A tenancy agreement is defined as a contractual relationship between a landlord and a tenant, requiring the tenant to pay rent to the landlord for the use of the real estate. Tenancy is created for a term not exceeding three years.
A lease, on the the other hand, is the letting of a property for a period exceeding three years. Under the National Land Code, a lease has to be registered with the Land Registry, which means that the lease will be endorsed on the title of the property giving notice to the world that the property is under a lease.
There are three elements in a tenancy setting, namely the landlord, the tenant and the property.
The applicable laws governing tenancy in Malaysia are as follows:
- National Land Code 1965, Part 15 on ‘Leases and Tenancies’;
- Contracts Act 1950;
- Specific Relief Act 1950;
- Civil Law Act 1956;
- Distress Act 1951;
- Common Law/ Case Law.
There are three types of tenancies as follows:
- Fixed term tenancy;
- Periodic tenancy; and
- Tenancy at will.
A fixed term tenancy has a definite beginning date and ending date and may have an option to renew in the agreement.
A periodic tenancy is a tenancy for some period of time as determined by the term of the payment of rent. Tenancy can be from year to year; month to month or week to week.
Tenancy at will is a tenancy agreement where a tenant occupies a property with the consent of the owner but there is no written agreement between the parties that specifies a definite payment of rent or the tenure of the rental. It can be terminated by either the landlord or the tenant at any time by giving reasonable notice.
Once a landlord and tenant agree on a tenancy arrangement, they would usually execute a preliminary agreement called ‘Letter of Offer to Rent’ specifying the terms and conditions as agreed to by both parties. The tenant would pay an earnest deposit (usually one month’s rental) upon signing the Letter of Offer. Thereafter a Tenancy Agreement would be executed between the two parties. The Agreement should be duly stamped.
Some important things to take note of in a tenancy agreement:
- Permitted use of the premises: The use of the premises must be in compliance with the existing laws and regulations. There are instances where the property is being rented out for residential use while it is a purely commercial entity and vice versa.
- Sub tenancy: Is this permitted or not permitted by the landlord? This is important as there it is not uncommon to find tenants sub-letting the premise to a sub tenant without the expressed consent of the landlord. By doing this, the tenant would then be in breach of the terms and conditions of the tenancy agreement.
- Fixtures and fittings: If the premises comes with this then an inventory list should be done. This should be done and attached to the Letter of Offer To Rent at the initial stage. This is important as there are cases where there is dispute in what the tenants saw earlier at the viewing of the property was later not provided for in the tenancy agreement by landlord.
What happens when the tenant defaults in paying the rent?
Under Section 7(2) of the Specific Relief Act 1950, a landlord is prohibited from evicting the tenant and/or recover possession of the demised premises without a court order.
The landlord should not resort to self-help measures such as changing the lock or to retake possession of the property by force. Otherwise they may find themselves sued by the tenant for trespassing etc. It is also of not much use in making a police report either regarding such matters as it is deemed to be a civil matter. In such a situation, the landlord is advised to engage a good lawyer who is well versed with tenancy matters to evict the tenant.
The legal procedure for evicting a tenant is as follows:
- To give a notice to the tenant to regulate the rental;
- If the tenant still does not pay up the outstanding rent, the landlord will give a notice of termination to the tenant;
- The landlord through his solicitors will then file a suit against the tenant for the arrears of rent and seek for an order for vacant possession of the premises. It will take approximately three months to obtain a judgement for this;
- Once a judgement is taken on the arrears and the order for vacant possession is given, the landlord’s solicitors will have to file a writ of possession to ask the bailiff to re-take possession of the property. It will take approximately three months to obtain this.
All in all, it would take approximately seven months from the very beginning to re-taking the possession of the property and the costs of the proceeding is approximately RM10,000. This is based on the presumption that this is not contested by the tenant.
The landlord may also claim from the tenant double rent under Section 28 (4) of the Civil Law Act 1956 from the expiry of the notice of eviction until the possession is given to the landlord. However it must be noted that the recovery of double rent is not the right of the landlord but is a matter of the court’s discretion.
In another context, the landlord could go through the route of the Distress Act 1951 to recover the outstanding rent from the tenant provided it is for a period not exceeding 12 completed months of the tenancy preceding the date of application. The court bailiff will seize and sell the tenant’s goods via auction in satisfaction of the outstanding rent.
However, there is no provision to terminate the tenancy here. This is effective particularly in the instance of a commercial enterprise that is occupying a shoplot or retail outlet. In order to safe guard and to avoid jeopardizing the branding of the business concerned, the tenant would usually pay up before the landlord proceed further.
Tips for Landlord:
- Register utilities under the tenant’s name to make tenant liable for the outstanding amount
- Conduct a background search on the tenants via Google and Facebook. For an individual, a bankruptcy search can be done while winding up search can be done on a company through the Official Assignee. Furthermore a search can also be done on a company via Companies Commission of Malaysia where one can determine whether a company has been duly registered; to assess the financial viability of the company concerned – from the Balance Sheet, Income Statement and the total Issued Share Capital of the company; to ascertain who are the Directors and shareholders of the company.
- Find out where the tenant works and the designation of him/her in the company. This will give some clues as to the background of the person concerned.
- To have an alternative address of the tenant in the Tenancy Agreement apart from the demised premises e.g. hometown or work address. This is to enable the landlord to track the tenant if there is a necessity to do so.
- Can request for CTOS report and other reference (from the landlord of previous properties rented) from the tenant.
Tips for the tenant:
- Can conduct a search on a title to ensure that the landlord is the actual registered owner of the property. There are instances where the landlord represented to the tenant that he/ she is the owner when it is not the case.
Recommendation for the government: To set up a National Tenancy Database like in Australia for owners and estate agents to check on the background of the prospective tenants. Commercial tenancy reports can also be made available here. Information such as identity verification, tenant blacklist screening and bankruptcy and court record check should be made available here.
