Key takeaways
- Booking deposits, contract deposits and down payments are liabilities until revenue is recognised; they are not the group's central funds
- Escrow in Thailand is voluntary, so the protection customers can rely on comes from the developer's own account and contract design
- "Restricted" must state its source, whether law, contract or policy, because it affects decisions and disclosure
Why separate
Customer money is a key source of funding during construction. But if it is used to plug gaps in other projects or cover central costs, then when sales or construction run into trouble the group faces both delivery obligations and refund obligations with no money behind them. The problem escalates quickly because customers and banks see it at the same time.
Levels of protection
| Level | Format | Who controls the money | Limitations |
|---|---|---|---|
| 1. Project Receipt Account | Separate SPV account for each project | The company, under internal policy | The company's creditors may still have a claim on the money |
| 2. Lender-Controlled Account | Account under an Account Control Agreement | The lending bank, subject to conditions | Protects the bank first; not designed for buyers |
| 3. Escrow | An authorised counterparty holds the money subject to release conditions | Escrow Agent | Involves fees, and money arrives more slowly because of the conditions |
Escrow under Thai law
- Governed by the Protection of Counterparties Act 2008, and the escrow agent must be licensed by the Ministry of Finance
- Use is voluntary; the buyer and seller must agree in the contract before the money is transferred
- The agent must be neutral. A bank in the same group as the developer cannot act, and a lending bank must disclose its role and remain neutral. This follows a law firm's summary, so check the legal text before relying on it.
When to consider it
- Foreign buyers make up a high proportion and want additional protection
- The use of escrow is stated in the marketing materials and the contract
- The lender requires it
Release Conditions
It should be written so that it can be verified, for example releasing money according to construction progress certified by an independent engineer, and notifying customers of the conditions before they sign the contract.
Condominium unit reservation agreements as a contract-controlled business
According to a summary by Tilleke & Gibbins, the Contract Committee's notification was published in the Royal Gazette on 3 October 2024 and is expected to take effect on 31 January 2025. The points affecting Treasury are as follows.
- A booking deposit must not be treated as a deposit or down payment
- When the agreement ends because the consumer exercises a right or the loan is not approved, the booking deposit must be refunded within 15 days if received in cash or by transfer, and within 45 days if received by credit card
- A booking deposit can be forfeited only where the consumer does not sign the agreement within the period set by the conditions
Therefore the Project Receipt Account should hold enough to make refunds within these timeframes. Check the latest notification before setting the process.
Account structure and cash flow
- Receipt All money, through every channel, goes into that project's Project Receipt account. Sales staff do not accept money into personal accounts.
- Recording Separate the balances by unit. Record Customer Deposit as a liability.
- Approving use Transfer to Project Disbursement according to the plan approved by the CFO.
- Spending Pay only costs of the same project.
- Ownership transfer Receive the remaining balance, repay debt according to the Release Price, and recognise revenue when control is transferred.
- After transfer Only then is surplus money released according to the waterfall and the loan conditions.
Project money waterfall
- Operating Expenses
- Tax
- Senior Debt interest
- Senior Debt principal
- Mezzanine interest
- Top up the Reserve account
- Mezzanine principal
- Preferred Return
- Return of capital invested
- Promote
- Ordinary equity
This order is a general example; the order actually used must follow the contract. Common triggers include DSCR falling below the threshold, which causes a cash trap; a Covenant breach, which stops payments to shareholders; and an event of default, which lets the lender take control of the accounts.
Juristic person funds
The condominium juristic person's initial fund and advance common-area fees are kept separately in a trust account, handed over in full with supporting evidence, and not counted as group liquidity. The rates charged should match the marketing materials, the agreements and the juristic person's regulations.
Controls and reporting
- The person who administers the customer accounts is not a signatory for disbursements from the same account
- Reconcile receipts by unit against the bank accounts and Customer Deposit every month
- Refunds in cases where the company is not in breach of contract must be approved by the CFO or above
- Where the company is in breach of contract, there must be liquidity to cover refunds with interest as required by the contract and the law
- Internal Audit spot-checks the use of customer money in every active project
- The default rate uses actual data for each project and is fed into the forecast
In the financial statements, money that cannot be used freely should be classified or disclosed according to the facts and the standards applied. Money set aside under internal policy may not meet the same conditions as money restricted by contract. Discuss this with the auditor.