In any commercial transaction, a sales contract serves as the backbone of the agreement between the buyer and the seller. It outlines the rights, responsibilities, obligations, and remedies of the involved parties. In Thailand, whether you’re purchasing real estate, equipment, goods, or even a business, the sales contract must comply with Thai laws and protect your interests. Failing to properly review a sales contract can result in financial loss, legal complications, or unfavorable obligations. Given the legal and cultural nuances of doing business in Thailand, contract review by a qualified professional is not just beneficial—it’s essential.
1. Understanding the Legal Framework
In Thailand, the Civil and Commercial Code governs most contractual relationships, including sales agreements. While written contracts are not always required by law (verbal agreements can be enforceable), having a written and well-structured contract provides stronger legal protection and clarity. However, contracts must conform to local law and cannot include terms that are illegal or against public policy.
For foreigners especially, sales contracts review in Thailand and governed by unfamiliar legal principles can be difficult to navigate. A contract review ensures that all provisions comply with Thai law and are enforceable in court, should any dispute arise. It also verifies that the contract contains all the necessary clauses to support a valid transaction.
2. Verifying the Identities and Authority of Parties Involved
One of the first steps in reviewing a sales contract in Thailand is verifying the legal identity and authority of all parties involved. This is especially important when dealing with corporate sellers or buyers. For example, if a company is selling an asset, the individual signing the agreement must have legal authority to bind the company.
Failure to verify the authority of the signatory can lead to an invalid contract. A thorough contract review includes a background check on the parties, verification of company registration documents, and confirmation of legal capacity. This reduces the risk of fraudulent transactions or unenforceable agreements.
3. Clarifying Payment Terms and Conditions
Payment clauses are often the most contentious part of any sales contract. A proper review ensures that all payment terms—including amount, currency, method of payment, installment plans, and due dates—are clearly stated and fair to both parties.
In Thailand, where currency controls and cross-border payment regulations exist, particularly for foreigners, it’s important that the payment structure complies with the law. For example, foreign buyers may need to show proof of inward remittance in foreign currency if purchasing property. A contract review will identify any issues related to taxes, withholding obligations, or payment timing that could affect the legality or practicality of the transaction.
4. Assessing Delivery, Inspection, and Acceptance Terms
Sales contracts should specify when, where, and how the goods or property will be delivered, and under what conditions the buyer may inspect and accept them. Without such terms, the risk of misunderstandings or disputes increases.
In property transactions, for instance, the delivery of legal possession (e.g., handover of keys or land registration) must be clearly defined. In the case of goods or commercial equipment, the condition upon delivery, possibility of defects, and return policy should be covered. Contract review ensures these clauses are present, fair, and aligned with the buyer’s expectations.
5. Protecting Against Hidden Liabilities
Many buyers assume that once they make payment, the asset is theirs free and clear. However, in Thailand, assets may come with hidden liabilities. For example, a property might have encumbrances such as mortgages or usufruct rights. A business might carry debts, unpaid taxes, or unresolved lawsuits.
During contract review, legal professionals can include warranties, representations, and indemnity clauses to protect against these risks. The seller can be required to declare that the asset is free from liens or third-party claims, and be liable for breaches. This gives the buyer recourse if any hidden issues surface after the sale.
6. Resolving Disputes and Legal Enforcement
Another critical part of any contract is the dispute resolution clause, which outlines how conflicts will be resolved if they arise. In Thailand, the contract should specify whether disputes will be resolved in Thai courts or through arbitration, which jurisdiction’s laws apply, and whether mediation is required beforehand.
For international transactions, parties often prefer arbitration in a neutral location. However, if the contract is governed by Thai law and must be enforced in Thailand, local courts may be the only practical option. A contract review ensures that the chosen method of dispute resolution is enforceable, practical, and aligned with the parties’ best interests.
7. Adapting to Cultural and Language Differences
Language and cultural differences can create misunderstandings in contract interpretation. In Thailand, contracts may be drafted in Thai or bilingual formats. However, in legal disputes, Thai courts generally recognize the Thai version as the binding one.
Therefore, a contract review must not only check for consistency in the translated versions but also assess whether the terms accurately reflect what both parties agreed upon. Poor translations or culturally ambiguous language can lead to misinterpretations and disputes. Legal professionals can help bridge this gap by ensuring the contract is clear, precise, and mutually understood.
8. Mitigating Future Risks with Contingency Clauses
A good sales contract will not only reflect current conditions but also anticipate possible future issues. These may include delays, force majeure events, currency fluctuations, or government regulatory changes. A review can ensure that the contract includes contingency clauses that define responsibilities if such events occur.
For example, a force majeure clause can protect both parties if unforeseen events like natural disasters, pandemics, or political unrest delay the completion of the contract. Without such provisions, parties may be exposed to unnecessary liability or forced performance under impractical conditions.
9. Ensuring Tax and Regulatory Compliance
Every transaction in Thailand may have tax implications, such as value-added tax (VAT), stamp duty, or withholding tax. A sales contract must specify who is responsible for these taxes to avoid disputes later.
In property transactions, taxes such as the transfer fee, specific business tax, and income tax must be accounted for. A thorough review identifies these obligations and ensures they are properly allocated. It also verifies that the transaction complies with any applicable regulations, such as the Foreign Business Act or Land Code.
Conclusion
Reviewing a sales contract in Thailand is a crucial step that protects both buyers and sellers from legal, financial, and operational risks. From verifying legal ownership and payment terms to ensuring regulatory compliance and enforceability, a well-reviewed contract provides a solid foundation for successful transactions. Given the complexities of Thai law and the high stakes often involved, especially in cross-border deals, engaging a qualified Thai legal professional to review contracts is not just a recommendation—it’s a necessity. By investing time and resources into a thorough contract review, parties can confidently enter into transactions with clarity, fairness, and peace of mind.