After panic erupted among thousands of Airbnb providers worried the days of sweet, tax-free income were over, the company told them Saturday that yes, they are breaking the law.
“Travel is evolving rapidly, and existing rules in Thailand do not reflect how millions of Thais travel or want to use their homes,” read the email, which went on to say the company was “sharing best practices, case studies and our experiences” with the Thai government.
It cited a Thai court of first instance ruling in January that owners of two condominium violated the Hotels Act of 2004 by renting their rooms out daily and weekly. The judgments confirmed the opinion of many lawyers that the daily rental business – and operating a hotel business without a license – is illegal.
On the opposite side, those who interpreted the business as legal sometimes were unsure and couldn’t help but doubt whether they were right. Mostly they were on the side of the condo owners and produced legal theories to comfort themselves while risking criminal prosecution.
And who can blame their wishful thinking? After all, Airbnb has said that Thailand’s more than 60,000 listings put ฿4 billion in people’s pockets in a one-year period.
But after the two court judgments above, some of them might have changed their minds and approaches.
To a bunch of Thai lawyers, the issue is now settled: running an Airbnb business is illegal. For them, the question is no longer its legality, but whether the law will be diligently enforced, and how light or severe the punishment will be meted out. If there is another similar case, the condo owner will find it hard to escape conviction.
The prescribed punishment under the Hotels Act for operating a hotel business without a license is one year jail term and a fine not exceeding ฿20,000 (USD$645) on top of a daily fine not to exceed ฿10,000 per day as long as the violation continues.
Only daily and weekly rentals are illegal. The Hotels Act specifically exempts monthly rentals because a room rented by the month is not classified as a hotel room and is therefore okay.
Even though the rulings were rendered by a court of the first instance, not by the Supreme Court, they will carry a heavy weight of court precedent to be followed by other courts in similar daily rental cases, the reason being that it’s an open and shut case based on a very clear provision of the Hotels Act.
The remaining issue now is not whether the business is legal – quite clearly it is illegal. Most condo owners, since the court rulings, currently recognize the illegality but remain enticed by the handsome economic benefits. They have factored in that legal enforcement in the country is lax (See: Grab thumbing its nose at the government for years).
The chance they will be caught and punished are remote. But you never know.
Pros to Being a Con
Condo owners paying ฿30,000 a month to the bank for their mortgage may be able to grow their income by double that amount to ฿60,000, a 100 percent profit! Foreign and Thai tourists find the Airbnb condo value for money, convenience and amenities similar to a hotel at a much lower price. The peace-loving neighbors of the condo owner, on the other hand, might not like to see strangers coming in and out of rooms next door.
If there are no serious legal actions or complaints made by the neighbors or the condo juristic person management, the condo owners will just go on enjoying uninterrupted tax-free extra incomes. “Tax-free” because they are also not paying personal income tax required by the Revenue Code for this handsome cash either.
One thing many condo owners overlook is that if they are prosecuted through to a conviction, even with a light punishment, there will have a permanent criminal record with the Thai police, which will hamper future employment forever. At this point, the pros and cons are getting more balanced!
Statistics kept by the Thai Hotels Association are not indicative of effective law enforcement. There are 1 million hotel rooms in the country, and half or 500,000 rooms are illegal. Of these 500,000 illegal hotel rooms, only 2 have been taken to court and convicted in the two court cases discussed above. Statistically, the condo owners and Airbnb are winning by a landslide!
It’s not only Airbnb, if the authorities are serious about enforcing the hotel law, there are homestay services in the provinces that are providing decent income to loca folks hosting cash-rich tourists from Bangkok in a Thais-Travel-Thais campaign as well. Will the authorities put these villagers in jail for offering a hotel service without a license?
How it Could All Crash Down
Largely, the fate of Airbnb’s business will decided by the condominium juristic person committee and the manager of the condominium juristic person – how strictly they will enforce the condominium rules in accordance with the law.
If the committee or the manager is serious, they could file a complaint with the hotels registrar. In Bangkok that’s the director general of the Administrative Department, and in the provinces it’s the governor.
The registrar could then assign the district chief to visit the condominium to investigate as demanded by the condo committee/manager. They will enter the rooms alleged, obtain the names of the condo owners, footage of security cameras showing tourists dragging their luggage in and out of the room, and other evidence of wrongdoing. The condo-owners will find it difficult to fight these obvious pieces of documentary evidence. The district chief will sue them in court and the co-owners will have a weak case there and have to confess in exchange for a lenient punishment.
The case will be a simple and straightforward case from the point of view of the prosecution.
Here comes the real danger to the condo owner. After the court judgment and the agreement by the defendant to pay the fine, if he repeats the offense and is brought to court again by the district chief in another case initiated by the condo committee/manager, the court could be compelled by the law to slap a more severe punishment in the form of imprisonment.
In the two court precedents above, the court was merciful and imposed only light punishment against a confession: the maximum fine of ฿20,000 was actually dropped to ฿10,000 and the confession further halved it to ฿5,000. The daily fine not exceeding ฿10,000 per day was reduced to ฿100 per day for 81 days totaling a negligible amount of ฿81,000 in one case, and ฿500 per day for 20 days totaling ฿10,000 in the other. And no jail!
If the defendants return home and carry on their illegal daily renting again and are brought back to the court, the Penal Code will require the court impose heavier punishment. A jail term could be a real possibility the next time around.
Some condo owners believe that if their daily rental business does not exceed four rooms in the same building or in separate buildings, and the capacity of the rooms does not exceed 20 guests, they will not be held accountable under the Hotels Act. Wrong! The four rooms are exempt from the grip of the Hotels Act only when the condo owner notifies his daily rental business to the hotels registrar. Without the notification, the four rooms violate the Hotels Act and remain illegal. Condo owners, by and large, prefer to be anonymous and remain illegal for fear of coming out in the open and being officially scrutinized.
What About Immigration Law Threats?
But the condo management’s threats to pursue a violation of another law, the stricter Immigration Act 1979, will not work. Some condo committees/managers are threatening condo owners that their daily/weekly rental businesses could run afoul of the Immigration Act and land them in jail for 10 years and fines of ฿100,000. This threat is exaggerated to monger fear. It’s unlikely to materialize.
It’s based on a provision of immigration law that says any person who brings in foreigners into Thailand unlawfully or does any act or things to help or facilitate their unlawful entry will be punished by the heavy punishment. This provision aims at battling human-trafficking rather than improper hotel operations and tourists in general enter Thailand lawfully.
But the condo management was right in saying that the condo owner is mandated by the Immigration Act to notify immigration police within 24 hours of the foreign tourist arrival in his room. But the violation of this provision carries only a modest ฿2,000 fine.
Truly, the fate of the Airbnb and daily rental business in Thailand will depend on the condo juristic person committee and the condo juristic person manager and how serious these condo management people will enforce the rules and the law. The reality is condo managements in general are reluctant to take on the violation and will act half-heartedly in a subdued manner when receiving complaints from other co-owners who live in the condo peacefully without doing the business. The net result will be
Airbnb and the daily rental business will keep growing in prosperity despite the two court cases.