, or administrative support.
If this type of structure is chosen, both parties should clearly state the division of rent and service fees and the corresponding withholding tax rates (5% for rent, 3% for services).
To avoid potential disputes or issues with the booking of a lease, it is recommended to consult with our qualified accountants and experts. Properly structuring the agreement from the beginning can help prevent disputes and issues later down the line.
Transfer and Subleasing
Under Thai law, tenants are generally not permitted to transfer their lease rights or sublease the property without first obtaining the landlord’s prior written consent. This restriction is intended to give landlords control over who occupies or uses their property, ensuring that the premises are not handed over to a third party whose activities, financial standing, or
On the other hand, landlords themselves may transfer their ownership of the leased property, either through sale, inheritance, or other legal means. In such cases, the law provides clear protection for tenants: the new owner automatically steps into the shoes of the former landlord and assumes all rights and obligations under the existing lease.
To further protect a tenants’ interests, it is strongly recommended that leases are formally registered with the Land Office. Registration gives the lease legal enforceability against third parties, meaning that even if the property changes ownership, the tenant’s rights remain secure for the full term of the registered lease. Without registration, tenants risk losing enforceability against new owners and may face uncertainty in the event of a property transfer.
Terminating Commercial Leases
Leases usually allow landlords to terminate the agreement if tenants default on rent or breach key obligations. A remedy period of 30–90 days is often negotiated to give tenants time to cure the breach before eviction.
Tenants rarely have the right to unilaterally terminate early unless the landlord is in breach. Unless otherwise agreed in the lease, tenants are bound to the full contractual term.
Our Thoughts
Commercial lease agreements in Thailand are shaped by complex registration requirements, and market practice. While landlords often prefer short three-year leases, tenants benefit from registering longer terms to secure stability and enforceability.
Businesses entering into leases should carefully consider renewal clauses, language requirements, and the allocation of responsibilities for repairs and costs. Most importantly, proper registration ensures long-term protection, especially where significant investments are tied to the premises.
For foreign investors and businesses, navigating these requirements is critical to safeguarding commercial interests in Thailand’s competitive property market.
Please note that this article is for information purposes only and does not constitute legal advice
