Whether you are a landlord or a tenant, a tenancy agreement or a rental agreement protects the rights of both parties. This document comprises various terms including the tenancy period; deposit and rental amount; mode of payment; option to renew agreement; obligations of both parties; and something that is often overlooked – a termination clause.
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In tenancy agreements, the rental property is usually referred to as “demised premises”. It basically means the physical boundaries of the property which is being rented out. Like all contracts in Malaysia, tenancy agreements are governed by the Contracts Act 1950 and cannot be terminated at will. Any breach of the agreement by either party has legal repercussions.
The tenancy agreement becomes a legally binding document after the stamp duty (borne by the tenant) has been paid and the original signed document stamped by the Malaysia Inland Revenue Board or Lembaga Hasil Dalam Negeri Malaysia (LHDN).
What is a tenancy agreement?
A tenancy agreement is a legal contract, or covenant, between a landlord and their tenant. It outlines the terms and conditions of the lease, including who pays for what, and what fees does the landlord cover.
A typical tenancy agreement will also cover when the rental should be paid by, and the duration of the lease and options for renewal. The contract will usually include the list of furniture that is provided in the property, fixtures, and amenities.
For a more complete idea on tenancy agreements in Malaysia, read the guide to what is a tenancy agreement in Malaysia.
Can a landlord terminate a tenancy agreement early?
Unless there is a clause in the tenancy agreement that allows for early termination, then no, a landlord cannot terminate a tenancy agreement early. Even if the tenant is behind on rental payments, the tenancy agreement is still in effect and the landlord will have to go through legal means to collect rental arrears.
The landlord would have to send a letter of demand to the tenant and get proof that it has been received, usually by getting the tenant to sign an acknowledgement receipt. If the tenant still does not pay the outstanding rent, evicting him or her by force is not an option. The landlord would have to engage a lawyer to get a court order under the Specific Relief Act 1950. With the court order, the landlord can then lodge a police report to enter the premises with police presence.
There are many samples of a tenancy agreement and the early termination clause might not be included in generic ones. Detailed ones will usually have a provision for landlords to terminate the agreement if the rental is not paid by a certain date (usually 30 days). The clause for early termination is something that needs to be agreed on by both parties and added into the document from the get-go.
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When is it okay for me to terminate my lease early?
There are several situations where you can terminate your lease early. Again, this is dependent on whether the specific clauses have been included in the tenancy agreement.
1. When you have been relocated for your job
This diplomatic clause is very common for expatriates renting in Malaysia in case they are transferred back home or to another country by their employers. This exit clause usually allows for termination after one year of property rental but it can be negotiated with the landlord.
2. You found a replacement tenant
In most cases, tenants can terminate the lease early if they are able to find a replacement tenant for the landlord. This means that the landlord would not incur any additional costs to look for a tenant because you want to terminate the lease early
3. Breach of tenancy agreement
If the landlord or tenant breaches any part of the agreement, the other party can legally ask to terminate the contract. Examples of breach of contract are the landlord changing the terms of payment or renovating the property. The tenant could be breaching the contract if they sub-let the property.
What happens if you end a tenancy agreement early?
There are consequences of ending a tenancy agreement early if there is no termination clause included in the tenancy agreement.
- Forfeiture of security deposit: If a tenant ends the tenancy agreement early, the landlord has the right to forfeit the security deposit, usually equivalent to two months rental. If the remaining period of the contract is more than two months, the landlord can also insist that the tenant pay the rest of the rental amount (after subtracting the security deposit).
- Legal action: Both the landlord and the tenant can sue for damages if the other party decides to terminate the agreement early. The landlord can sue for loss of income due to the breach of contract. A tenant can seek to recover the cost of relocating or in the case of commercial properties, renovation of the property.
What happens if you break a tenancy agreement?
While the landlord and tenant act in Malaysia is pretty loose, there are covenants in tenancy agreements to protect the landlord if you break the tenancy agreement early.
Under the Distress Act 1951 (Act 255), should the tenant decide to break the tenancy agreement, the landlord will be able to approach a Judge or Registrar and issue a warrant of distress to recover the unpaid rental.
Under the worst-case scenario, should the tenant still refuse to pay their rent, the landlord can then evict the tenant based on Section 7(2) of Specific Relief Act 1950. The landlord will need to apply for a court order to enforce the eviction.
How do I terminate a tenancy agreement in Malaysia?
Notice to quit a tenancy in Malaysia is usually given in the form of written notice not less than two months from the date of termination. If the tenant has to move out immediately, he or she would usually have to pay rent for the equivalent of the notice period.
These terms would have been included in the agreement. An example would be:
“In the event of the Tenant being transferred to another state or country by his employer, then the Tenant is entitled on producing written evidence to the effect to give two (2) months’ notice to terminate this agreement or pay to the Landlord two (2) months rent in lieu of such notice.”
The termination letter from a landlord should include these information:
- The intention to terminate
- Date of termination
- Reference to termination clause in the tenancy agreement
- Reason of termination (in cases of contract breach)
- Date of property handover
- Settlement of any penalties
- Contact details
A termination letter from the tenant has the same content but should also include:
- Letter from employer (in cases of transfer to another country)
- Details of tenant replacement, if any
There are many reasons why a tenant may want to end their tenancy early. Some of the legit reasons for a tenant to end their tenancy agreement early could also include:
- Job relocation
- Acceptance of offer to further studies abroad
- Moving back to hometown due to personal reasons
- If commercial: poor business resulting in closure of said business
Here is an early termination of tenancy agreement sample:
Will I lose out on my deposit if I break the tenancy agreement?
This is dependent on what is stated in the tenancy agreement, but generally, the answer is: yes. You will lose out on your security deposit if you break your tenancy agreement.
Not only that – the typical security deposit is 2 months’ worth of the rental. Should you break your tenancy agreement say 6 months before the contract ends, you will not only lose your security deposit – you may be asked to pay the remaining 4 months of rental depending on what was agreed upon in your tenancy agreement.
Can you charge a tenant an early termination fee?
Should you decide to end your contract early, there is a possibility that you will be charged an early termination fee depending on what it says in your tenancy agreement.
Typically, depending on how much more time you have on your contract, your landlord can either confiscate your security deposit or ask you to pay rent for the remaining months you have left on your contract.
For example, should you have a 2-month security deposit and your contract ends in July but you decide to leave by May, confiscating the 2 months security deposit would cover the 2 months rent.
If you however have say 6 months left on your contract when you leave, your landlord may ask you to pay the rental for the remaining 6 months. Again, this is dependent on what was agreed upon in your tenancy agreement.
Here are some other sample termination letters available that you can use as a reference. You can refer to this sample letter of termination of tenancy agreement by a tenant or free template for lease termination.
In conclusion, a tenancy agreement can be terminated early only if there are provisions for such termination in the contract. Be prepared to face legal action if you wish to terminate the contract before the agreed term ends.
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