In this article, we’re going to give you essential information about sales with the right of redemption under the Civil and Commercial Code of Thailand (CCC) and the protection of people in sales with the right of redemption of land for agriculture or housing under B.E. 2562 (PAHA). This type of contract is always used as loan collateral instead of a mortgage because of the easier legal process for the lender when the borrower fails to repay.
Definition
Sale with the right of redemption means a contract of sale whereby the ownership of the property (moveable or immovable) sold passes to the buyer with an agreement that the seller can redeem that property (Section 491 of the CCC). To protect the seller, the parties may agree that the buyer shall not dispose of the property sold. If not, he shall be liable to the seller for any injury resulting therefrom (Section 493 of the CCC).
It means if the seller does not buy back the property, the buyer doesn’t need to follow any legal procedure to have ownership of the property. In the case of using this type of contract for loan collateral, the buyer has ownership of the property instead of the repayment. This may be the main reason why sometimes this type of contract is used as loan collateral instead of a mortgage (for a mortgage, the borrower has ownership of the property, and the lender needs to set up legal execution for debt repayment).
Importantly, sales with the right of redemption of immovable property or five-tonne gross vessels or more must be made in writing and registered by the competent official, e.g., the Marine Department or Land Department; if not, they shall be void (Section 456 of the CCC and Section 7 of the PAHA).
Period of Redemption
The right of redemption cannot be exercised later than ten years after the time of sale in the case of immovable property and three years after the time of sale in the case of movable property. The maximum period is included in the period of extension of redemption, if any. The extension of the properties mentioned above must be made in writing and registered by the competent official too. If not, the extension cannot be set up against a third person who acted in good faith (Sections 494 and 496 of the CCC).
If a longer period is provided in the contract, it shall be reduced to ten years and three years, respectively (Section 495 of the CCC).
There is no minimum period of redemption for the said properties, but in the case of land for agriculture or housing, the minimum period of redemption is one year (Section 10 of PAHA).
Price of Redemption
If no price of redemption is fixed, the property may be redeemed by reimbursing the price of the sale. If the price of redemption or the price of the sale at the time of redemption is higher than fifteen per cent per year of the real price of the sale, it shall be redeemed at the real price of the sale, including fifteen per cent per year (Section 499 of the CCC).
Jurisdiction
In the case of land for agriculture or housing, the legal decisions are under the Consumer Protection Procedure Law (Section 10 of PAHA). However, legal decisions in the case of other properties are under civil and commercial procedure law.
Conclusion
A sale with the right of redemption is an option for loan collateral. Don’t forget that all contracts in Thailand are subject to contract validation. Check out the link before signing. For more information, please contact us.
