A mix of confusion, panic and general widespread disbelief has spread amongst landlords and apartment operators in recent weeks, with the announcement of the new Thai Rental Law.
This new set of regulations was announced in the Royal Gazette on Feb 16 and will come into effect on May 1st of this year. Thus leaving the Thai real estate industry with little under a month, to prepare to comply with this new set of regulations!
Under the new law, residential leasing will officially be classified as a “contract-controlled business”. Thus officially categorizing residential leasing as a business activity and classifying professional landlords and apartments as “business operators”.
These changes are largely perceived as a move to offer greater consumer protection to Lessees. The new regulations will be enforced to ensure Lessees are not unreasonably disadvantaged by unfair Rental Agreements.
It is important to note, the new law is careful to define a residential leasing business operator as:
“A business operator that leases at least five or more property units in one or more buildings for residential use. Property types, include condominiums, apartments, houses and any other type of property used for residential leasing (Excluding Hotels).”
The definition of a “Business Operator”, should mean that in practice the law will only apply to apartments and professional landlords with more than 5 rental properties. However, for those affected the new law imposes a series of new restrictions and regulations!
The 3 changes that are causing the most concern are:
1. Lessors can only request 1 Month Advance Rent and 1 Month Security Deposit
It is usually standard practice in Bangkok, for landlords to request 1 month advance rent and a customary 2 months security deposit.
This refundable security deposit, is held by the lessor during the rental term; it is taken as security in case of liabilities caused by the tenant. This usually includes property damage (Beyond ordinary wear and tear), default of monthly rent or early termination of the lease.
The new law will mean that Landlords will only be able to request 1 Month Security Deposit, thus potentially leaving them exposed to extra irrecoverable liabilities in the case of a bad tenancy.
2. Lessees can terminate their Lease by simply providing a 30 Day Notice
Prior to this new law, a Lessee unable to complete their rental term (I.e. 12 Months) would automatically need to find a replacement tenant (Acceptance of replacement Lessee is at the discretion of the Landlord) or forfeit their security deposit.
However the new regulations stipulate that Lessees have the right to provide 30 days’ notice, without risking their security deposit.
3. Lessors are prohibited from charging Premiums on Utility Rates
This is particularly relevant to apartments, that often set arbitrarily high utility fees (I.e. Water, Electricity, Wifi) that can vary considerably from the rates set by the main utility providers.
These 3 changes, are some of the many requirements and regulations now imposed on landlords.
A few other notable imposed changes to highlight:
- Landlords are required to prepare an inventory detailing the property’s physical condition (Including fixtures, fittings, furniture and associated appliances). This document must be attached with the Lease Agreement.
- The Security Deposit must be refunded immediately upon checkout, unless an acceptable delay is required to investigate damages. If it is found that the tenant was not responsible for the damages, the security deposit must be refunded within 7 days.
- Lease Agreements must not contain any term making the Lessee liable for defects to the property, above ordinary wear and tear resulting from occupancy.
- Rental Contracts cannot include clauses that allow the business operator to terminate the lease, other than for material breach of the rental contact by the Lessee.
- Lease Agreements cannot include clauses allowing the landlord to confiscate the security deposit or advance rent.
Any Business Operator who fails to comply with the requirements set out in the new law, may be subject to imprisonment not exceeding one year and/or a fine not exceeding THB 100,000.
Implications for the Bangkok Real Estate Industry:
While there is still much uncertainty revolving around this sudden change of law, it is important to note the following:
- The definition of “Business Operators” should mean that smaller buy-to-let investors (Less than 5 Rental Properties) are insulated from the new rental law.
- This will have absolutely no impact on rental demand; which is on the contrary likely to expand as a result of greater pro-tenant flexibility and protection.
- Bangkok is a popular work destination, with a transient population of relocated expats on short term employment contracts (I.e. 3-6 Months) or uncertain employment statuses. This should make renting on a flexible short-term lease a more straightforward affair for these professionals.
- This extra level of pro-tenant protection is likely to increase the level of rental confidence; regulating and adding long overdue standards to rental contract utilized by the Property Agencies, Landlords and Apartments in Bangkok.
The new regulations will only take effect as from May 1st; therefore a discussion of the full impact and effects of this new law is only pure speculation at this stage. Professional landlords and apartment operators affected by these changes, are therefore advised to seek legal consultation from qualified Legal Firms.
Quick Legal Disclaimer: This information should not be used as legal advice. If you will be affected by the changes in law, Fresh Property recommends appointing a qualified Legal Firm with extensive experience in residential leasing.