In brief: real estate acquisitions and leases in Myanmar

Acquisitions and leases

Describe the various categories of legal ownership, leasehold or other occupancy interests in real estate customarily used and recognised in your jurisdiction.

The most common form of land in Myanmar is leasehold land, primarily in the form of grant land. In addition, the Myanmar government may also enter into specific lease agreements with investors to develop particular parcels of land under build-operate-transfer (BOT) lease agreements. A BOT lease is different from a grant in that usually there is no expectation of extension upon expiry of the term.

Condominium ownership is also possible under the Condominium Law and Condominium Rules, set out in Notification No. 267/2017 of the Ministry of Construction. Under this law, condominiums may be built on land registered as ‘common land’. The owner of a condominium will have a proprietary interest in the condominium, and the right to benefit from common property. One important feature of condominiums is that foreigners can own up to 40 per cent of the total marketable area of a condominium development. On 14 September 2018, the Ministry of Construction issued Notification No. 227/2018, establishing the registrar under the Condominium Law in 11 states and regions (including Yangon and Mandalay) and Nay Pyi Taw, allowing condominiums to be registered and therefore constructed in most parts of Myanmar.

The government is also considering setting up a statutory regime to govern the rights of owners of flats in Yangon. We are advising on the establishment of this framework.

What are the typical pre-contractual steps?

The most important pre-contractual step in Myanmar is due diligence. It is important to undertake careful examination of the title to land prior to entering into Transaction Agreements. Non-binding agreements are not common in Myanmar for transfers of property, but can be used. Non-binding instruments will not generally be enforceable. Whether a particular property is taken off the market during negotiation of the transfer instrument is subject to the decision of the parties.

Brokers are generally involved on behalf of sellers and purchasers in the acquisition and sale, but typically not the financing of real estate. There is no system of licensing of real estate brokers at this time. The sector is primarily self-regulated through industry associations such as the Myanmar Real Estate Services Association.

What are typical provisions in a contract of sale?

Transfer Agreements are generally negotiated on a case-by-case basis, depending on the interests and sophistication of the parties involved. The majority of lease agreements in Myanmar are negotiated between individual parties, without the benefit of legal advice or any statutorily prescribed form of lease agreement.

Who takes responsibility for a future environmental clean-up? Are clauses regarding long-term environmental liability and indemnity that survive the term of a contract common? What are typical general covenants? What remedies do the seller and buyer have for breach?

The Environmental Conservation Law appears to require the occupier of a property to take responsibility for environmental clean-ups. As in other jurisdictions, however, it is possible for the Transfer Agreements to provide for one party to indemnify another for clean-ups over such period of time as the parties agree.

What are typical representations made by sellers of property regarding existing leases? What are typical covenants made by sellers of property concerning leases between contract date and closing date? Do they cover brokerage agreements and do they survive after property sale is completed? Are estoppel certificates from tenants customarily required as a condition to the obligation of the buyer to close under a contract of sale?

There are no typical representations and warranties with respect to Transfer Agreements, and these are transaction-specific and subject to negotiation. The scope of such provisions is subject to the negotiation of the parties, but note that under section 19 of the Contract Act, agreements will be voidable at the option of an innocent party who is induced to enter into a contract by a misrepresentation.

Estoppel certificates are not typically used in Myanmar.

Is a lease generally subordinate to a security instrument pursuant to the provisions of the lease? What are the legal consequences of a lease being superior in priority to a security instrument upon foreclosure? Do lenders typically require subordination and non-disturbance agreements from tenants? Are ground (or head) leases treated differently from other commercial leases?

There is no practice in Myanmar regarding the legal consequences of foreclosure on the security taken on a lease, reflecting Myanmar’s developing banking and finance sector.

What steps are taken to ensure delivery of tenant security deposits to a buyer? How common are security deposits under a lease? Do leases customarily have periodic rent resets or reviews?

Security deposits are commonly required to be paid in Myanmar, in the form of a deposit paid to the lessor. Section 10 of the Urban Rent Control Act permits lessors to demand a deposit of up to 10 per cent.

Whether leases provide a periodic rent reset depends on the structure of the lease agreement. Because the Transfer of Immovable Property Restriction Law restricts the lease for more than one year by foreign citizens or foreign-owned companies, the typical term of lease agreements executed by such persons is one year, and the rent may be reviewed in renewing such agreement.

For lease agreements longer than one year, the parties may negotiate periodic rent resets.

What due diligence should be conducted before executing a contract? Is any due diligence customarily permitted or conducted after contract but before closing? What is the typical method of title searches and are they customary? How and to what extent may acquirers protect themselves against bad title? Discuss the priority among the various interests in the estate. Is it customary to obtain government confirmation, a zoning report or legal opinion regarding legal use and occupancy?

It is important to undertake careful examination of the title to land prior to entering into Transaction Agreements. The parties may choose to undertake such due diligence after execution but before closing, but this is not advisable given the importance of due diligence for transactions involving land in Myanmar. There is currently no insurance available in Myanmar to protect against bad title.

Due diligence comprises an examination of the transferor’s title documents, including the instruments registered under the Registration of Instruments Law and the Myanmar Companies Law (MCL), as well as the extract from the Register of Holdings, and the original land grant certificate for grant land. A title document issued by the Myanmar government, such as the land grant certificate, is treated as strong evidence of title.

It is also important to undertake onsite due diligence, as the title documents and registration details may not reveal the identity of all persons who have rights to use the land, particularly customary rights that need to be respected for historical reasons.

In addition to determining title, it is important to assess any restrictions on the right to use the land. For example, the terms of a land grant may restrict the use that can be made of the land by the lessee.

In relation to statutory priority among interests in real estate, a failure to register instruments that create or assign rights to immovable property valued above around US$70, and leases of immovable property for a term of more than one year, or fixing an annual rent under the Registration of Instruments Law will affect their validity, while a failure to file mortgages and charges over a company’s property with the Directorate of Investment and Company Administration in accordance with section 229(a) of the MCL will affect their enforceability against a liquidator or creditor of the mortgagor or chargor. Priority among security holders may be reordered by contract.

Is it customary to arrange an engineering or environmental review? What are the typical requirements of such reviews? Is it customary to get representations or an indemnity? Is environmental insurance available?

Engineering and environmental reviews are possible but not customary, given the lack of international standard service providers. Environmental representations and indemnities are typical in land Transfer Agreements, as in other jurisdictions, but are subject to negotiation. Only limited insurance is available in Myanmar at this time.

Do lawyers usually review leases or are they reviewed on the business side? What are the lease issues you point out to your clients?

For significant commercial transactions, leases will be reviewed both by lawyers in terms of legal issues, and clients in terms of business-side interests. Lease agreements are important as they are a primary method of acquiring and transferring property interests in Myanmar.

The particular issues raised will depend on the type of transaction, the type of property and the clients’ interests. In particular, the longer the lease term, the greater the attention that will need to be paid to legal risks such as the title of the lessor, obtainment of any consents or approvals required from any person for the execution of the lease (including from the Myanmar Investment Commission), and the parties’ representations and warranties.

Lenders do not typically require management agreements to be subordinate to financing security instruments, reflecting Myanmar’s limited banking and finance sector.

What other agreements does a lawyer customarily review?

For significant commercial transactions, lawyers will typically review title documents and lease or sublease agreements, and the licences and other agreements required to use the property, as well as any encumbrances on the property.

How does a lawyer customarily prepare for a closing of an acquisition, leasing or financing?

Closing of Transfer Agreements and finance agreements is similar to closing of other transactions and, as with the required deliverables and closing conditions, depends on the circumstances of the transaction.

Is the closing of the transfer, leasing or financing done in person with all parties present? Is it necessary for any agency or representative of the government or specially licensed agent to be in attendance to approve or verify and confirm the transaction?

The conduct of closing is subject to the parties. There is no requirement for parties to be present, but they may choose to be present. There is no requirement for an agency or representative of the government or specially licensed agent to be present.

What are the remedies for breach of a contract to sell or finance real estate?

Remedies may be available under the particular Transfer Agreement or financing agreement itself for a breach of contract, or the Contract Act.

A failure to assign a lease agreement may also be enforceable by specific performance. The explanation to section 12 of the 1877 Specific Relief Act provides that the loss caused by a breach of a contract to transfer immovable property will be presumed not to be compensable by payment of damages, and may therefore be enforced by specific performance.

What remedies are available to tenants and landlords for breach of the terms of the lease? Is there a customary procedure to evict a defaulting tenant and can a tenant claim damages from a landlord? Do general contract or special real estate rules apply? Are the remedies available to landlords different for commercial and residential leases?

Remedies for breach of lease terms such as forfeiture are generally provided in the lease agreement, and damages may also be available under the lease agreement or Contract Act. Lease agreements generally provide for the landlord to enter and take back the property upon default.

Technically, under section 12 of the Urban Rent Control Act, a lease may only be forfeited with the approval of the inspector appointed under that law, for certain prescribed reasons such as where the lessor wishes to construct buildings on the land or live in the premises. In practice, this is only applicable to residential tenancies.