Thailand’s Condominium Due Diligence
No condo due diligence by Thai authorities
The registration of an ownership transfer for a condominium unit at the local land office takes some time and involves certain investigations and internal reporting by the authorities. However, nothing is further from the truth than the assumption that the Ministry of Interior provides on behalf of the foreign buyer the friendly service to investigate the correctness of the deal and the legitimacy of the transaction.
The Thai authorities have to act unbiased to both buyer and seller. If the purchaser requires checks and balances, he has to take care of himself. Experience shows that new condo owners are sooner or later disappointed about features and issues in their condo investment which they did not expect and, therefore, did not examined before the deal was inked.
Title search instead of a meaningless title report
If the seller of the condominium unit is not the real owner, the buyer can’t acquire ownership in the apartment. The formal registration in the condo title deed can’t protect him from being sued by the real owner for restitution without remuneration. This title risk of a condo purchase has the same characteristics than the title risk of a land purchase transaction.
Trust kills faster than bullets. If the investor in a condo unit does not want to trust the seller blind, he has to examine the legal, financial and factual situation of the property before money changes hands. This can be accomplished by a “title report”, in which the Chanote title deed document (“Or Chor 2”) is reviewed. By this, the buyer gets the confirmation only that
- the apartment qualifies as a condominium unit under the Condominium Act,
- the name of the seller is mentioned in the title deed document, and
- there are no mortgages or other liens registered on the title deed document.
Such a title report is just a simple translation and explanation of the land office document, not a serious legal work product. It is not unfair to give such a report, whether prepared consciously or not in complete misjudgment of the law, the name “fake due diligence report”.
Instead of the imprudent title report, a “title search” can be made. It will on the one side confirm that the condominium title deed has been issued in a regular procedure and, much more important, that the ownership transfers registered on the condo-Chanote are not only registered but also legally valid. For this, the chain of ownership transfers has to be reviewed on the basis of all previous private condo sale and purchase agreements. This research is from the legal point of view required because the registration alone does not provide any guarantee for the correctness of the often careless land office record.
The reasonable scope of a condo due diligence
Apart from the title deed related matters, there are various other legal issues which might be the subject of a comprehensive condominium due diligence. It depends on the risk appetite of the buyer to close his eyes on, above others, the following aspects:
- Review of transfer documents issued by the Condominium Juristic Person (CJP) regarding paid fees and foreign ownership quota,
- Advertising and marketing materials that deemed to be an integral part of the purchase and sale agreement,
- The appraised value of the condominium unit as determined by the governmental valuation committee.
- The financial situation of the CJP,
- The land title deed on which the condominium has been erected,
- Ongoing guarantees and warranties of the developer,
- The correctness of the ownership ratio in the condominium’s common property,
- Existing property management agreements and similar contracts,
- Bylaws and regulations of the CJP, rights and duties of manager and CJP to owners,
- The factual handling and policies of the CJP and condo management company e.g. means of enforcing owners to pay common property services fees and taxes by interest charged by the CJP or the suspension of services and use of common areas. and suing policy against defaulting condo unit owner,
- Resolutions regarding a later resale, use restrictions (AirBnB) and burdensome financial obligations of the unitholders, made in condominium general meetings,
- A review of the minutes of the previous annual general meetings (AGM),
- Review of the yellow or blue house book,
- Taxation issues of the seller and tax planning opportunities for the buyer,
- Maintenance fees, sinking funds, emergency funds and other financial matters,
- the insurance policy which covers the cost of a rebuild in the event of an earthquake or other disasters,
- building regulations, zoning laws, etc.,
- construction permit, the developer license requirements, and
- the compliance with the Condominium Act of Thailand, above many others on the 49% foreign quota requirements,
- the identity of the unit offered and visited, and the unit sold (“bait and switch’).
The buyer might assume that the legal and regulatory requirements and documentation of the condominium have already been carefully reviewed by other buyers and their legal counsels. It is all the more astonishing to find out that crucial legal issues have not been considered and problems have not been identified even in senior condominium developments of well-reputed developers.
Distressed condo projects, looking for naive and careless foreign investors, are floating the market.
Professional service offer for condominium projects from Bangkok
For PUGNATORIUS Ltd., assignments on real estate investments are one of the core business activities with a particular competence, long-standing experience, and unique market reputation. Typically, the law firm provides these seven services:
- Acquisition of condominium units
- Condominium due diligence
- Development of condominium projects
- Condotel projects
- Massive investments in condominium units
- Litigation and representation of interests of condo buyers
- Legal opinions and property investment reviews
Further information and explanations of the law firm’s condominium support services are described at “Professional services for foreign condominium investors and sophisticated condo developments“.
Property legal and tax advice and assistance apart from condominium developments are described at “Legal services and tax planning for real estate acquisitions and property developments.”