Due to the uncertainties of property prices in Malaysia, many choose to rent a place instead of buying one. Renting of properties has been made easier for both property owners and potential tenants with the accessibility of property renting websites online like bumbung.co. Gone were the days where one has to physically step into a real estate agency to advertise their properties and to look for properties to rent. With the increasing rental transactions each day, the likelihood of tenancy disputes has also increased. So, here are some useful information that you as a landlord or a tenant should know beforehand.
Why there is a need for Tenancy Agreements
Currently, there is no Tenancy Act in place which governs the legal framework of tenancies in Malaysia. Therefore, the one and only document which governs the relationship between the landlord and the tenant is the tenancy agreement which the terms and clauses can be freely negotiated and customised to suit the individual requirements of both parties. It is a common misconception amongst the public that all tenancy agreements contain standard terms and conditions. However, it is important to note that a tenancy is an agreement for a rental period of less than three years and anything more than that will constitute a lease.
As I have mentioned above which I would like to reiterate, the only binding document in a tenancy is a tenancy agreement which will contain terms and conditions agreed by the landlord and the tenant. It is the only document which protects the rights of the landlords and the tenants. A tenancy agreement falls under the Contracts Act 1950 which assumes that the parties, when signing the tenancy agreement would have entered into the agreement at their own free will on mutually agreed terms.
However, due to the legal language that is used in the drafting of a tenancy agreement, many would not fully understand what the terms and conditions means and what it entails. Many would have gone ahead with signing the agreement without fully knowing what they have signed up for. To make it easier, below are the major terms to discuss, negotiate, confirm and verify in a tenancy agreement before you sign it.
Major Terms in a Tenancy Agreement
1. Details of landlord and tenant
The tenant must verify that the landlord is the legal owner of the property by having a sight of either a duly signed and stamped Sales and Purchase Agreement in which the landlord had acquired the property OR a copy of the individual/strata title stating the landlord as the registered owner (if title has been issued).
Confirm and check all the details of both the landlord and tenant i.e. full name and NRIC number, name of company and registration number as per SSM registration details (if party is a company) to ensure that it is accurate.
2. Details of the property (“Demised Premises”)
To ensure that the address of the property is accurate and to specify the exact portion being rented (if applicable) e.g. ground floor, first floor, front portion, back portion, etc.
3. Tenancy period and option to renew
The parties will have to agree on the period of the tenancy e.g. two years which at the end of the tenancy period, the tenancy agreement would be deemed expired.
Tenancy agreements usually includes an option to renew clause whereby at the end of the tenancy period, the tenant has the option, by giving a written notice to the landlord prior to the end of the tenancy period, to continue with the tenancy for an additional time period e.g. one year.
4. Deposit and rental amount (including any GST if applicable)
The parties to agree on the monthly rental amount and including GST if the landlord is a GST registrant.
There are two deposits — security deposit and utility deposit — which shall be payable by the tenant and to be kept by the landlord and shall be refunded to the tenant free of interest at the end of the tenancy. These are subjected to any lawful deductions as provided for in the agreement. Do note that the clause is usually drafted in such a way that the landlord shall not be entitled to use the deposits to set off any rental arrears during the term of the tenancy.
5. Payment mode and payment due date
This clause would specify how the landlord wishes to be paid i.e. direct transfer to the landlord’s bank account or its nominated bank account, by cheque, etc.
It also specifies when is the latest date of every month for the payment of rental e.g. by the 7th day of each month.
6. Purpose of the tenancy
Parties would need to state what the demised premises is used for i.e. commercial, residential, warehouse, etc. The demised premises shall strictly only be used for the purpose that is stated and nothing else.
7. Parties obligations and covenants
The agreement will outline the responsibilities of the landlord and the tenant respectively for the entire duration of the tenancy. Any non-compliance will result to a breach of the tenancy.
8. Fixtures, fittings list (if any)
Sometimes, properties are rented out together with fixtures and fittings e.g. air-conditioning, built-in cabinets and etc. Therefore the landlord shall provide a list of it all and the tenant shall be responsible to ensure that the fixtures and fittings are in good condition at the end of the tenancy period.
This clause is one of the most important clauses in the tenancy agreement as it will be the only exit for both parties. Parties may agree to insert into the tenancy agreement on the methods to terminate the tenancy agreement prior to the end of the tenancy period. E.g. “The parties may terminate this tenancy during the term of this Agreement or any renewed term thereof by giving to the other party a two months written notice in writing”.
10. Special conditions (if any)
Any other special conditions that the parties wish to include e.g. one month rental-free period for the tenant to carry out renovation works in the demised premises, reinstatement clause whereby the tenant shall reinstate the demised premises to its original condition if approved renovation works have been done to the demised premises.
Always bear in mind that it is your right, be it as a landlord or a tenant, to negotiate the terms and conditions with the aim to come to an agreement between both parties prior to signing the tenancy agreement. There is a major need for the parties to enter into a tenancy agreement to set out clearly the parties intentions to prevent any future disputes.
Carmen Tham is a lawyer and she is actively involved in real estate legal work. She is the managing partner of Messrs. KEAY & CO., a boutique firm located in Publika @ Solaris Dutamas with one of their major specialisations in property development, sales and purchase of property, tenancies and real estate disputes.
If you have questions that you would like to ask Carmen, please feel free to drop her an email at firstname.lastname@example.org.
Disclaimer: The information here does not constitute legal advice, please seek professional help for your specific needs.