AirBnB – Thailand benefits from the shared economy
Playing with fire at all the wrong places
It is the clever business concept of AirBnB to benefit in San Francisco from local tenant agreements all over the world through a web-based peer-to-peer platform. As a result, AirBnB has tripled in value in just two years. Not everyone sympathizes with this bold approach of the disrupter of accommodation. While Uber is heavily attacked on the streets by its brave local competitor Grab (formerly known as GrabTaxi), the dull answer to AirBnB seems to be to revile it as illegal in Thailand. However, this is a high-risk strategy and may easily throw the baby out with the bathwater.
Thailand has a fabulous and famous hospitality industry, but real estate investments in houses and villas are at least of the same relevance and importance for the country’s sustainable long-term economic development and growth. Given the current political situation and transition period, it is of the highest importance to preserve and perpetuate investor’s confidence. International investors fear a MAGA, a material adverse government action. This is what might happen if the economic interest of the big hotel groups and their lobby organizations gain an unbalanced advantage and harm further property investments in whole Thailand.
The AirBnB bashing is giving a whole new meaning to the phrase “hotel lobby”.
For many decades, Thailand offers an attractive economic and legal framework for foreign investments in real estate. The foreigner legislation has no substantial adverse impact, most villas on the islands and properties on Thailands beaches are managed and (indirectly) owned by foreigners. The smart military government has rejected a tightening of the Foreign Business Act for good reasons. There is no high tax burden for property ownership, and nationalization and expropriation of foreign ownership have not been practiced at any point in time. Therefore, foreign investors are not confronted with any MAGA disappointment in the past. The fight against AirBnB might change this for the disadvantage of the country. Collateral damages would be high and painful.
The (Anti-) AirBnB clause
The AirBnB clause aims to restrict the use of AirBnB by villa owners, tenants and condominium unit holders. Under such clause, it is forbidden (i) to grant any license or right to reside or stay at the premises or any part of it to any person or entity as part of a commercial arrangement, (ii) to lease the premises on a short-term basis, especially for a duration of less than one month, or (iii) to advertise or list the premises on any Internet site for a license or right to reside or stay at the premises.
Desperate attempts to overcome legal ownership protection in Thailand
As a civil law jurisdiction, the rights of the legal owner are strongly protected by the Civil & Commercial Code of Thailand. Under Section 1336 CCC, ownership rights can only be limited by law. This provision is effective for sole ownership and co-ownership as well. Neither the neighbors nor the co-owners of a can agree in a resolution or under the bylaws of the CJP (condominium juristic person) to restrict or limit the ownership rights or the co-ownership rights. To draft and resolve a resolution decision to limit the use of (co-)ownership is, therefore, pure unlawful and void.
In a condominium complex, different owners utilize the common areas typically not in the same way and to the same extent. While some sportive owners will visit the fitness room daily and jump unwashed in the swimming pool each morning and each evening, other unit owners will never be seen in these common areas. Under Section 1360 CCC, each co-owner is entitled to use the property in so far as such use is not incompatible with the rights of the other co-owners. As long as the co-owners in the common areas are not blocked from using the facilities, even an excessive use by some parties is fully in compliance with the law. If a restrained condo owner feels that his over-active neighbors negatively affect the quality of his life, he experiences a daily life risk and should not whine for that reason.
The use rights by the owners do not differ from the use rights of a tenant. And: The use rights of short-term tenants do not differ from the legal position of long-term lessees. There is no valid legal argument to restrict the rights of a tenant, whether the rent is agreed on a short-term basis or for more than a month. Even the fact that the tenant uses the common area more than the owner would (but could), does not change this analysis. The statement that short-term rentals to tourists interfere with the rights of the co-owners is therefore under current laws incorrect. Only an ill-advised majority of condominium unit owners would base their complaint or lawsuit on such light-weighted argument.
A lease just substitutes the users, it does not add additional users. Therefore, even a short-term tenant agreement itself does not at all compromise the (co-)ownership rights of the neighbors or other condo unit residents.
Recently condo administrations decide to put the laws in their own hands. They install fingerprint scanners for the condominium lifts and require each user to register his fingerprints in the CJP office. Such procedure is a more than dubious expropriation of condo owners and their use opportunities. Law should forbid the enforcement of fingerprint capturing by private entities in each jurisdiction.
Condominium Law, Hotel Act, and other particular jurisdiction do mostly not apply
The Condominium Act would prevent short-term rentals if it had any clause that prohibits this. But that is not the case. The law is silent on this. And as far as a law does not forbid this cardinal right of any owner, it is allowed.
(Short-term) rental business might be (misleadingly) qualified as being “work” under the foreigner regulations. However, no one knows who pushes the buttons on the AirBnB smartphone app. The foreign owner might look for tenants because he stays outside of Thailand and, therefore, does not fall under the work permit requirements. The cleaning maid in the condo unit is typically from Isaan and, therefore, needs no work permit.
The short-term renting out might be seen as a business “with” condo units. But this does not mean that it is business “in” the condo as stated in Section 17 Condo Act. Therefore, it does not go beyond the condo residential purpose use restrictions. To rent condominium units by owners living far away does not create any commercial activity within the borders of the CJP.
A hotel business license is required under the Hotel Act of Thailand, but its specific conditions (4 rooms, 20 guests) are typically not fulfilled. Pure scare tactics on this point with wrong assumptions should neither be supported by governmental agencies nor hotel organizations.
Under a recent law, AirBnB is banned – in New York. This shows rather clearly that no other limitations apply to get rid of this smart und unwanted market player. Big Apple’s desire to take action is warranted, as New Yorkers spend nearly two-thirds of their income on housing. The new New York law has the purpose to make permanent housing available to low-income residents on the island of Manhattan. It fights unscrupulous landlords who been known to push out their tenants so that they can advertise their apartments for a higher rent on AirBnB. Therefore, it should be clearly understood that this is a law to relax the Manhattan housing crisis, not to protect the hotel industry, co-owners or neighbors.
AirBnB-bashing – who benefits, who are the victims?
It is entirely understandable if the hotel industry qualifies vacation rental and holiday homes as undesirable competition. However, this has been the case for decades, even a long time before the Internet had even been invented. The AirBnB critics are blaming problems created by decades of innovation still stand on the new guy in town. In fact, the hospitality industry consists of various business models, including full-fledged hotels, but also guesthouses, hostels, poshtels and vacation homes. Hotels have to continually place themselves in competition by innovations, advanced service offers, and features which a condominium unit can’t provide. They need more creative ideas, not more lawyers. Don’t complain, innovate!
Thailand’s property market had and has a constant boom because the investor can rent out his condo, villa or apartment during the time of the year he is outside of the land of smile. This is a substantial value driver for the whole property industry. To retroactively questioning the basic principles of a property investment would have adverse effects likewise a discussion to expropriate foreign real estate or to tightening the Foreign Business Act or the Land Code in a way that foreign investment structures collapse. It is an awful idea.
The lobbyist organization of the hotel industry is much better organized than the Thai property developers. However, to voice weak and false arguments and to experience later the dismissal by the courts with high costs is not a promising long-term strategy. Low and purely result-driven legal arguments lead rather sooner than later to a reputation loss. AirBnB does not promise to avoid unhappiness of the neighbors, but just has the ambition to be legal under current legislation. Competition is not necessarily unfair competition. They call it free market economy.
As a result, Thailand’s hotel industry should consider a fundamental strategy change. They should highlight the advantages of a hotel business, the additional service package, the extra insurance and hotel liability, etc. in a positive way. The cynical marketing strategy to blame AirBnB with the wrong legal arguments is a failed publicity stunt, not acceptable and not good advice.
The above remarks are highly simplified and should not be taken as a guidance for a particular case, which is typically unrecognized intense and complex. PUGNATORIUS supports Thailand’s hotel owners and hotel operators with smart legal solutions regarding hotel sales and acquisitions, hotel business licenses, sophisticated hotel management agreements and a highly efficient cross-border tax planning. We dispose of a broad database of example work products to avoid time-consuming and costly mistakes. More about Thailand’s hotel industry at pugnatorius.com/category/hotel. Secure your hotel in paradise.