On 1 May this year, a new set of regulations came into force regarding the rental of property in Thailand. The new tenant protection regulations are encompassed in the Consumer Protection Act that was passed by the Government at the start of 2018. The initial feeling is that the move has been made to crack down on unscrupulous landlords and to reduce the number of issues that arise regarding deposits and lease contracts. The new guidelines are intended to make things a lot clearer.
Although the rules were first announced in the Royal Gazette on 16 February, there has been a fair amount of confusion ever since regarding the consequences and the expectations. It appears to have had a knock-on effect with regards to Airbnb in Thailand with the law being enforced regarding short-term rentals (those less than one month). How all of this pans out in the long-term is anyone’s guess but we have put together our short guide regarding the main points.
One of the key points to understand is what the definitions mean. Firstly, residential leasing is now referred to as a “contract controlled business” therefore meaning that landlords are “business operators”.
The interpretation of the new law had initially been quite hard to form a common consensus but we have spoken to a respected lawyer and although we cannot be 100% certain the definition is accurate, we believe we are quite close.
It appears that the law is primarily, but not solely, concerned with assisting Thai nationals living in apartment blocks although as it is still very early days, this interpretation may be wide of the mark. Our understanding is that this means that the laws are focusing on landlords owning 5 or more units in the same building. The law is currently being challenged by business operators so there may be more changes afoot.
The three main points that we have decided to highlight with regards to the changes are discussed below:
Rent and Deposit
The standard practice in Thailand has always been two months security deposit and one month rent up front. However, this is where one of the major rules changes comes into effect. As of 1 May, the lessor can only ask for a one month security deposit which should, in theory at least, mean that it is easier for them to rent out their properties, but on the downside, it does leave landlords exposed to potential losses should the property be damaged.
There have been no changes to laws concerning one month’s rent in advance although there is a feeling that rental prices may increase to cover any potential damage to property. Whether this happens is again a point of contention with demand and supply likely to be the major driving forces behind this.
Lease can be terminated early with “good reason”
The second major point of interest is the fact that leases can be terminated with just 30 days’ notice. In the past, the lessor was well within their rights to retain the deposit if a rental was terminated early. Usually, this was at the discretion of the landlord and often they would only continue to take the rent until an alternative tenant was found. The new rules effectively mean that a 12 month contract is in effect a 1 month rolling contract that can be renewed after one year.
The landlord must return the security deposit immediately unless they need to check for damages. This effectively means that the lessor still has to return the deposit within the usual 7 days on termination of the contract unless there is “good reason” to hold it longer. This is the point relating to repairs that are being made to the property at the (former) tenant’s expense.
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No premiums can be charged for water, electric and other utility bills
Although most condominium and houses have government electric meters, many apartments charge occupants a premium when it comes to water, electric and WiFi. These premiums can be substantially higher and this practice has now been deemed illegal. Once again, this point is really only concerned with apartment block owners as the practice is rare in other cases.
Of course, there are some less significant changes that affect how landlords operate although they are likely to have conducted these practices as standard anyway. These minor changes include the fact that it is now law to prepare an inventory at the start of the rental and this should be attached to the rental agreement. All new rental contracts must not include any clauses that give the lessor the option to terminate the contract for anything other than a material breach of contract, nor can a landlord confiscate the security deposit.
The penalties for breaching any of these rules are quite severe. The business operator could be punishable by a fine not exceeding 100,000 Thai Baht and/or imprisonment of no more than one year. These strict punishments are designed to ensure that landlords comply with the new laws.
What will the effect be on the rental industry?
As we mentioned at the outset, there is still a lot of confusion regarding whether the new laws affect investors with less than five properties. Whether it will have any significant impact on demand seems unlikely although it may result in either rental prices increasing to cover risk or more expensive properties becoming more affordable due to the reduced deposit.
Many expats work in the city so they will still need places to live so the rule changes will make little or no difference to this group either. Those who feel the most benefit are likely to be those living on a pension and have a fixed income each month. The saving of one month deposit is likely to make a big difference to this group.
The extra level of security for tenants is likely to increase confidence amongst lessees as there has been a feeling for a number of years that tighter measures were required due to a minority of disreputable landlords.
There is an overall feeling that the new rules are designed to have a similar impact to the crackdown on short-term rentals and the government’s desire to have greater control over rental activities. The legislation and the restrictions that have been imposed on Airbnb in Thailand have also been seen in other parts of the world so it appears that globally efforts are being made to regulate the market.
At this stage, it is too early to make any accurate judgement regarding the full impact but the consensus appears to be that it will have little impact in reality.
* Disclaimer: This article is for information purposes alone and should not be taken as legal advice.