Tag: contract review

Importance of Contract Review in Thailand

Contracts form the foundation of business and personal dealings in Thailand. Whether entering into an agreement to purchase property, start a joint venture, lease commercial space, or engage in employment, contracts define the rights and obligations of the parties involved. While verbal agreements may hold some weight in Thai law, written contracts are the standard and provide clarity and enforceability in the courts.

Despite their importance, many individuals and businesses—especially foreigners—often sign contracts without fully understanding the terms, leading to costly disputes, financial losses, or legal complications. This highlights the crucial role of contract review in Thailand, ensuring that agreements are legally sound, fair, and enforceable.

This article explores why contract review is essential in Thailand, the legal framework surrounding contracts, common risks of poorly drafted agreements, and how thorough review protects both Thai and foreign parties.

Legal Framework of Contracts in Thailand

Contracts in Thailand are governed primarily by the Thai Civil and Commercial Code (CCC). For a contract to be legally enforceable, it must meet certain conditions:

1. Mutual Consent – Both parties must willingly agree to the terms.

2. Capacity – Parties must have legal capacity (e.g., age, mental competence, authority to sign on behalf of a company).

3. Lawful Purpose – The contract must not involve activities prohibited by Thai law (e.g., gambling, usurious lending, or nominee land ownership).

4. Consideration – There must be something of value exchanged.

While many contracts can be oral, certain agreements (such as land sales, leases over three years, or marriage settlements) must be in writing and registered with the authorities to be valid. Understanding these requirements is critical, as a contract that does not meet legal standards may be unenforceable in Thai courts.

Why Contract Review is Critical

1. Language and Interpretation Issues

Thai law requires certain contracts, particularly those registered with government agencies (such as property transfers), to be in the Thai language. For foreigners, this creates a major challenge: the Thai version of the contract is considered legally binding, even if an English version exists.

Without proper review, a foreign buyer or investor may sign an agreement believing they understand the English translation, only to find that the Thai version—containing different terms—controls in court. Professional review ensures that translations are accurate and consistent.

2. Identifying Unfair Terms

Contracts in Thailand are often drafted to favor the party who prepared them, usually the seller, developer, landlord, or employer. Without careful review, one party may unknowingly agree to:

• Excessive penalties for late payment.

• One-sided termination rights.

• Restrictions on dispute resolution.

• Hidden fees or additional obligations.

For example, in off-plan condominium purchases, some developers include clauses allowing them to delay completion without significant penalty, leaving buyers with limited recourse. A contract review helps identify such unfair terms and negotiate better conditions.

3. Ensuring Compliance with Thai Law

Foreigners often face special restrictions in Thailand, particularly regarding property ownership, company structures, and employment. A contract review ensures that agreements comply with these laws and do not inadvertently create illegal arrangements.

Examples include:

• Property contracts: Foreigners cannot directly own land, and contracts attempting to circumvent this (such as “nominee ownership” through a Thai national) are void and expose the parties to legal penalties.

• Employment contracts: Must align with Thai labor laws, including minimum wage, working hours, and severance requirements.

• Franchise or licensing agreements: Must comply with intellectual property laws and business licensing regulations.

A professional review ensures the contract does not contain illegal or unenforceable clauses.

4. Clarifying Ambiguous Provisions

Ambiguity in contracts can lead to disputes. For instance, a rental contract that vaguely defines “maintenance responsibilities” may result in conflicts over who pays for major repairs. Clear, precise language is essential to avoid differing interpretations. A thorough review highlights vague terms and proposes clearer alternatives.

5. Protecting Against Future Disputes

A properly reviewed and drafted contract reduces the risk of litigation. By addressing potential points of conflict—such as payment schedules, delivery deadlines, quality standards, and termination procedures—parties can minimize misunderstandings.

In Thailand, court proceedings can be lengthy and costly, making prevention far preferable to litigation. Contract review acts as a safeguard, ensuring that both parties fully understand and agree on their obligations.

Common Areas Requiring Contract Review in Thailand

1. Property Transactions

Contracts for property sales, condominium purchases, and long-term leases must be carefully reviewed. Buyers need to ensure:

• The contract reflects the correct purchase price and payment terms.

• The seller has the legal right to transfer the property.

• Penalties for late completion or non-delivery are included.

• The contract aligns with registration requirements at the Land Office.

Without review, buyers may face unexpected costs or lose deposits if terms are unfavorable.

2. Business Agreements

Business contracts, such as shareholder agreements, joint ventures, distribution contracts, or service agreements, often involve complex legal and financial obligations. Review ensures that:

• Ownership percentages and voting rights are accurately defined.

• Profit-sharing and dividend distribution are transparent.

• Dispute resolution mechanisms (such as arbitration in Thailand or abroad) are clearly set.

• Compliance with the Foreign Business Act is ensured.

Failing to review business agreements can lead to shareholder disputes or regulatory violations.

3. Employment Contracts

For both Thai and foreign employees, employment contracts must comply with the Labor Protection Act. A review ensures that:

• Salaries and benefits meet legal minimums.

• Termination clauses follow lawful procedures.

• Probationary periods, leave entitlements, and working hours are clearly stated.

Employers benefit from reviews to avoid future labor disputes, while employees gain assurance of fair treatment.

4. Commercial Leases

Commercial lease agreements can be long-term and involve significant investments. Review ensures that:

• The lease term is legally valid (leases over three years must be registered).

• Renewal clauses are enforceable.

• Rent adjustments and service charges are transparent.

• Rights regarding subleasing, signage, and modifications are defined.

Without review, tenants may discover limitations that hinder their business operations.

Role of Legal Professionals in Contract Review

While some individuals attempt to review contracts themselves, professional assistance is highly advisable in Thailand. Lawyers experienced in Thai contract law can:

• Verify that the contract complies with local laws.

• Ensure translations are accurate.

• Identify hidden risks or unfair provisions.

• Suggest modifications to protect the client’s interests.

• Negotiate terms with the other party.

For foreigners, using a bilingual lawyer (Thai-English) is especially valuable, ensuring clear communication and understanding of obligations.

The Cost of Skipping Contract Review

Failing to review a contract in Thailand can result in:

• Loss of deposits or investments.

• Being bound by unfair or unenforceable terms.

• Exposure to legal penalties (e.g., illegal landholding structures).

• Lengthy court battles to resolve disputes.

The cost of professional contract review is relatively small compared to the potential financial and legal risks of entering into a poorly drafted agreement.

Conclusion

Contracts are the backbone of personal, commercial, and property dealings in Thailand. However, the complexity of Thai law, combined with foreign ownership restrictions and language barriers, makes it risky to sign contracts without thorough review.

By engaging in professional contract review, individuals and businesses can ensure that agreements are legally enforceable, fair, and clearly defined. This not only protects against financial losses but also provides peace of mind and a solid foundation for future dealings.