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Hughes Krupica: The rights & wrongs of Residential Commercial Letting Policy

  Boat Lagoon

In the last two years or so there has been a lot of government activity in Thailand designed to tighten up on the unlawful use of residential property in a hotel context. The policy behind the tightening of review and enforcement is to level the playing field for investors who have incurred significant expense building accommodation to comply with the Building Control Act and environmental regulations, and to obtain all the necessary licenses connected with operating a hotel business. I should also mention that their corporate structure has to comply with Thai law, which is an additional layer of burden if there are foreign investors involved.

There have been raids on unlicensed hostel premises, inspections of properties clearly being built in locations where hotels cannot be located, reviews of the built-up area to un-built area ratios and surveys of beach setbacks and commercial property within residential property, which must be designated as such in particular in regulated estates such as ‘Moo Baans’ under the Real Estate Development Act or condominiums under the Condominium Act.

In addition to this, there has been a spate in the last five years or so of ‘disruptive businesses’, which have caused polarisation of opinion across the spectrum from complete disapproval through to gung-ho support for anything that ‘sticks it to the Man’. Many observers believe that ‘facilitators’ or ‘portal’ companies, such as Airbnb and all the new entrants in that saturated market, are shining knights and heroes of the accommodation industry because they provide so many more options for holidaymakers, especially for large groups of friends or families who may find homes to stay in instead of the smaller rooms in many hotels and serviced apartments.

However, there is another, more dangerous side, to this story. A side that many don’t wish to think about or apply their minds to when it comes to their own freedom of choice versus appropriate regulation and supervision of those responsible for providing lodging on a commercial basis.
Although there will be many outstanding properties available on the new disruptive portals, there will also be many that will have defective dangerous wiring, no emergency exits for fires, no extinguishers, rodent infestations, asbestos, poorly maintained air conditioning units, dangerous swimming pools with unchecked chlorine levels and a hotwired pump room. Noting this non-exhaustive list, it is clear that lodging for commercial purposes ought to be regulated.

If the current regulation isn’t good enough, then many will have to wait for it to catch up with modern practices. However, it is for Thailand and its government to balance regulation and choose how much and how to regulate lodging, as this is a matter of national interest and not a matter to be determined arbitrarily by say, a small management company that carries out rentals on a project that has no licensing or compliance whatsoever. The hotel business in Thailand is clearly linked strongly to its economy as is tourism in general.

Making this situation somewhat worse is the modern phenomena of fake, or just defective, scare-tactic information. If you conduct an internet search on hotel licenses and accommodation you will come across all sorts of news articles, supposed ‘learned’ articles citing huge tracts of law that will make the average property investor nod off into their Coffee Martini.

There is an overload of damming information citing exemptions for room counts, lack of clarity on whether rooms in a villa are ‘rooms’ in the exemption, sometimes no mention of the processes of obtaining environmental consent, confusing explanations of how to apply for a hotel license and omissions relating to the declaration process that a property isn’t being used in a hotel programme.

“Worse still, some developers appear to be promoting property which hasn’t been built and hasn’t been designed to conform with building control requirements, comprising promises of returns entirely based on rental returns if the property is used in a hotel programme - and are apparently able to sell the units like hot cakes because they have used the bait of a ‘guaranteed rental return’.

Some readers may wonder why I am not providing a clear succinct guide on whether their prospective residential, or in fact commercial/residential property, will or will not be legal under existing laws. The reason is I haven’t is that it depends on many factors, which have to be checked properly.

Many legal articles end with an advertisement style – “come and see us to check the position”, but I don’t need to even say that. If you are buying property which is going to be used as part of a hotel oriented use, one night rentals, rentals for less than 30 days, then you had better check properly that you know what you are doing – and that the seller/developer knows what it is doing. The government does know the position of many unlicensed projects, and is simply working its way through at its own pace to impose the regulations, which it has done with a pretty fair hand, including a moratorium period it offered unlicensed projects a while back.

As always, I remain a positive but cautious observer and participant in the property market in Phuket and further afield across Thailand. I know many developers who spend money on internal and external legal advice and really take care to get things right. Try and find out who they are when you are browsing the very nicely presented brochures.

By Desmond Hughes, Senior Partner of Hughes Krupica.
Hughes Krupica is a law firm which specialises in Real Estate; Construction; Hospitality; Corporate; Commercial; Personal Injury; Dispute Resolution; and Litigation, operating in Bangkok and Phuket, servicing clients in relation to their business activities in Thailand and in other regions of Asia.

GPS coordinate: 7.962140, 98.385884

 Contact info:

Hughes Krupica Consulting

Hughes Krupica Consulting Co. Ltd
23/123-5 Moo 2 Kohkaew Plaza
The Phuket Boat Lagoon
T. Kohkaew Amphoe Muang
Phuket 83000 Thailand
Tel: (0) 76 608 468

Hughes Krupica Consulting (Bangkok) Co. Ltd
29/41 Soi Ladprao 22
Ladprao Road
Chankasem, Chatuchak
Bangkok 10900 Thailand
Tel: (0) 20 771 518

[email protected]

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