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Issues for the Buyer – Legal Contracts vs Reality
Legal Matters: March - May 2006“When I sign a reservation contract, what am I committing to?”
Reservation contracts are designed so that at least some money is paid as an initial indication of a purchaser acting in good faith. In actual fact, a purchaser may elect to terminate a reservation without cause but should under a properly drafted reservation agreement forfeit monies paid for such an action. A purchaser should seek to ensure that a deposit is refundable in the event that due diligence into title results in an irresolvable issue declared by the purchaser’s legal team and in cases where contracts are not disclosed early in the process or there are lots of missing documents, the reservation fee should also be refundable if reasonable terms cannot be agreed. Developers may choose to avoid the latter provision to avoid prevaricators.
(Desmond Hughes, Partner)
“How much time is reasonable for due diligence to be conducted?”
Agents on commissions will naturally be keen for a transaction to complete as soon as possible. Developers will not want contract negotiation to drag on but equally should manage the same by being prepared. At the reservation stage, a buyer may not be aware of the extent of due diligence required and may not know if a contract presented is in reasonable shape or not. Therefore, an unnaturally tight deadline may be a negative sign or a ‘pressure sale’ but not necessarily indicative of an issue, perhaps just the style of the seller or agent. Such timelines, where a reservation fee is made should be extended by the buyer in a sales office before signing an agreement to complete. 14 to 30 days is normally a reasonable period in ordinary circumstances for title due diligence and review of contracts.
(Kris Limcharoen, Partner)
“Should all the contractual documentation be ready at the time of my expression of interest?”
Most developers should have thought through the sales process clearly and will be aware of what purchasers will need to see in order to make a well informed judgment on whether to proceed or not. The key contracts that should be available are the sales contract which may be a freehold, freehold condominium, lease contract or variant of the same; a share subscription contract in the event there will be common ownership by owners in a development of a Thai company which owns the land plot underneath the construction; any rules of an estate, golf course, marina or other development; and management information. Management information, in an off-plan project, may not include a management contract as construction may permit a developer to scrutinise and pick from the market of property management companies a reputable and successful firm. Such matters change over time and it may not be appropriate to commit to a management company at the outset of development. Certainly, a fee estimate of management fees or even a cap should be available.
(Desmond Hughes, Partner)
“Is there anything else that should be presented to me?”
To save financial surprises, a well organised developer or sales team should already have to hand the total costs relating to the transaction falling outside of the purchase price. This will in addition to management fees include: government fees, taxes and registration fees; fees relating to share subscription; BVI or offshore company maintenance fees; sinking fund fees for at least the first 12 months of ownership; and maybe even for those unfamiliar with Thailand, a non-binding estimate of utility expenses based on the number of rooms, air conditioning usage and swimming pool water consumption. Such estimates are essential for budgeting when purchases are made with the intent to let out the property or enter it into a rental pool.
(Kris Limcharoen, Partner)
This article is one in a series of articles for Exclusive Homes and was co-written by
Desmond Hughes (Partner) and Kris Limcharoen (Partner) based in the Phuket, and Bangkok offices of Belmont Limcharoen respectively and now with an office in Koh Samui.
Information supplied by:
Limcharoen Hughes Glanville (Phuket)
T: +66 (0) 7634 2882-4 F: +66 (0) 7634 2885
E: Phuket@Limcharoen.com
Limcharoen Hughes Glanville (Bangkok)
Tel: +66 (0) 2635 5071-3 Fax: +66 (0) 2635 5074
E: Bangkok@Limcharoen.com
Limcharoen Hughes Glanville (Samui) Co., Ltd
T: +66 (0) 7724 6185 - 7 F: +66 (0) 7724 6188
E: Samui@Limcharoen.com
Limcharoen Hughes Glanville (Ho Chi Minh City)
T: +84 938 8469021 E: HoChiMinhCity@Limcharoen.com
www.limcharoen.com
