Buying or Taking Over an Operating Hotel or Resort in Thailand: What to Check Before You Pay

Why an operating hotel needs more checking than vacant land

The price of an operating hotel is usually based on revenue, occupancy rate and reviews. The buyer is therefore paying for a running business, not just the land and buildings.

The problem is that this revenue depends on several things that do not come with the title deed: a license in the operator's name, a land lease that may have only a few years left, additions built without permits, and the staff who keep the hotel running. If any of these falls away after the transfer, the revenue used to set the price disappears with it.

1. Buying shares or buying assets

Decide this first, because it changes the whole checklist.

Buying shares of the company that operates the hotel

• The license, lease, contracts with partners and staff stay with the company and do not need to be transferred
• But all past debts, unpaid taxes, fines and lawsuits also stay with the company
• Check that the license is actually issued in the company's name and not in the owner's personal name, which is common in small resorts
• If the buyer is a foreigner, acquiring the shares may make the company a foreigner under the Foreign Business Act. Read this restriction in the article on hotel licenses

Buying assets or taking over the business

• You buy the land and buildings, or the leasehold with the furniture and equipment, and operate in the buyer's name
• Most of the previous operator's debts do not follow, except encumbrances attached to the property, such as a mortgage
• But everything must be transferred or applied for anew: the license, the lease, contracts with partners and the employment of staff

See a detailed comparison of the two approaches in Buying an existing Thai company: what to check before taking over the shares.

2. The license does not transfer automatically

A hotel business license is issued to the operator, not to the building.

• If you buy assets or take over the business, you must apply to the registrar for permission to transfer the license, or apply for a new license in the buyer's name. The transferee must meet the qualifications required by law.
• A transfer without permission carries an administrative fine of up to THB 500,000, plus daily fines until the matter is corrected
• Plan the handover date to match the date permission to transfer is granted, rather than handing over first and chasing the paperwork afterwards

Besides the hotel license, other licenses are often tied to the license holder and must be applied for anew or transferred separately:

• Liquor sale license
• Food premises license or notification certificate
• Health establishment license, if there is a spa
• Music copyright license for public areas

3. Do the rooms and buildings in operation match what was permitted?

This is where the most problems are found in small and medium hotels.

• The number of rooms actually sold compared with the number of rooms in the license
• Accommodation notified as a small lodging but extended beyond the threshold of 8 rooms or 30 guests, which then requires a hotel license
• Buildings added later, such as a new villa, a rooftop bar or a beachfront restaurant, without a construction permit
• Original buildings that were houses or shophouses: whether a change of building use to a hotel has been applied for
• Fire protection systems and building inspection reports for buildings that the law requires to be inspected regularly
• Structures encroaching on public land, the beach or a waterway, which may be ordered to be demolished

Unlawful additions are the burden of the current occupier. After the transfer the burden falls on the buyer, including demolition orders, problems when renewing licenses, and the insurer's defenses when an incident occurs. The options are to have the seller fix this before the transfer, or to adjust the price to reflect the cost of the fix.

4. Land and lease

Many resorts stand on leased land. What the buyer actually gets is the leasehold, not the land.

• Registration: a lease of more than three years must be in writing and registered; otherwise it can be enforced for only three years
• Remaining term compared with the calculated payback period. An ordinary lease can run for no more than thirty years.
• Renewal rights are only a promise by the lessor, not a registered renewal. Read the conditions and the rent for the renewal period carefully.
• The landowner's consent: a tenant cannot assign the leasehold or sublease without consent. Obtain consent in writing and, if possible, enter into a new lease directly with the landowner and register it.
• Key money or premium paid to the previous tenant does not bind the landowner. If the landowner does not consent, the money paid may be recoverable only from the previous tenant.
• Type of land: some types of land, such as land in an agricultural land reform area or land with only tax payment evidence, are not land on which a hotel business can securely be run
• A mortgage attached to the land or building follows the property to the buyer and must be discharged on the transfer date

See a systematic way to check land in Land status due diligence for project sites.

5. Existing staff

• Buying shares: the employer remains the same company, and staff stay with their length of service, remaining leave and all future severance liabilities
• Buying assets: moving staff to become the buyer's employees requires the employee's consent. After the move, their existing rights, including length of service, go with them. If an employee does not consent and the seller terminates them, the seller must pay legal severance.
• Foreign staff: a work permit is tied to the employer. If the employer changes, the process must be done again.
• All kinds of unpaid amounts: wages, overtime, social security contributions. Check the amounts outstanding as of the transfer date and specify in the contract who bears them.

See the principles of transferring employees in Transferring employees to an affiliated company: is consent required?

6. Advance bookings, deposits and sales channels

An operating hotel has advance bookings for which money has been received, some extending to the next tourist season.

• Ask for the full list of bookings with the amounts received as of the transfer date
• Agree that the buyer honors the existing bookings and the seller transfers the deposits or deducts them from the price
• Contracts with OTAs and tour companies: some have restrictions on assignment or conditions on rooms allotted to them. Read them first.
• The website, domain name, social media accounts, review pages and trademarks must be listed as assets to be transferred. Otherwise the buyer gets the building but not the name and the reviews that bring in guests.

7. Debts, taxes and lawsuits

Check before agreeing on the price, not after signing the contract.

• Land and building tax unpaid. Check with the local administrative organization.
• Value added tax, withholding tax and corporate income tax, if buying shares
• Annual hotel license fees, water and electricity bills, and common area charges if in a development
• Lawsuits and complaints from guests, partners and neighbors, including complaints about noise or wastewater
• Debts to partners, such as contractors, food suppliers and equipment hire-purchase companies

If buying shares, set aside part of the price (a holdback) or deposit funds with a third party for debts that may surface after the transfer, together with the seller's warranties and indemnities in the contract.

8. Contract structure and payment

• Pay in stages tied to conditions: do not pay a large sum before permission to transfer the license has been granted, the landowner's consent has been obtained and the mortgage has been discharged
• Schedule of assets transferred: furniture, kitchen equipment and vehicles, attached to the contract with their condition
• Seller's warranties on the licenses, buildings, taxes, staff and lawsuits, with indemnity if the warranties are untrue
• Transition period: the seller helps introduce partners and key staff for a period and does not open a competing business nearby
• Handover date: avoid the middle of the tourist season if possible

Checklist before paying

1. Decide whether to buy shares or assets, and check in whose name the license is held
2. Plan the transfer of, or application for, the hotel license and other licenses in time for the handover date
3. Compare the rooms and buildings actually in operation with the construction permits and the hotel license
4. Check the type of land, the lease, its registration, the remaining term and the landowner's consent
5. Check the mortgage and any encumbrances attached to the property
6. Prepare a staff list with length of service and unpaid amounts, and agree who bears them
7. Ask for the list of advance bookings and deposits, and specify in the contract how they are transferred
8. List the website, online accounts and trademarks as assets to be transferred
9. Check unpaid taxes, debts to partners and lawsuits, then set aside part of the price for debts that may follow

Further reading

• What licenses do you need to open a hotel or accommodation?
• Guest injured or property lost in a hotel: how far is the owner liable?
• Guest registration, TM.30 (the form notifying immigration of foreign guests), CCTV and PDPA for hotels
• Service: Business sales and acquisitions
• Service: Business licenses