Entering into a sales contract in Thailand is a significant legal and financial commitment, whether the transaction involves real estate, goods, services, or business assets. A sales contract review is a crucial process that ensures the agreement is valid, fair, and compliant with Thai law. It helps protect parties from hidden risks, misunderstandings, and potential disputes.
Thailand’s legal framework for sales contracts is primarily governed by the Civil and Commercial Code (CCC), which sets out the rights and obligations of buyers and sellers. Under Thai law, a contract of sale is defined as an agreement where one party agrees to transfer ownership of property to another for a price agreed upon. While this definition seems straightforward, the details and implications of each contract type can vary significantly depending on the subject matter and parties involved.
Conducting a proper review of a sales contract—whether for real estate, movable property, or commercial transactions—is essential to ensure that the contract reflects the parties’ intentions, meets legal requirements, and minimizes future liability.
Importance of Sales Contract Review in Thailand
Before exploring the different types of contract review, it is important to understand why reviewing a sales contract is necessary. Many individuals and companies in Thailand enter into sales agreements without a full understanding of the legal terms. Poorly drafted contracts, missing clauses, or unclear terms can lead to serious legal and financial consequences, including:
- Disputes over ownership or payment terms;
- Non-performance or breach of contract;
- Tax liabilities or regulatory violations; and
- Difficulty enforcing the contract in court.
A thorough contract review helps prevent these problems by identifying ambiguous terms, ensuring compliance with Thai law, and confirming that the contract protects the buyer or seller’s interests. Depending on the nature of the transaction, there are several types of contract reviews commonly conducted in Thailand.
1. Real Estate Sales Contract Review
A real estate sales contract is one of the most common and high-value agreements in Thailand. It governs the sale of land, buildings, or condominium units between the buyer and seller. Given the complexity of property ownership laws—especially those involving foreigners—this type of contract requires detailed legal scrutiny.
Key Review Areas:
- Verification of ownership: Confirm that the seller is the legal owner of the property and has full authority to sell.
- Title deed and encumbrances: Cross-check the title deed (Chanote) with the Land Office to ensure there are no mortgages, liens, or usufruct rights.
- Purchase price and payment terms: Ensure that payments, deposits, and transfer fees are clearly outlined.
- Transfer procedures: The contract must specify when and how ownership will transfer at the Land Office.
- Tax responsibilities: Clarify which party is responsible for taxes and registration fees (transfer fee, withholding tax, stamp duty, specific business tax).
- Foreign ownership compliance: For foreigners, verify that the ownership structure (e.g., condominium, leasehold, or company ownership) complies with the Land Code and Condominium Act.
A lawyer typically conducts this review to confirm the contract’s compliance with Thai property laws and to ensure the buyer’s investment is legally protected.
2. Movable Property Sales Contract Review
A movable property sales contract involves the sale of goods or assets that are not real estate, such as machinery, vehicles, furniture, or inventory. Under the Civil and Commercial Code (Sections 453–498), such contracts may be either written or verbal, but written agreements are recommended for significant transactions.
Key Review Areas:
- Description of goods: Verify that the goods are accurately described in terms of quantity, quality, and specifications.
- Delivery terms: Review delivery timelines, transfer of risk, and inspection rights.
- Payment conditions: Ensure clarity on payment method, currency, and due dates.
- Warranties and guarantees: Confirm any product warranties, repair obligations, or replacement terms.
- Remedies for non-performance: Ensure there are clear clauses outlining what happens in case of late delivery, defective goods, or non-payment.
This type of review focuses on ensuring that the buyer’s rights are protected if the goods are defective or not delivered as promised, and that the seller is protected from unreasonable claims.
3. Business or Share Sale Agreement Review
When acquiring a business or shares in a company in Thailand, the sales contract governs the transfer of ownership, assets, and liabilities. These transactions are often complex, involving due diligence, valuation, and compliance with Thai corporate and tax laws.
Key Review Areas:
- Corporate structure: Verify that the seller legally owns the shares being sold and that the company is duly registered with the Department of Business Development (DBD).
- Assets and liabilities: Ensure that all assets, debts, and obligations of the company are properly disclosed.
- Representations and warranties: Check that the seller guarantees the accuracy of financial statements and legal compliance.
- Conditions precedent: Review any conditions that must be fulfilled before the sale (e.g., regulatory approvals, shareholder consent).
- Post-closing obligations: Clarify the transition of management, employment issues, and non-compete clauses.
- Tax compliance: Ensure that all relevant taxes are paid and reported, including stamp duty and corporate income tax implications.
A review of this type protects the buyer from acquiring hidden liabilities or misrepresented assets and ensures that the transaction follows Thai corporate law.
4. Off-Plan Property or Pre-Construction Contract Review
Thailand’s property market includes many off-plan or pre-construction projects, where buyers agree to purchase a condominium or house that has not yet been built. These contracts are often offered by developers and contain standard terms, which may favor the seller.
Key Review Areas:
- Developer’s license and permits: Verify that the developer has all necessary approvals and legal rights to build the project.
- Construction timeline and completion date: Ensure that deadlines are realistic and that penalties apply for delays.
- Payment schedule: Review installment plans and ensure that payments align with construction progress.
- Defects liability: Confirm that the developer is responsible for fixing construction defects within a warranty period.
- Refund and termination clauses: Make sure there are clear terms for refunding payments if the project is canceled or delayed.
- Transfer of ownership: Ensure that ownership transfer occurs upon completion and registration at the Land Office.
This review helps protect buyers from project delays, fraud, or loss of funds due to unlicensed developers.
5. International or Cross-Border Sales Contract Review
For businesses engaged in international trade, sales contracts often involve multiple jurisdictions. Thai companies entering into contracts with foreign partners must ensure compliance with both Thai law and international commercial practices.
Key Review Areas:
- Governing law and dispute resolution: Determine whether Thai or foreign law governs the contract and specify arbitration or court jurisdiction.
- Incoterms: Ensure that delivery terms follow international trade standards (e.g., FOB, CIF).
- Currency and payment methods: Address exchange rates, bank transfers, and international banking fees.
- Export/import compliance: Verify that all customs and regulatory requirements are met.
- Force majeure and termination: Include clauses that protect parties from unforeseen global events such as pandemics or political instability.
An international sales contract review requires knowledge of both Thai and international commercial law to ensure smooth cross-border transactions.
6. Standard Commercial Sales Contract Review
This type of review applies to domestic business-to-business (B2B) sales or service contracts. Many Thai businesses use template contracts that may not fully protect their interests. A legal review ensures the contract is balanced, enforceable, and clear.
Key Review Areas:
- Scope of goods or services: Confirm that all deliverables are well-defined.
- Price adjustment mechanisms: Ensure that pricing clauses account for cost fluctuations.
- Payment terms and credit conditions: Check late payment penalties and interest provisions.
- Dispute resolution: Specify the governing law, jurisdiction, and mediation/arbitration options.
- Confidentiality and intellectual property: Review clauses protecting proprietary information.
Such reviews are critical to maintaining fair and enforceable business relationships in Thailand’s competitive commercial environment.
Conclusion
A sales contract review in Thailand is more than a formality—it is a vital legal safeguard. Each type of contract, whether for property, goods, or business interests, carries unique requirements and risks. A comprehensive review ensures that all terms are clear, lawful, and equitable.
Given the complexity of Thai contract law and the potential implications of unclear clauses, parties should engage a qualified Thai lawyer to review any sales agreement before signing. A well-conducted contract review protects the buyer and seller from misunderstandings, ensures compliance with Thai legal standards, and provides confidence that the transaction is fair, transparent, and enforceable.