10 Key points to verify when Land and building due diligence
Purchasing property in Phuket is popular with foreigners, whether a land, villa, house, or condominium. In most cases, the purpose of the purchase is an investment or a residence. Often, both investment and residence occur at the same time. The first important step in the purchase is “due diligence”. This article gives you 10 standard key points for land and building diligence.
To understand the due diligence in Thailand. Firstly, we have already had the pleasure to introduce you to this matter. However, it is an investigation of the key points of information before the purchase to determine.
Importantly, the due diligence should include a validation of the matter of law involved at the minimum listed below:
- Land law Code (BE 2497).
• Civil and Commercial Code Book 1 to Book 4.
• Tax Code (BE 2559).
• Build Control Act (BE 2522).
• Ministerial Regulation Nr. 20 (BE 2532) concerning the Build Control Act (BE 2522).
• Department of Public Works and Town & Country Planning of Phuket (BE 2554).
• Office of Natural Resources and Environmental Policy and Planning (BE 2553).
• Condominium Act. (BE 2551) in case of purchasing a condominium.
1-Land deed due diligence;
If we see that the type of land is important, keep key facts in mind to remember that the land must be investigated in the deepest details. It is not only necessary to see the registration recorded on the back page of the title deed. Moreover, it needs to go to the deed history to ensure that the process of issuing the land deed was legal. As well, it will not be possible for a court to rule the land deed illegally after the purchase. It is common to have heard about one plot of land or project that was declared illegal despite providing a document that looked authentic. National parkland becomes illegally private. This step is the most important one in villa due diligence.
2-Land bordering checking;
The land bordering the property can be a serious issue after the purchase. Bordering disputes with the neighborhoods may arise. Importantly, this due diligence should be done by a professional surveyor. Encroachment on the neighborhood’s land is not the best way to introduce yourself to them.
For big-size plots, this key point also ensures that the property can hand over to the buyer without the eviction matters involved.
You know that the way and the road are legally different. Often seen in Phuket are public roads and Servitude or Easement. So you have to ensure that the land has an access road connected to the public road. A plot connected to the public road is the best. But a private way of registering servitude is acceptable. With this in mind, the simple mention of the title deed that shows that the public way is connected is not enough. The cadastral map of the land department and local authority documents should have validation.
4-Limit of construction;
Due to city zone and environmental laws. For example, in Phuket, since 2010, no building permit has been issued for land at an altitude over 80 meters. Also, how will you feel when your nice view is blocked by a 6-story building built after your purchase? And vice versa: you plan to erect a 6-story building, but the regulations allow only a 3-story one.
In some cases, the ownership of land and buildings is held by different people. The land belongs to a Thai company, but the building belongs to the company director. Therefore, legally, there are two different persons, and you should ensure that the sellers have the right to sell, lease, or levy without third-party consent. Again, with that in mind, being a director of the company doesn’t mean that you have the right to sell its assets without the acknowledgment and authorization of the board of shareholders. The Director has a liability towards shareholders and third parties.
Importantly, the illegal building may get an administrative or court order to demolish it. That is why an accurate building permit is important. In some cases, we found that the building permit did not cover the whole building above the land. Also, in some cases, the building permit was issued for the building on land at an altitude of over 100 meters, as mentioned in clause 4.
In the case of purchasing a condominium. Many times, the purchase contract and payment are made before approval of the condominium license. The risk is that the buyer can’t register the freehold of the unit. As well, a leasehold registration with non-acceptable management standards often comes up later. We highly recommend buying a license for a project.
This is particularly important. In case the ownership of the land belongs to Thai Company Limited and the buyer takes over Thai Company Limited. An accountant’s analysis is additional due diligence. Furthermore, where B.V.I. is involved as a shareholder in the Thai Company Limited, the Certificate of Incumbency and the Certificate of Good Standing or Certificate of Incumbency have been validated by the Registration Agency. This is to avoid tax problems after the purchase.
Keep this in mind: management agreements need to be clarified in the case of the purchase of real estate in a development project. As well as the regulation of condominium juristic persons, these need to be clarified in the case of the purchase of the condominium. What about if you pay for some services that are not provided or if you don’t have the right to vote during the co-owners meeting? They can affect your future happiness.
To understand the cost involved. Private or common meters shared between co-owners and lessees can lead to bills multiplied by 10 or more. Development expenses can increase exponentially if the connection to the Public Electric Authority is far away and the power is not enough to cover all your projects. Electric transformers cost more than you expected and can cost up to a million baht.
With this in mind, it is not only these 10 key points that are the minimum to verify. But many other points are interesting for validation. It is your choice. As they are not only legal but coupled with environment, safety, health, and happiness.
A number of mistakes are made when doing due diligence, both villa due diligence and condo due diligence.
- Deep details of land title history are not checked perfectly, and some points are unclear or unseen.
- Land bordering has not been validated by a land surveyor to know exactly the reference mark and the boundary mark (GPS).
- Access Way has not been validated by cadastral mapping to ensure that the simple mention of a public road is connected to the public road.
- Building permits have not been validated because they don’t cover all construction above the land. Under the Build Control Act (BE 2522), most buildings require a building permit, so even if your completed building is smaller than you expect, you must rectify it.
- Limitations of land use have not been validated in the case of purchasing a condominium due to Town and Country Planning, Natural Resources Law, Environmental Policy, Planning Law, and Condominium Law not being respected.
In conclusion, the villa, land, and/or house, condo, or property due diligence checklist is an important step. It is not only to prevent a legal problem but also to protect your investment. And there is more to understand when buying a villa or a condo in Phuket. For instance, contracts, things in relevance, leasehold, and freehold.
Hopefully, this article helps you understand the necessity of villa and condo due diligence. If you are in need of a real estate lawyer or for more information feel free to contact us at any time.