Tagged in: Supreme Court

The Origins Of The Six Percent Real Estate Agent Commission

The commission paid to the Real Estate agent is a serious amount of money and a concern in any transaction involving the sell of Real Estate. Where did this six percent commission come from?

The idea of a 6% Real Estate commission being paid to the agent originated during the 1940s when local Real Estate Boards openly engaged in price fixing to establish a standard rate. This process was an out and out case of an unfair practice, but the 1940s was a time when the attention of the country was directed to some serious external matters and the idea took hold and spread quickly through the industry.

In the early 1950s, the Supreme Court ruled that an established 6% commission was illegal. Rather than open up commissions to a more competitive and free market system, the Real Estate Boards merely shifted gears with a bit of fancy linguistic footwork and began to call the 6% commission the suggested amount. During the 1950s and 1960s, they managed to get away with this practice without much trouble as the majority of real estate agents complied with the suggestion.

In the 1970s lawsuits brought against the Real Estate Boards effectively put the skids on this practice. The Real Estate agents commissions were opened up to competition without the Boards either being able to mandate or even suggest 6% as the carved into stone rate. However, the rate did not alter very much in the years following these court cases. Although the rate may not have been carved into stone, it was pretty much established in the Real Estate market as a standard.

Generally, competitive markets benefit consumers. As long as someone is willing to offer a discounted rate, it would seem that the consumer stood to save money. However, the proponents of a standard 6% rate commission point to such things as health care to argue that the standard rate may actually be helping the consumer by holding the commission down to 6% rather than propping it up to that level. Although the cost of health care is not regulated, the general trend has been straight up off the charts.

Real Estate agents would be quick to point out that if you were to take a close look at just about any service or product being offered or sold in the 1940s, you would find a very serious increase in cost to the consumer. Except for Real Estate commissions which are still right around 6%. The amount being paid to the agents has increased greatly merely because the value of the property being sold has increased. Today, the internet has been responsible for a few chips in the rock of the 6% commission by offering some straight fee or reduced rate services that allow the sellers to list their own properties. The results are still mixed and the 6% commission is still the standard.

Buying A Leasehold Condominium In Thailand

Foreigners may under the Condominium Act own up to 49% of the units (in floor space) in a condominium complex in Thailand. The remaining 51% of the units must be owned by Thai nationals.

In the Thailand resort areas such as Phuket and Pattaya condo developments and sales are primarily aimed at foreigners. The 49% freehold units in a condo project are the first units to sell, but the remaining 51% units in the Thai side of the condominium are tough to sell. There is no interest from Thai nationals in these tourist resort condos and the remaining condo are often sold under a leasehold to foreigners. In the end part of the condominium will be owned freehold and leasehold by foreigners.

Buying a leasehold condo in Thailand

Whether you buy a condo leasehold or freehold the purchase price remains the same and foreigners often buy leasehold condominiums in Thailand because the leasehold contracts suggest more rights for the leasehold purchaser than is guaranteed and possible under Thai law. Foreigners often do not understand the concept of lease in Thailand.

What is leasehold in Thailand

What a foreigner pays for when he is buys a leasehold condominium is actually rental for up to 30 years. The leasehold contract is and must be read as a rental contract and is governed by the section hire of property in the Civil and Commercial Code. The foreign leasehold purchaser of a condo enters into a tenant-landlord or hirer- lessor relationship, often with the developer of the condominium as the landlord.

As a rental contract the foreigner must consider the following under Thai law:

Voting rights in the condominium juristic person associated with ownership remain with the owner of the unit and not with the leasehold purchaser. If a large part of the condominium is sold under lease contracts the developer of the condo will have a large part of the voting right and control in matters like condo management. Considering that most condos are managed by the developer’s management company common complaints relate to high maintenance and management fees. The selling of leasehold condos disturbs the democratic voting right system in a condominium.

Selling a leasehold condo down the road

As leasehold is a rental, and by law the leasehold purchaser does not have any rights or authority to sell or assign the leased condo. The buyer of a leasehold condo is a tenant and only has the exclusive right of possession of the condo for the term in the lease agreement. The only person with the right to sell the condo is the registered owner and assignment of the lease can only be done by the landlord/owner.

Sub-rent of the condo
A leasehold owner is only allowed to sub-rent the condo if this is agreed in the condominium lease contract. Otherwise the law stipulate that sub-rent is not allowed.

Inheritance of a condo in Thailand

Even though the Thailand Condominium Act in section 19 does not automatically qualify the heirs of a freehold owner for registration of ownership, freehold owners can pass on a condominium by inheritance to another foreigner.

A leasehold of a condominium is a rental and based on Supreme Court ruling this type of contract is terminated upon death of the tenant/ lessee party of the agreement. The lessee or tenant is an essential element of the agreement and under contract law this type of contract is terminated upon death of the lessee. The remaining term of the lease agreement will not pass on to the heirs of the condo. The lease agreement could include a succession clause however this does not offer any guarantee that the remaining lease term is also registered by the owner in the names of the heirs.

Transfer of ownership of the condominium does not break rent under Thai law, death of the lessee does!

Renewal options in the contract

Most foreigners who buy a leasehold condo are mislead by the term of the lease contract created by renewal options. Under present Thai law the renewal option is nothing more than a promise to renew the lease upon expiration of the first registered term after 30 year. Such a promise to renew has only effect between the parties to the contract. Should the lessee die or should the owner die or transfer ownership this contract option is lost. As confirmed by Supreme Court rulings a renewal option has no effect against third parties and do not transfer by law to any transferee owner.

Right to transfer to freehold

Like the renewal option this is a contract right between the parties only. It could be impossible or difficult to enforce. It is not a guaranteed right or option.

Term of the condominium lease contract

Any lease agreement in Thailand cannot exceed 30 years. Any longer term will be reduced to 30 years. The 30 year lease is not a fixed asset, it is a rental contract. As a contract it can be terminated prior to the expiration of the 30 year term, for example breach of contract by the tenant lessee or death of the lessee.

Taxes

As opposed to freehold condos rental or leasehold condos are subject to a rental tax of 12.5% over the actual yearly lease price or annual assessed lease price. This is often passed on in the lease contract to the leasehold buyer.

Before entering into a leasehold purchase of a condominium foreigners should consider the rights associated with lease in Thailand. Some matters can be anticipated if properly included in the contract, some rights included in the contract are not guaranteed and the relation with the owner remains a tenant/ landlord relationship.