Making sense of leasehold, freehold, and everything in between
Phuket, the pearl of the Andaman Sea, is a tropical paradise that attracts millions of tourists annually with its pristine beaches, vibrant nightlife, and high-end resorts. For foreign investors looking to tap into Thailand’s booming tourism industry, buying a hotel business in Phuket can be a lucrative and rewarding venture. However, the process is not always straightforward—particularly due to restrictions on foreign ownership of land in Thailand and the intricacies of Thai property law.
This article provides an overview of what foreigners need to understand when considering hotel ownership or lease in Phuket, including leasehold structures, freehold ownership through Thai companies, and practical advice to ensure legal security and long-term business viability.
1. The Basics: Why Freehold Ownership Is Rare for Foreigners
In Thailand, foreign individuals are generally prohibited from owning land. This applies to all types of property—including commercial land where hotels are built. Because of this restriction, direct freehold ownership of hotel land by foreigners is not allowed unless:
The property is a condominium unit (which doesn’t apply to hotels), or The ownership is structured through a Thai majority-owned company (explained later).
As a result, leasehold ownership becomes the most common and legally secure method for foreigners to acquire hotel businesses in Phuket.
2. Leasehold Ownership: Types, Terms, and Structures
a. Standard Leasehold (30 Years)
Under Thai law, the maximum lease term permitted for commercial and residential property is 30 years. Foreign buyers can enter into a lease agreement with the landowner (typically a Thai national or Thai company) for a 30-year lease term.
This lease term is often considered the “equivalent” of freehold, especially when the price paid is similar to a property sale.
While legally it is a lease, it gives the buyer exclusive control and the right to operate the hotel business for the full 30 years.
b. Lease Extensions: 30+30+30 Years
In many cases, sellers offer leasehold deals with one or two optional renewals of 30 years each (commonly called “30+30” or “30+30+30”).
Legally, extensions are not automatically enforceable; they must be agreed upon again at the time of renewal.
However, long-standing business norms in Phuket show that most landowners honor these commitments if documented well and backed by strong legal agreements.
Why it’s popular: This structure gives a sense of permanence and long-term investment security to the foreign buyer—almost like owning the property.
c. Short-Term Renewable Leases: 3, 3+3 (6 years), 3+3+3 (9 years), 3+3+3+3 (12 years), etc.
One of the most common lease structures offered to foreign buyers—especially for hotels, guesthouses is the “3+3+3” format (or similar variations such as 3+3 or for 12 years).
This structure means the initial lease term is 3 years, with one, two or three additional 3-year renewal options, potentially extending the total lease period to 6 or 9 or 12 years.
✅ Why Do Owners Use 3-Year Segments?
Under Thai law, leases longer than 3 years must be registered with the Land Department, and the lessee’s name becomes part of the official land records. This involves:
-
Additional taxes and fees for registration and more complex legal implications for the property owner (especially if they later wish to sell the land or change the lease terms)
To avoid this, property owners often offer shorter initial leases with built-in renewal clauses or separate contract, thereby sidestepping the need for registration while maintaining flexibility. This arrangement keeps ownership paperwork simpler, and allows both parties to reassess terms at each renewal (if required).
✅ Benefits for Foreign Investors
Despite appearing short, 3+3+3 lease structures are widely respected in practice—especially if the tenant pays rent on time and maintains the property.
These leases represent the most popular and accessible entry point for foreigners looking to start a hotel or hospitality business in Phuket with relatively low investment.
For a modest key money or upfront payment, foreign investors can take over a fully operational hotel business, often with existing staff, and customer base.
In most cases, landlords honor renewals, provided there are no payment defaults or disputes.
✅ Key Money or Business Price
Many good hotel properties also involve an upfront lump-sum payment known as:
-
Key Money – a non-refundable payment made to the landlord to secure the lease, or the Business Price – the amount paid to the current operator for key money plus some business assets (whic he bought during his period)
3. Other Ownership Structures for Foreign Buyers
Beyond leasehold, there are hybrid ownership models that some experienced foreign investors pursue. These include:
a. Owning via a Thai Company (Nominee or Joint Venture)
Foreigners can set up a Thai company, where:
-
Thai nationals hold at least 51% of the shares, and use that company to legally acquire land and operate the hotel.
-
The foreigner often holds 49% and controls the company via preferred shares, voting rights, or legal agreements.
-
It’s important to avoid illegal “nominee arrangements” (i.e., where Thai shareholders are just name-holders without actual investment).
-
Note: This route requires professional legal advice to ensure compliance with Thai company and land laws.
b. Land under Company, Building under Personal Ownership
In this structure:
-
The land is owned by a Thai company, while The hotel building (the physical structure) is owned by the foreign investor.
-
This allows the foreigner to lease the land from the Thai company (which they may partly control) and own the business and physical assets separately.
c. Land Owned by Thai Company, Building Leased to Foreign Entity
Another common method is:
-
The Thai company owns both the land and hotel, and a foreign individual or entity leases the business rights (hotel operation) from the Thai company.
-
This gives operational control to the foreign investor without owning land.
4. Key Legal Considerations for Buyers
Regardless of the structure chosen, it’s vital to ensure:
-
Lease agreements are registered with the Land Department for over 3 years.
-
Clauses for renewal, transfer, and subletting are clearly defined.
-
Due diligence is conducted on the property title, encumbrances, zoning regulations, and compliance with hotel licensing laws.
-
A qualified local lawyer is involved from the beginning to draft and vet all documents.
-
If a Thai company is involved, company registration, shareholding structure, and tax obligations are properly set up.
5. Making a Smart Investment in Paradise
Phuket’s tourism and hospitality industry continues to thrive, offering solid opportunities for foreign investors seeking stable long-term returns, and you must consider Phuket. However, success depends heavily on structuring the deal correctly and understanding the local legal environment.
While freehold ownership is out of reach for most foreign individuals, a well-structured leasehold agreement or joint venture can provide a secure and profitable alternative. Long leases (30 years) are widely accepted and respected, and when structured with renewal options, can offer generational value.
If you still have questions, please contact LuxeInvesta for advice. (info@luxeinvesta.com)
By:
Qindeel Shujaat
Team Lead at LuxeInvesta
