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A tenancy agreement to a rental is what a Sales and Purchase Agreement is to a property sale – they’re both essential to protect the interests of both parties.
It is not just carried out as a formality. In fact, it is of utmost importance as it ensures that the tenant and landlord are on the same page.
The National Land Code states that a rental under three years is defined as a tenancy, while a rental over three years is considered as a lease. The difference is that only the latter needs to be registered.
A Residential Tenancy Act is currently in the works, but for now, there is no black and white on what can and cannot be included in a Tenancy Agreement. This means that there is no standard template that can be used.
This is all the more reason for you to be well-versed in what should be put into the agreement, whether you are a tenant or a landlord.
It is not compulsory to consult a lawyer, but for a legally binding contract, it is recommended to have a neutral third party look over the agreement to ensure that it is not too one-sided.
A Tenancy Agreement is a contract between the tenant and landlord that outlines all the important aspects of the tenancy, such as the tenancy period, monthly rate, payment method and a detailed description of the property being rented out.
Here is a more complete list of the items that should go into a Tenancy Agreement:
- Property details (the type of house, address and other necessary information)
- Tenancy duration
- Renewal clauses
- Rental amount
- Deposit amount
- How and when the monthly rental will be paid
- Penalty for late payment
- What is provided by the landlord (furniture, utilities and other items)
- Who bears the costs of maintenance and repairs
- Terms and conditions on the return of deposit(s)
- Terms and conditions on subletting/additional tenants
- Utility bill and property tax obligations
- Special clauses (pets, smoking, access to amenities and other rules)
Signing of the Tenancy Agreement
All terms and conditions are to be discussed between the landlord and tenant before it is put into writing. The Tenancy Agreement serves as a finalised, concrete version of the negotiations.
After the tenant and landlord have agreed on all the terms and signed the agreement, it must be stamped by the Malaysian Inland Revenue Authority (LHDN) within 30 days to validate it in the eyes of the Malaysian Court.
If this step is skipped, it will be invalid in the event of any disputes.
Generally, the stamp duty will be covered by the tenant, but the landlord can choose to cover the cost as well.
It is also recommended to have an original copy of the Agreement stamped for each party – one for the tenant and one for the landlord.
If an agent’s services were used, it is best for them to have a copy too.
Early termination of Tenancy Agreement
In the event that the tenant terminates the contract early, they still have to pay the outstanding rental amount, unless an exit clause has been stated in the Tenancy Agreement.
Assuming there are still six months left on the contract, then the tenant is still liable to pay six months’ worth of rent.
Another complicated situation that can happen is when the property is sold by the landlord.
If the rental agreement is considered a lease, then the new property owner is automatically bound to the existing agreement. However, for Tenancy Agreements, a new one should be drawn out under the name of the new owner.
If the original owner claims to have no knowledge of the tenant, then the new owner has the right to evict the tenant.
This is why such terms must be stated clearly in the Tenancy Agreement.
Although there is no Residential Tenancy Act, it is still unlawful for a landlord to evict a tenant without a substantial reason, as stated in the Specific Relief Act 1950.
Other laws that help in tenancy disputes include:
- Contracts Act 1950, which covers conflicts on the tenancy agreement.
- Civil Law Act 1956, which covers payment disputes.
- Distress Act 1951, which covers matters of eviction.
- Common Law or Case Law, both of which cover rental disputes.
If no agreement is drawn out, a tenancy is deemed as a monthly tenancy, and is not subject to any legal proceedings should any disputes happen.
Thus, it important to have a Tenancy Agreement and go over it with a fine-toothed comb before proceeding with a tenancy.
This article was written by Adlene Hanna of PropertyAdvisor.my, Malaysia’s most comprehensive source of property data, property analytics and insights.