Lease with Agreed Investment in Land or Real Estate That Benefits the Owner
Special Reciprocal Contract in Thailand
A Special Type of Lease Contract Recognized by the Supreme Court
Unlike a standard lease agreement governed by the Civil and Commercial Code's property hire laws, this special type of lease contract is not explicitly defined by legislation. Instead, it was established through rulings by the Thailand Supreme Court.
In specific cases, where the lessee makes a substantial, agreed investment to improve the leased property and that improvement is intended to benefit the owner after the lease term the agreement may be classified as a special reciprocal contract.
When there is a mutual agreement between both parties regarding the lessee’s investment and the resulting benefit to the lessor, the contract may fall outside the standard hire-of-property framework. Based on Supreme Court judgments, a different set of rules may then apply to the arrangement.
While this special contract type is not codified in the Civil and Commercial Code, it holds legal weight through court precedent. However, its application remains limited to clearly defined situations.
Agreed Investment in Property Improvements
If the lessee and lessor agree within the contract that the lessee will make an additional investment in the property, one that benefits the owner upon the lease’s expiration this arrangement may be classified as a special reciprocal contract, rather than a standard lease agreement.
In this type of contract, the parties must share a common objective: the lessee gains possession for a fixed term, while the owner benefits from the improvements after the term ends. Crucially, the consent of both parties must be explicitly expressed in the agreement.
If the contract qualifies as a special reciprocal contract, it may be enforceable even for a term exceeding three years without registration at the Land Department.
Example; Supreme Court Judgment 1135/1963: The lessee agreed to cover the construction costs of a building that would become the property of the lessor after the lease expired. The lease term was six years and ten months. The court deemed this a special reciprocal contract. As a result, the full term was legally binding, even though the lease was not registered with the Land Office. The lessor could neither terminate the lease nor evict the lessee.
By contrast, under a standard lease agreement exceeding three years, the contract must be registered with the Land Office and written in Thai to be legally enforceable. If, however, the agreement qualifies as a special reciprocal contract, it may be enforceable even without registration. In some cases, such a contract may not even require written form to be valid.
Key Differences Between a Normal Lease and a Special Reciprocal Contract
- In a normal lease (hire of property), the lessee is considered the central party to the contract. Therefore, lease rights do not automatically transfer to the lessee's heirs upon death.
- In a special reciprocal contract, the lessee is not the essence of the agreement. As a result, the lessee's rights can transfer to their heirs.
- For a standard lease exceeding three years, the agreement must be registered with the Land Department to be enforceable. If the lease contract specifies that the lessor will register it, the lessee can sue the lessor within the first three years to enforce registration. If no such agreement exists, the lessee cannot force registration.
- In a special reciprocal contract, the lessee can sue the lessor to register the lease, even if the contract does not explicitly state that the lessor must do so.
The key benefit of a special reciprocal contract is that certain legal limitations that apply to normal lease agreements do not apply here. This legal structure can be particularly useful in land lease agreements for foreigners, though it still cannot extend the lease period beyond the legal maximum of 30 years.
In such contracts, the lessee receives protection through Thai Supreme Court rulings—protection that is otherwise unavailable under standard hire-of-property laws. The essential elements of a special reciprocal contract include:
- An agreed investment by the lessee;
- A corresponding benefit for the lessor upon expiration of the lease term;
- A mutual agreement that imposes additional obligations or burdens on the lessee.
In this case, the lease agreement did not require or mention any improvements to be made by the lessee. Even though the lessee invested a significant amount into modifying the leased property, the Supreme Court ruled that this did not qualify as a special reciprocal contract. There was no mutual agreement or consent from the lessor; therefore, the lessee's additional burden was self-imposed and legally irrelevant.
Some creative lawyers in Thailand have attempted to incorporate Supreme Court judgments and the legal theory behind this type of special lease into so-called 90-year lease agreements. These efforts aim to extend the maximum lease term allowed under Section 540 of the Civil and Commercial Code or to suggest legally enforceable renewal options, such as having the lessee invest in the construction of a house, which would become the lessor's property at the end of the third 30-year term.
However, this approach is highly unlikely to succeed. A special reciprocal contract cannot be used to validate or repair void or voidable clauses under Thai hire-of-property law. For long-term land use, a more legally sound structure is a standard land lease combined with a right of superficies.
Related Articles
- Registration of a Rental with a Fixed Term (Lease Agreement)
- Overview of Thailand Real Estate Laws for Foreigners
- The 90‑Year Lease Myth in Thailand (2025)
© 2025 SamuiForSale.com. This article reflects original legal analysis based on over 20 years of direct experience in Thai property law. Republishing is not permitted without written permission or proper attribution including a link to the original source.
