What sale with right of redemption is, and how it differs from a mortgage
A sale with right of redemption, known in Thai as khai fak, is a contract of sale under which ownership passes to the buyer immediately, with an agreement that the seller may redeem the property, under Section 491 of the Civil and Commercial Code.
That is the crucial difference from a mortgage. Under a mortgage ownership stays with the borrower. Under khai fak ownership moves on the day of registration, and what the seller retains is the right to redeem.
Because ownership has already moved, missing the redemption deadline is not a foreclosure with court steps and an auction. It is the loss of the right to redeem, and the property becomes the buyer's outright.
The severity of that outcome is why Thailand enacted the Act on Protection of the People in Entering into Khai Fak Contracts for Agricultural Land or Residences B.E. 2562, which regulates the terms specifically for agricultural land and homes.
What the 2019 Act controls
First, form. A khai fak that is not made in writing and registered with the competent official is void, under Section 7, and the official must record clearly in the register whether it is agricultural land or a residence.
Second, the redemption period. It may not be set at less than one year or more than ten years; if it is, the period is deemed to be one year or ten years as the case may be, and the seller may redeem before the deadline, under Section 10.
Third, the ceiling on the redemption price. The redemption sum may be set higher than the sale price, but calculated as interest it must not exceed 15% per year from the date of the sale to the redemption deadline, under Section 8 paragraph three.
Fourth, money paid along the way counts. Whatever the contract says, if the buyer receives money, property or any other benefit capable of being valued in money from the seller in connection with the khai fak, it is treated as part of the redemption sum already paid.
Fifth, any agreement conflicting with the Act is void, whether it sits inside the khai fak contract or is made as a separate agreement, under Section 6.
The seller stays in the house, and pays nothing for it
The seller has the right to possess, use and take the benefits of the property for agriculture or as a residence until the day the right of redemption ends, without paying any consideration to the buyer, under Section 12.
The fruits arising from the property during the khai fak period also belong to the seller, and the seller must preserve the property as a prudent person would preserve their own.
If on the date of the sale somebody else was already using the property for agriculture or as a residence, the khai fak does not affect that user's rights, under Section 13.
This closes off a common practice of charging the seller monthly rent, because the Act says in terms that no consideration is payable, and anything paid counts towards the redemption sum.
The buyer must give written notice before the deadline
Not less than three months and not more than six months before the redemption deadline, the buyer must notify the seller in writing by registered post with acknowledgement of receipt, stating the deadline and the redemption sum and attaching a copy of the khai fak contract, under Section 17.
If the person giving notice is not the original buyer, the notice must also say to whom the seller must redeem and where the redemption sum is to be paid.
The consequence of no notice is what every seller should know. If the buyer fails to notify within that window, or omits the copy of the contract, the seller may redeem within six months from the deadline stated in the contract, paying the sum stated in the contract.
So not receiving that registered letter before the deadline is not a small thing. It is the condition that extends the redemption window by another six months.
Early redemption, and depositing the money
The seller may redeem early. Where the redemption sum was set higher than the sale price, the excess is reduced in proportion to the shortened period, but the buyer may claim a loss-of-opportunity payment of not more than 2% per year of the sale price for the remaining period, under Section 10 paragraph two.
Where the buyer cannot be contacted or refuses to accept the redemption sum, the Act allows the money to be deposited with the provincial land office or the land office that registered the khai fak, in the amount stated in the contract, without prejudice to either side later claiming the reduction or the opportunity payment.
Disputes arising from a khai fak are consumer cases under the law on consumer case procedure, with the seller deemed to be the consumer, under Section 11, which makes going to court easier than an ordinary civil action.
Five things to check before signing
- The contract is in writing and registered at the land office. A private agreement between the parties is void.
- The redemption period is between one and ten years, with the deadline date written clearly in the contract.
- The redemption sum, compared with the sale price, works out at not more than 15% a year.
- The contract states the parties' names and addresses, the property, the sale price, the redemption sum, and the dates of sale and of the deadline, as Section 8 requires.
- Keep evidence of every payment, because money paid to the buyer along the way counts as part of the redemption sum already paid.
Anyone thinking of using khai fak to raise a lump sum should compare it with the alternatives first, such as refinancing, where ownership stays with the owner. How to compare the costs is in our article on refinancing a home in Thailand.
And if the endpoint really is a sale, selling on the open market usually raises more than letting the redemption right lapse. Pricing and process are on the house selling service page.
Frequently asked questions
How does khai fak differ from a mortgage?
Under khai fak ownership transfers to the buyer on the day of registration and only the right to redeem remains. Under a mortgage ownership stays with the owner and the creditor must foreclose through the court before an auction.
What are the shortest and longest redemption periods?
Not less than one year and not more than ten. If the contract falls outside that, the period is deemed to be one year or ten years as the case may be, under Section 10 of the 2019 Act.
Can the redemption sum exceed the sale price?
Yes, but calculated as interest it must not exceed 15% a year from the date of sale to the redemption deadline, under Section 8.
Do I have to move out during the khai fak period?
No. The seller may possess, use and take the benefits of the property until the right of redemption ends, without paying consideration to the buyer, under Section 12.
Can the buyer charge monthly rent?
The Act provides that the seller may use the property without paying consideration, and any money or benefit the buyer receives from the seller in connection with the khai fak counts as part of the redemption sum already paid.
Must the buyer send a reminder before the deadline?
Yes, in writing by registered post with acknowledgement of receipt, not less than three months and not more than six months before the deadline, with a copy of the contract attached, under Section 17.
What happens if the buyer sends no notice?
The seller may redeem within six months of the deadline stated in the contract, paying the sum stated in the contract.
What if the buyer cannot be found?
The redemption money may be deposited with the provincial land office or the land office that registered the khai fak, in the amount stated in the contract.
Summary
- Khai fak transfers ownership on the day of registration and leaves only the right to redeem, unlike a mortgage.
- The contract must be in writing and registered at the land office, or it is void.
- The redemption period must be between one and ten years, and the redemption sum must not exceed 15% a year as interest.
- The seller keeps possession and use of the property until the redemption right ends, without paying consideration.
- The buyer must give written notice three to six months before the deadline; without it the seller gets another six months.
- Early redemption reduces the excess pro rata, with a loss-of-opportunity claim capped at 2% a year of the sale price.