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Archive issue
Issues for the Buyer - Reasons for Purchase and Type of Due Diligence
Legal Matters: December 2006 - February 2007“What level of due diligence should I or my lawyers conduct on a real estate investment and does the level vary according to price?”
You should conduct full due diligence regardless of the amount of money you are spending or the unit you are buying. This would typically comprise a title search tracing a full history of the land on which the unit is built; a review of the contracts, including a reservation contract; examination and analysis of the structure the developer or seller is using to sell the real estate and title registration or transfer.
(Desmond Hughes, Partner)
“What is the best form of investment in terms of legal structure?”
Freehold condominiums are the best, most secure and well known methods for foreigners to legitimately own a title in its own name. However, there are other ways to structure an investment that include leasehold ownership but with an element of participation in the management entity and landlord entity managing the development or unit. It is evident that Thai companies are more cumbersome forms of investment if a foreigner does not have legitimate Thai partners who will stand to receive bona fide returns on their investment given.
(Kris Limcharoen, Partner)
“How does legal advice differ if I invest for rental return, capital appreciation or simply for holiday home usage?”
Due diligence should be carried out as thoroughly, but contract review will have a different focus if clients wish to re-sell a unit quickly or hold and sell (capital appreciation) as opposed to hold and generate returns (rental income less maintenance and management expenses). Exit from a rental pool; management of the sinking fund; contractually permissible deductions from the rental pool (genuine expenses) and quite detailed matters are pertinent to a rental pool investment. The rental pool manager and its credibility should also be checked. For re-sales, any provisions which require ambiguous consent or input from the developer conditional to a sale should be scrutinised carefully to
ensure a sale is not inhibited nor prohibitively expensive cutting away at a profit margin unreasonably.
(Desmond Hughes, Partner)
“What issues would I need to consider regarding common areas in a development?”
You should receive disclosure on who owns or controls the common areas; if at an appropriate time - who will be managing them; a clear idea of fees for management and how such areas can be used. There should be a prohibition on building on common areas unless all owners in a development need some additional structure for their collective benefit. Access is also often allowed through a common area and the circumstances in which access could potentially be denied or blocked should be carefully considered. Finally, the legality of title of common areas should also be examined and not considered separate to the title on which the units are built.
(Kris Limcharoen, Partner)
“I am considering looking at property in "High Season" in Phuket. Are there any specific issues I should be aware of which relate to the timing of my investment or enquiry?”
Construction in Phuket slows down in low or rainy season so this should have been borne in mind by a developer when selling you a unit. Certainly, a timeframe for delivery should be realistically assessed taking into account the Phuket climate. In high season, there will be more tourist visitors gently enquiring about properties and agents are more likely to have received a number of enquiries about a unit, therefore ensure your advisers can review and have access to reservation contracts and documents to review quickly before signing. Investors should ensure that they have received a legal brief from a legal adviser on investing in real estate in Phuket before considering an investment.
(Desmond Hughes, 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
