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The Royal Government has just announced a temporary freeze on new economic land concessions. Economic land concessions have become hugely controversial in recent years, with incidences of forced evictions, land grabs and illegal logging in forest reserves. Prime Minister Hun Sen yesterday issued an order temporarily suspending new concessions, and calling for revocation of concessions found to be in breach of the law. According to Radio Free Asia’s report, the decree reads in part:
The government has issued this order to all ministries, institutions, and authorities, at all levels to implement: Temporarily suspend the leasing of land concessions… All ministries, institutions, and authorities must implement the government’s policy regarding land concessions, and they must ensure that land concessions don’t affect communal land or the daily life of the community… Authorities must ensure that land concessions will benefit the country and the people. Those companies that have already received licenses from the government, but have failed to honor their contracts by cutting down the forest instead of developing their concessions, encroached on the land of the people, operated businesses other than for the license granted, abused villagers, or abused communal land will have their contracts revoked.
Might foreigners one day be able to buy land outright in Cambodia? As we’ve blogged about before, foreigners can only buy units in co-owned buildings above the first floor. The land itself is off limits. Might that be about to change?
Prime Minister Hun Sen, as reported in today’s Cambodia Daily (print only), said the following in a public speech:
“We have a law allowing foreigners to buy apartments from the second story up, but we need a solution, because what they build on [Marakot Island, a new development near Sihanoukhville] are not multistory buildings but villas.”
The article also reports that the Council for the Development of Cambodia and the relevant ministries will take up the issue. It’s obviously too soon to say what will come of this proposal, though the Prime Minister’s statements are certainly a good sign.
A recent Wall Street Journal article showcases the newly-built home of Belgian photographer John Vink and also demonstrates how complicated property ownership and building construction can be in the Kingdom of Cambodia. In general, foreigners are not allowed to own land in Cambodia, but may hold a minority (49 percent) stake, with a Cambodian national holding the remaining majority stake, in a company that holds ownership rights to the land. Cf. Article 20 of the New Land Law (2001). The article does not specifically mention whether Mr. Vink pursued this option to preserve some of his ownership rights, but it is a fairly common way for foreign landholders to do so.
Mr. Vink bought the land for his home near Kep from a local religious order that is moving to a new location. Usually, such as transfer would be prohibited by law, as monastery lands may not be sold and may only be rented for religious purposes according to Article 20 of the New Land Law (2001). Perhaps because the order is moving to a new location, the land has been reclassified and is therefore alienable. There are several categories of land and differing rights of ownership for each in Cambodia. Again, the article does not indicate why a variance was permitted in this case, but it’s always a good idea to check out which legal category the land you might be interested in falls under before beginning negotiations.
Also illustrated by this piece is the often confusing regulatory process for construction in the Kingdom, which can endanger projects at almost any stage of completion. From the article:
Building on a hilltop is unusual in Cambodia because of cultural customs and costs, says Mr. Vink, so he faced some challenges in ensuring that he had an experienced contractor and proper permits. At one point a month after construction began, he thought all the permits were in order, until an inspector from the local environmental protection office showed up and ordered a halt to the project. But $300 in “fees” later—a sizeable sum in Cambodia—the necessary permits were obtained and the project moved forward, Mr. Vink says.
Congratulations to Mr. Vink and his wife for their lovely new home, but let their experience be an illustration of the type of pitfalls that anyone can face navigating the legal and regulatory system here in the Kingdom of Wonder.
See here for related BNG reports.
On Monday 28 February, the Ministry of Economy and Finance confirmed that the valuation system for the controversial property tax will be implemented by the end of March.
Taxpayers will have to register under the valuation system before the 30 September. But the legislation is still not clear on who is subject to the tax. The definition of taxpayer includes owners, occupiers and financial beneficiaries. How can a lessee avoid being liable for a tax the lessor has registered them for?
The law also causes problems for prospective purchasers of immoveable property who may find themselves liable for a year’s worth of tax on a property that they have only owned for a month. What systems are in place to prevent double taxation upon transfers of title?
As is usually the case there should be more clarity once the new tax starts to be implemented by the tax office.
The Cambodian legislature recently approved a sub-decree that will allow foreigners to own 70% of co-owned buildings. This new policy compliments the recent repeal of the prohibition against any foreign ownership of private units above the ground floor, under the hope that such changes will spur foreign investment. Given these new circumstances, it might behoove the aspiring non-Cambodian property mogul to review his or her rights of co-ownership and to consider a few tips.
The rights of co-ownership embraced by the 2009 Law on the Management and Use of Co-Owned Buildings are similar to those of Thailand, Australia, and the UK, as well as many other jurisdictions. Co-owners receive an ownership right to their private unit and have ‘use rights’ to common areas, meaning that co-owners share the benefits and maintenance costs of the common areas. Common areas include courtyards, stairs, shared walls, entrance ways, etc…
This split system of ownership also means that a co-owner’s rights are limited in several respects. The 2009 law requires any building with five or more co-owners to have a management board composed of co-owners that must establish and follow a set of internal regulations for the building’s occupants. Any change in established regulations requires an absolute majority approval from all co-owners. The law provides an example of acceptable, minimum standard, regulations. Constraints placed upon co-owners, generally fall into two categories. The first, use, deals with what the co-owner can and cannot do in their private units, e.g. the co-owner can’t modify their unit in a way that will damage the structure of the building. The second, alienation, deals with how a co-owner may transfer his or her interests; e.g. the co-owner’s right to lease (or not), and the duties of the transferee to pay association fees.
Although the 2009 law is similar to the laws seen in other jurisdictions, it lacks definition on certain rights that have been established elsewhere. For instance, the law fails to mention a co-owner’s right to information. Such a right would be useful in verifying the building’s financial stability or insurance policy. The 2009 law also fails to discuss the co-owner’s right to be free from nuisance or discrimination.
Furthermore, before a purchaser rushes out to buy up property in a co-owned building, the purchaser should ask five questions.
First, is the building’s management board functioning properly? A good management board will collect maintenance fees on time to ensure proper maintenance of common areas and will ensure compliance with internal regulations from other co-owners.
Second, is the building’s maintenance reserve fund adequate? A building with an adequate reserve fund will have common areas kept in good condition and will not need to make special assessments often.
Third, are the building’s internal regulations something by which you can live?
Fourth, is the building adequately insured? A good policy should cover the estimated cost of rebuilding and bringing the building up to code if necessary.
Finally, are the owners satisfied? Simply talking with the owners can give you a good feel for whether that building is right for you.
The flood gates are open. Non-Cambodians can now privately own significant portions of co-owned buildings in Cambodia. However, although the system of co-ownership seems similar to those in several countries, there are still gray areas where a co-owner’s rights aren’t so certain. And in general, prospective buyers would be wise to follow the old adage: Look before you leap.
If you plan on staying in Cambodia for more than a few months, you will probably want to rent a place to call your own. This is particularly true for foreigners, who cannot easily own land.
As in any country, it is imperative that the parties put down their agreement in a properly signed, valid contract. Without one, you could end up paying more in rent than agreed, find someone else sharing your living room, or even out on the street. With the advice in this guide, patience, and common sense, you should be comfortably settled into your new home.
Doing Your Homework
Whether you use an agent, online classifieds, or call a number off a For Rent sign, once you’ve found the place that’s right for you, you’ll want to do some background investigation to see if you would be wise to sign the lease.
First and foremost, know who you are renting from. While it is best to avoid difficult landlords wherever you are, this is particularly true in a country with weak rule of law and an inefficient court system. At a minimum, you should meet the landlord in person to discuss the property and the terms of the lease. Ask where they work, how long they’ve owned the property, who the prior tenants were and why they moved out. If something doesn’t strike you as right, investigate further. You want to find a reputable and trustworthy landlord.
Second, you need to confirm that the person who presents themselves as the landlord, actually is the landlord. Extended families in Cambodia often live and manage properties communally, but the legal landlord is the person with their name on the title document. Ask to see the title, or if none is available, their land purchase contract.
Finally, scope out the neighborhood for any potential nuisances. Crowing roosters, roaming dog packs, and empty lots that turn into a construction site from one day to the next, can make for an impossibly noisy environment.
Sealing the Deal
If you are renting through a real estate agent, they will most likely provide a form contract. Take this as an opening proposal; all the significant terms should be open to negotiation. Be aware that contract negotiations in Cambodia can be very different from what you might expect in your home country. What the landlord told you orally when you first visited might have changed when it’s time to sign the agreement. A healthy dose of patience will see you through.
The contract should be in English and Khmer, and include a clause making both equally binding. Cambodian law imposes few restrictions on the terms of the contract, and there is no rent control to control future rent increases. The rental term can be for a fixed-period, month-to-month, or even year-to-year.
If you think you might want to extend beyond the lease’s expiration, you might include a clause giving you the right to renew at a certain price. You’ll undoubtedly be asked for advanced payment of rent, or a security deposit. Be sure this amount is clearly stated in the lease agreement, and that it must be returned to you in full, plus interest, upon completion of the lease. For any cash payments – deposit, rent, or utilities – demand a signed receipt, it could be your only record in case of a dispute. Finally, be sure to get a signed copy of the lease for your own records; the landlord and real estate agent should have their own.
Dealing with Disputes
Unexpected rent increases, broken air conditioners, noisy neighbors and unfair evictions are just a few of typical landlord-tenant conflicts. Unlike some places, Cambodia does not have a specialized landlord-tenant dispute resolution procedure. And given the troubles in the Cambodian court system, suing your landlord is not an option most tenants choose to pursue.
Thankfully, most disputes in Cambodia are resolved through negotiation; rental conflicts are no exception. Hopefully you did a little investigation before you moved in and found a landlord you can trust.
Whatever the issue, do some research to fully understand your rights, and approach your landlord in a non-confrontational manner. If for example, your landlord refuses to fix a broken water heater, you might consider hiring someone yourself to fix it, and deducting the cost from the next month’s rent. Above all, try to be upfront and come to a negotiated agreement. You could end up being evicted and losing your security deposit if things go wrong.
Disputes with neighbors require a different tack. Noise, parking spaces, and trash are common concerns, especially for those adjusting to life in Cambodia. You might decide to talk to your neighbor yourself, or ask your landlord to do so on your behalf. Chances are, your landlord knows the neighbor already. If the problem persists, you can complain to your local Sangkat (commune) office. With payment of a modest fee, they can mediate between you and the troublesome neighbor. Again, patience and understanding are key to a successful resolution.
Avoiding problems when moving out requires a bit of foresight, particularly when first drafting your lease agreement. If the contract doesn’t contain a termination clause, getting out of the lease can be difficult and costly. You’ll want to include a clause specifying when you can move out prior to the end of the lease, and when your landlord can evict you. Be sure to include a penalty clause for early eviction – it will be hard to stop a landlord determined to remove you, but at least you will be compensated. Also, a sublease and assignment clause is a good idea, particularly if there’s a chance your job will reassign you to a new location.
If you put down a security deposit, you have a right to get the amount in full, plus interest, before moving out. Your landlord can deduct the reasonable cost of repairs for anything beyond normal use. To avoid paying for damage you didn’t cause, be sure to do a full inspection, with your landlord present, before moving in.
For the unprepared, renting a home in Cambodia can be stressful and unpleasant. This guide has hopefully provided you with a few key practical points to help you manage this process. For draft lease agreements, negotiation counseling, or legal representation in dealing with your landlord, experienced professionals at BNG Legal are ready to help.
Click here to download this report.
Over the weekend, I met a small-business owner here in Phnom Penh who had some legal trouble setting-up her store. She fell into a common trap, which should serve as a lesson for anyone looking to set up their business.
New businesses need to register with the Ministry of Commerce, which requires a copy of the business’s lease agreement. If you’re sub-leasing the premises, then you’ll also need written authorization from the owner of the property, not just the person leasing it to you. If you can’t get the owner’s approval, you won’t be able to get your business registered.
The business-owner had rented a terrific location for her store, put down a deposit, invested in fixtures and signs, and was starting to grow her clientele. When she filed her lease agreement with the Ministry, they rejected it because it wasn’t between the true landlord and herself.
Unbeknownst to her, she had signed a sub-lease. The person from whom she sub-leased wasn’t willing to help her contact the true owner, who was in fact out of the country. Without the landlord’s agreement, she would never be able to get registered. Without registering, she was operating as a sole-proprietorship – which meant she was paying astronomical import duties and make it impossible get her payment system online. Seeing no other solution, she decided to cut her losses by moving to a new location.
Opening a store is hard enough to do once. But doing it again just because you didn’t know you were sub-leasing is heartbreaking.
The lesson is to know whether you’re renting from the landlord or sub-leasing from the tenant by asking for proof of ownership. If you’ve decided to sub-lease, make sure you get the landlord’s approval in writing at the time you sign the lease.
For more on establishing a business in Cambodia, see our report here.
It seems an important provision was dropped from the Law on Foreign Ownership, but might become law anyway. Earlier drafts had restricted the total share of foreign ownership in a building to less than 50%, but this rule was dropped in the version approved by the National Assembly last week.
According to the Post, government officials are considering reintroducing the restriction through a sub-decree. A 50% rule would add an extra layer of complexity to transfer of ownership and may also cause price distortions.
The debate continues…
More at Khmerization.
Update to my previous post, the Law on Foreign Ownership was passed by the National Assembly (85 out of 96 votes), and now goes to the Senate for debate before submission to the King for signature.
As scheduled, the National Assembly opened debate today on a new law allowing foreigners to own units in co-owned buildings. Though the draft isn’t publicly available, news agencies report [Post, and VOA Khmer] that foreigners would only be able to own units above the ground floor, and that a majority of units must be owned by Cambodian citizens. Further, foreigners couldn’t own units in buildings within 30 km of a land border, unless it’s in a Special Economic Zone. That doesn’t seem to be a terribly problematic restriction, given that most foreign demand is outside that zone in Phnom Penh, Siem Reap and Sihanoukville.
Presently, foreigners cannot hold title to land in Cambodia. Short of obtaining Cambodian citizenship, there are still ways for a foreigner, or foreign-owned company, to control land – such as a through a joint-venture or long-term lease. Still, these solutions don’t offer the security and value of full title to the unit itself.
There are quite a few mixed residential/office towers planned or under construction around Phnom Penh. Many were planned during the heady real estate boom of a few years ago, but were put on hold or delayed because of the bust. The hope is that allowing foreigners to own condominiums will give a needed boost to the real estate market. Stay tuned for further developments, I’ll try to post the text of the law once available.