Tag Archive: contract

  1. Residential Property Leasing as a Contract-Controlled Business

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    Overcharging tenants for electricity and water was a common practice among landlords in Thailand. Weak regulations laid the foundation for the collection of exaggerated deposits and punitive methods of landlords if tenants did not pay their rent.

    The Contract Committee of the Consumer Protection Board aims to end such practices with “the Regulation of Residential Property Leasing as a Contract-Controlled Business B.E. 2561” (the “Regulation”). Since May 2018 residential property leasing is considered as a contract-controlled business.

    According to the Regulation the residential property leasing business is considered as a business which involves the lease or sublease of five or more units to individuals. The term ‘property’ has a broad meaning; it includes all kinds of residential accommodations, such as apartments, condos, flats and houses.

    Residential Property Leasing

    Such lease agreements must comply with the following requirements:

    • The agreement must be composed in Thai language (in addition to other languages, as the case may be) and include information on the business operator, the lessee and the property itself, the property’s condition and equipment. The lease agreement must contain the start and end date of the lease, rental and utility fees, due dates and other reasonable costs such as service fees and security deposit.
    • All invoices must be sent seven days before the due date. The business operator is obligated to provide a duplicate of the lease agreement and attach the tenant’s acknowledgement of the property’s condition and equipment.
    • The business operator has to repay the security deposit within seven days after the termination of the lease agreement and the inspection of the property’s condition.
    • The tenant has the right to terminate the lease agreement any time by giving written notice to the business operator 30 days in advance.
    • Clauses which give the business operator the right to terminate the lease agreement prior to the originally agreed period of time must be written in bold, italic or red letters.
    • If the tenant is in breach of the contract, then the business operator is required to give the tenant 30 days to eliminate the breach before termination.
    • It is forbidden to incorporate clauses which waive or limit the liability of the business operator who is in breach with the lease agreement or acts wrongfully, allow the business operator to request an advance rental fee of more than one month’s rent or to alter the rental rates or any fees during the duration of the lease agreement. The security deposit must not exceed the amount of more than one month’s rent, and terms which allow the business operator to seize the security deposit or advance rent are void.
    • Before inspecting the property, the business operator has to notify the tenant within a reasonable time.
    • Terms which allow a higher billing for electricity and water than the rates prescribed by the authorities are prohibited as well as stipulations which enable the business operator to bar the tenant from entering the accommodation or confiscating the tenant’s possessions.
    • Fees for prolongation of the rental agreement and terms which allow the business operator to terminate the lease agreement earlier without cause, such as material breach of the contract, are forbidden.
    • Normal wear and tear of the property or its interior and defects that result out of wear and tear shall be borne by the business operator only.
    • The tenant is not liable for property damages caused without the tenant’s contribution.

    If a lease agreement includes above-mentioned clauses, such clauses will from now on be deemed invalid. A business operator who fails to follow the Regulations could face criminal prosecution.

  2. What Makes for a Good Contract?

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    A large number of contracts are negotiated and concluded in everyday business without the involvement of lawyers. Standard contracts are used, and collections of samples are freely available. Such model contracts can be helpful depending on the qualifications of their authors, however, caution is required because the standard contract, which fits every business deal, does not exist. Therefore, it is strongly recommended to ask a legal professional for assistance when a contract is needed.

    As the first prerequisite for a good contract, each party must be aware of what it expects from the transaction, and this expectation must be communicated openly and transparently to the other contracting party. This sounds banal, but it is not. It means that the parties have to discuss the expected course of the business together and identify not only the individual rights and obligations, but also potential performance problems.

    For these, rules should be provided at the time the contract is concluded, even if these negative points are not addressed in a business relationship. In the event of a long-term relationship, it is also necessary to discuss the changes that may occur during the course of time: prices must be adjusted, supply quantities varied, rental space increased or reduced, and cooperation could be considered without a dispute. For these cases too, modalities, rights and obligations must be created.

    Contract design

    Expectations and intentions should not only be disclosed, but also documented. The content of a contract can be unclear, for example, because the parties did not agree on a certain point, either consciously or unconsciously. If there is a court dispute, the court will construe the contract in accordance with well-established rules of interpretation. The court asks how the recipient of a declaration of consent could, at the time of the conclusion of the contract, understand and have had to understand the statements and behaviour of the other party (as a sensible and honest judger), taking into account all circumstances recognizable to him. The decisive factor is then no longer what a party really wanted to explain, but what arrived at the recipient of the communication.

    Then a contract should, as far as possible, reflect the actual contract reality. If, at the time the contract is concluded, the parties assume that the contract certificate is merely unnecessary “lawyer stuff”, and that in practice they don’t adhere to the written procedures anyways, the most important aim of the written contract is missed. Because in the event of a dispute, no provisions can be found to resolve a particular disputed question. Legal consultants and (internal or external) jurists should therefore take the process of drafting contracts from the start of the negotiations to the signing of the contract as a common task, which requires an ongoing exchange and a lot of mutual translation work.

    Building Contract

    Building a contract

    A clear structure of the contract as well as a careful drafting of contracts always pay off, even if this is complex and time-intensive. Traditionally, contracts are structured as follows:

    – Contracting parties (identification of the parties)
    – Preamble (Declaration of Intent and Principle)
    – Main part of the contract (description of the services and contract execution)
    – Further provisions and final provisions
    – Signatures and
    – Annexures

    Contradictions within a contract or between different contract components should be avoided as they make the subsequent interpretation unnecessarily difficult. Also, the terminology should be used uniformly.

    The clear and unambiguous identification of the parties is important, especially in the case of groups with several group companies. Often, even the obligations of companies and those of individuals are mixed, which can lead to the fact that they cannot be enforced because they have to be claimed against a person who is not a contracting party at all. An extract from the commercial register (in Thailand “company affidavit”) should then be used to ensure that the contract is signed by persons who are actually entitled to sign.

    Preamble

    In the introductory statement of principles and intentions, the parties maintain the initial situation at the time of the conclusion of the contract and express their contractual objectives in simple terms. Thus, the preamble often contains a description of the contract parties, the history of the negotiations of the contract, the interests of the parties to the conclusion of the contract, and the objectives and scope of the contract. This serves as a preliminary step to the aforementioned accountability of the parties. At the same time, it is an important interpretation aid in the dispute with the court.

    The designation of the contract and the choice of the parties’ names (for example as “agent” or “partner”) is an indication of what a contract the parties wanted to conclude (for example an agency agreement or a company contract). The legal nature of the contract shall, however, be determined by the Court independently of the name selected by the parties. For example, the court can qualify an “agency contract” as an employment contract because of the actual reality of the contract, with the result that the supposed client must pay the social insurance contributions or the holiday of the alleged agent. The circumstances of the contract and the intentions of the parties are also relevant for this qualification.

    Main part of the contract

    The core element of the contract is the parties’ agreement, as this results in their rights and obligations. This section describes the physical and monetary performance and the details of the implementation of the contract, such as the contractual area, the delivery and payment modalities, the date of fulfilment, the place of fulfilment and the mechanisms for checking and adjusting the contract content. In this part, a guarantee may as well be included, namely the rules for guarantee, liability, collateral, insurance, etc. The structure can follow the topics to be regulated or the rights and obligations of the parties. For more complex contracts, a combination of these is often a good idea.

    Other provisions and final provisions

    Depending on the type of contract, there are numerous other provisions which need to be regulated. Examples include, for example, non-compete, secrecy obligations, obligations to terminate the contract or penal sanctions. The term of the contract and the termination of the contract are often regulated separately. Finally, the final provisions contain provisions for amendments and additions to the contract, clauses relating to non-compliance, jurisdiction and applicable law.

    Finally, it should be remembered that the law is a dynamic system that is constantly changing. Long-term contracts or re-used standard contracts should therefore be periodically reviewed, in order to ensure that they take account of the latest legal developments.

    If you have any questions related to contracts, please contact us at [email protected]