Tenancy Agreements In Malaysia You Should Know
If you are a landlord thinking about renting out a unit, or a tenant that looking for a place, tenancy agreement is something that you should learn about before anything else.
As it function to disclose roles and duties of each party during the tenancy period, tenancy agreement is bound to legal contract and allowed to be used in court.
Drafting a tenancy agreement can be made by hiring a lawyer. But it would be costly. Hence more landlords choose to draft it themselves to save money.
Government is planning to implement Residential Rent Act in two years intended to protect both landlords and tenant.
Until the Act takes effect, there is no special regulation on the content of tenancy agreement.
Any clauses and terms can be added by both parties with no border which mean if there is no precaution.
It could be disadvantageous to either party.
Important keywords on drafting tenancy agreement
Any disputes arise between landlord and tenant should be able to solve through tenancy agreement.
It is important to know the basic clauses and terms that should be added.
It is also suggested puttingevery terms in clearly-worded to avoid misunderstanding.
every tenancy agreement should include:
1. Rented property details
This includes type of house, address, clear statement on whether the unit is rented out as a whole or partly
E.g: A room.
Not to forget to mention all fixtures and furniture available.
2. Purpose of rental
The unit could be used as residential, office, restaurant or other purpose.
3. Rental amount and scheduleIt
It has to be clearly stated on how much is the agreed rental fee per month as well as its due date.
It is common to put the due date on 1st date of every month.
But it is negotiable considering every tenant may
Have different payday schedule.
It is also convenience to jot down rental payment method for tenant’s reference.
Payment method could be by cash, bank deposit or any means that agreed by both party.
4. Security deposit
Security deposit should include rental and utilities.
The standard practice for rental deposit amount in Malaysia is two months’ rental.
As an example,
if the monthly rental is RM1,000, the deposit would be RM2,000.
For utilities deposit,
The amount would be half of rental.
Take the above example, the utilities deposit should be RM500.
The total amount of deposits all in is RM2, 500.
All this information should be included in the agreement.
5. Tenancy period
Tenancy commencement date, expiry date as well as the duration of the tenancy should be specified on the agreement.
Commencement date starts on the day tenant is given the keys and allowed to move in.
Tenant has to move out on the given end date.
It also needs to specify the renewal option should the tenant want to extend the contract.
6. Landlord responsibilities
All the responsibilities that need to be fulfilled by the landlord have to be explained clearly.
This includes property tax payment and list of other fees agreed to be paid by landlord.
7. Tenant responsibilities
Include tenant responsibilities to pay rent and utilities on time. Tenant has to oblige all the special condition stated by the landlord. The special condition might include no pets or no cooking allowed at the said premise.
8. Breach of contract
A clear statement of the consequences if any clause or terms are breached by either landlord or tenant.
Before signing a contract,
Tenant is advised to read carefully each detail to avoid any misunderstanding.
Tenant is allowed to ask for amendment as long as it is agreed by both parties.
Sample of Tenancy Agreement
Below are the samples of simple tenancy agreement that can be made as reference.
Tenancy agreement fee & stamp duty
Once the contract is agreed by both parties,
Landlord and tenant need to sign and seal the agreement.
Both landlord and tenant need to bring at least one witness during the signing.
To make it legal and allowed to be brought in court if any dispute arise,
The contract needs to be stamped by Malaysian Inland Revenue Authority (LHDN).
This is another important part when sealing a contract.
If it is not officially stamped,
The contract would be invalid in court.
The Tenancy Agreement that has been signed need to be brought to any LHDN office for stamping within 30 days after the commencement.
It is common practice for the tenant to bear the stamp duty fee unless stated otherwise.
Stamp duty calculation will be based on every RM250 of annual rental in excess of RM2400.
The fee will be different based on period of contract.
1 year and less : RM1 for every RM250 annual rental in excess of RM2400.
1 to 3 years : RM2 for every RM250 annual rental in excess of Rm2400.
More than 3 years : RM3 for every RM250 annual rental in excess of RM2400.
Please note that stamp duty is free if the annual rate is not exceeding RM2400.
For clear explanation...
Below is an example of stamp duty calculation.
For one year length contract, RM1 fee will be imposed for every RM250 annual rent in excess of RM2400.
Therefore, if the annual rent is RM12 000:
Rental in excess of RM2 400: RM12 000- RM2400 = RM9 600
Stamp duty: (RM9 600/RM250) X RM1 = RM38.40
It is advisable for each party to get stamped copy for on keep.
RM10 will be imposed by LHDN for any additional copy.
Tenancy Agreement for Room
If you are renting a house yourself and wish to rent out the other room, you have to refer to your lease first.
Some agreement stipulated a restriction of subletting but others may state otherwise.
Drafting a room rental agreement is highly advised if you have decided to sublet.
Room rental agreement intended to promote harmonious among household as well between house owner and tenant.
It is also to state the house ground rules including utilities payment,cleaning, gas usage and others when they share the same house.
Tenancy agreement coming to expiry and termination
When the tenancy is coming to an end, there are three scenarios that likely to happen:
End of contract
If the tenant move out of the premise once the contract ends, that’s it. Tenant has no longer holds any responsibility to the unit and landlord must return all the deposits provided there is no damage occurred.
Different story occur if the tenant wish to continue the stay.
In that case,
New tenancy agreement has to be sealed for the next period.
Option on tenancy renewal is subject to the clause in the agreement.
Usually it will be stated in the agreement during the end of the contract tenant has the option of renewal by providing written notice to the landlord stating the intention to continue the tenancy for another period.
Renewing the contract is subject to mutual understanding.
Landlord has the right to refuse the renewal.
Renewing the contract will give an option to both parties to negotiate the rental.
It is also good as both parties have created an understanding and known each other flow of work during past period.
Though it is allowed it would arise a little issue if the tenant or the landlord wishes to terminate the contract early before the end date.
Disputes can be avoided if it handled carefully as early as before the contract signing.
1. Who get the security deposits?
Deposits work as compensation should the tenant caused any damage to the unit.
It is advised to put a clause in the agreement to forfeit the deposits for any damages occurred during the tenancy.
This would work as a deterrent to the tenant.
landlord should be able to differentiate between obvious damage or wear-and- tear damage.
2. Negotiate a contract buyout
When the tenant wishes to terminate the contract early without prior notice.
It would cause trouble for the landlord to find replacement.
It is important to clearly state in the agreement how ending the contract prematurely would cause the deposit to be forfeited in order to cover the cost of finding new tenant.
Though it would make landlord’s offer less attractive, it is important in order to protect the landlord.
3. Breaching the contract
If the tenant fails to pay rent or cause a significant damage it will be considered as breach of contract.
Landlord has the right to terminate the contract if the situation happen and ask for evacuation through proper notice.
4. Landlord should cover the cost for own breach
There is no reason other should cover for your own breach.
If the landlord wishes to terminate the contract early when there is no breaching of contract from the tenant, landlord should return all the security deposits as early as possible and minimum 30 days for to cover all the expenses incurred for the tenant to move.
Landlord however is allowed to collect rent up to the last month of rental and maybe additional day to accommodate the tenant.
All people have different character.
Some may understand but the rest would be handful.
Renting out or in would not always be easy.
Always remember to have tenancy agreement as a step ahead of any dispute.