Real Estate Due Diligence in Thailand

LATEST NEWS: No Phase-3 Due Diligence – No airport in Koh Phangan: The investor and developer of the private airport project in Koh Phangan had been so naive – or ill-advised – to trust the face value of the title documents of the project land. They saved small money for a comprehensive property due diligence investigation and limited the examination to phase 1 and 2. Just a few days ago the authorities stopped the development because the land documents are formally in place but revocable. A rude awakening for an important infrastructure project. Source: Bangkok Post May 28, 2017.

Secure your piece of paradise by a comprehensive phase three property due diligence

It is the typical scope of a property due diligence to provide a factual report and professional opinion concerning 

  1. history, including the details, location and legal status and subdivision of the property,
  2. records of liens, encumbrances, easements, including other natural or artificial encumbrances, burdening or benefiting the property
  3. any disputes relating to the property
  4. basic utilities and available utility infrastructure and
  5. applicable law and rules and regulations restricting the use of the property.

Under the label “due diligence” the legal industry offers a broad scope of different tasks. The due diligence investigation can clarify legal matters in depth or just scratch the surface of property issues. The buyer has to decide, whether he needs to know the full truth before signing and sealing the property deal – or sometimes after this. He might restrict his legal counsel on a phase 1 investigation, which is merely a desktop search. He can ask for a phase 2 investigation which presumes that the land title deed and land office registrations are true, correct and authentic. Or he requires a full due diligence investigation including phase 3.


Phase 1 property due diligence: Translation and explanation

The first phase of a real estate due diligence covers the title report of the land documents regarding registered land transfers, subdivisions, mergers, encumbrances, leases, a usufruct, superficies or other real rights. In addition, this might include an examination of copies of the development license, the building permits and, as the case may be, the factory license.

The title report is merely a translation and explanation of the official documents. It is made in a blind trust approach and does not provide any evidence for the correctness or validity of these documents. This phase of the due diligence does not provide any reliable protection and will under normal circumstances leave the buyer to an unacceptable aggressive risk profile for his acquisition.

Phase 2 property due diligence: Visit on the site and at the authorities 

The second phase of the real estate due diligence adds three elements to the examination:

  1. A visit to the local land office and an intensive discussion with the authorities regarding the current status, legislation and policy and foreseeable law and policy changes. 
  2. A walk-through on the site for a physical inspection covering access to the public road, public utilities and grid connection, review of boundaries and boundary stones.
  3. A search for litigations, environmental procedures, tax issues and other government action.

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Phase 3 property due diligence: Title search and review of licenses

The third phase starts with a review of the chain of ownership transfers back to the very first transfer of property rights. This monitors the title history in each single step. The chronology of ownership might include the acquisition of rights by purchase, inheritance, donation, partition, and finally the upgrade from a lower level in the real estate hierarchy. Thailands title system operates on the principle of “registration of title” rather than “title by registration”. 

The Chanote title deed accrues by an upgrade from a previous, lower land document. The due diligence has to follow all steps back to the very first land document and examine the validity of the upgrade process. Typical supporting documents are the completed “certificate of investigation (bai tai suan)” – a paper showing the inquiry made for the purpose of issuing a title deed, and a plot identification slip (bai nam). 

The construction permit/building permit, as well as other permits and licenses, can be revoked, if they are illegal. Illegality can result from a violation of any Thai (building) law and regulation or from an improper procedure (including any type of bribery and corruption). The examination of existing licenses for compliance with the law is an essential part of the due diligence process.

Risks of omitted due diligence elements

Apart from the ten years period of the adverse possession rule, there is no prescription or statute of limitations. Any legal defects might be identified and highlighted in a later sales process by other, more careful acting lawyers and block the investor from de-investing “his place in paradise”. A comprehensive due diligence is, therefore, a long-lasting safeguarding of a Thailand investment.

A title insurance protects international real estate owners against property loss or damage caused by defects in the legal title to the property. This is explained in detail in a LinkedIn post and available here. However, Thailand’s industry does not offer such type of insurance.

It is a weird experience in Thailand that some buyers are so much obsessed to get their hands on a place in paradise, that they deliberately close their eyes even to serious problems and do not want their legal counsel to research, identify and highlight legal issues, which could jeopardize their acquisition.

PUGNATORIUS Ltd. has experience and a special know-how to give a foreign property investor the maximum protection by carrying out a comprehensive phase 3 property due diligence. Secure your title in paradise.

Welcome to the premium independent advisory law firm. PUGNATORIUS Ltd. is a Bangkok-headquartered specialist provider of bespoke transactional legal and tax advice in the corporate and property legal and taxation industry sectors. 

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