Condo Legislation Addresses Consumer Rights
Good news for condominium seekers who will benefit from the latest amendment to the 1999 Condominium Act, which will take effect from July 4. The changes come following a slew of complaints filed during the past year that have reached into the thousands each month. Most of the complaints have been about developers failing to deliver projects as promised in advertising and promotional material. Under the new law, the Land Department is empowered to penalize developers if they don't deliver what they promise in their marketing material contracts.
During project and planning phases, developers are now required to submit advertising and marketing collateral when permits are applied for. Once the condominium project is complete, a physical inspection will be carried out to ensure it complies with how it was marketed. In the past, buyers had to rely solely on the legal mechanisms of a material breach of the sale and purchase agreement, which in many cases relied on subjective interpretations so that disreputable developers could be taken to court.
The amendment also aims to ensure greater transparency in "hidden costs" incurred after purchase by requiring property developers to pay their apportioned share of common area charges for condos not sold upon registration of the project. This has created an equitable solution between the buyer and the developer in sharing these ongoing expenses, because in the past, unscrupulous developers would pass on these costs to buyers who took over units during the initial phases of a project, forcing them to pay substantially higher monthly fees.
Also addressed has been a grandfathering in of projects already in the marketplace. Voting rights for the condominium juristic person (CJP) or owner's committee and clearer guidelines on management rights are also included.The Land Department has been given a greater mandate to penalize infringements under the act, which now adds "bite" to the department's "bark". This all adds up to good news and Thailand's amended Condominium Juristic Act is now adopting standards that are applied to most of the world's developed markets.
While this is good news for condo buyers, unfortunately the same protection is not available to buyers of leasehold houses or apartments, which fall under the Land Development Act. In Phuket, leasehold continues to dominate the market, mainly as it is the nature of the luxury villa market, allowing foreigners to have a form of ownership.
Leasehold also provides a substantial tax advantage to developers who are able to amortize revenues over a 30-year period while recognizing expenses on an accelerated basis, thus creating an extremely tax-efficient business. Most mixed developments, where there is a hotel and a residential component, use this business structure due to the restrictions placed in securing long-term management rights under the Condominium Act and to retain a greater degree of control over land and usage of premises rights in freehold property.
The Samak-led government has indicated that it will look at increasing leasehold terms to 60 or 90 years, though the future of this is dependent on the administration's ability to retain leadership of the national government (At the time of going to press, the Samak administration was still in power – Editor).
Last year, the coalition led by the military junta moved ahead with changes to the Foreign Business Act, resulting in a scare to the property market. For now, that seems to be a thing of the past. What needs to be put onto the national agenda is a revised Land Development Act that addresses not only consumer rights in a manner similar to the Condominium Act, but also the ability for longer ownership and security for overseas buyers of villas and homes.
Back to the amended Condominium Act, two key items remain unaddressed and of particular interest to a resort or investment-led property market such as Phuket: specific controls over guaranteed rental returns and the ability to obtain long-term international hotel management rights for condo hotels.
In the current marketplace, while rental guarantees provide incentive to buyers, there remains a long-term issue as to whether limited liability companies with small paid-up capital can meet these payments in case of shortfalls. In more developed markets, the use of escrow accounts or adequately controlled contingent liabilities are used to ensure promised returns in the future.
People buying a branded hotel unit have to understand that as they are buying a registered condominium. The Condominium Act allows a majority of owners to effectively change control of management. While this might be unlikely, it is possible that a scenario under which the unit was bought could change later.
The advances of the Act have come a long way in protecting buyers but there remains work ahead to bring legislation more in tune with the standards expected by international investors.