Tenancy Agreement: Comprehensive Guide on Crafting, Calculating Malaysia Duty Stamps, and Essential Deposit You Should Know!

For both landlords and tenants, you must have a well-written tenancy agreement to protect both parties. Here’s what you need to know to write one in Malaysia.

Properties are well-known to be appreciating assets. Therefore, owning some will provide long-term benefits especially if you can generate some income by renting them out. However, many expenses come along with property rental. This includes listing costs, property agent fees, and upkeeping of the property.

You can also run into conflicts with your tenant. Furthermore, a prolonged dispute can potentially cause more harm than any income profits you’ve received from the rental. Therefore, it’s important to have a tenancy agreement that protects you. It needs to be clearly worded and cover all possible scenarios. Here’s what you need to know to write a tenancy agreement in Malaysia.

What is a tenancy agreement in Malaysia?

A tenancy agreement is a legal covenant between a landlord and a tenant. It outlines the duties and obligations of each party during the tenancy period. It also provides a detailed description of the property being rented out. This includes its furniture, fixture, and other amenities.

To ensure the document doesn’t leave out any important details, landlords are advised to hire a lawyer to draft the tenancy agreement. Potential tenants can consult their lawyer to review the agreement and make any changes before signing. However, hiring a lawyer can be expensive. Therefore, landlords can opt to draft their agreement and ask the would-be tenant to review and agree to it.

9 items should be included in your tenancy agreement

There are currently no government regulations about what can and cannot be added in a tenancy agreement. Therefore, both the landlord and the potential tenant can add many terms and conditions. This can make the contract more advantageous to either party.

A basic tenancy agreement should include the following:

1) Details of property and purpose

In this section, specify the address of the home being rented out and what type of residential property it is. For strata-titled, non-landed dwellings such as condo units, don’t forget to include the unit number.

Additionally, explicitly state if you are leasing out an entire house or just a single room. Property experts also advise to describe the status of the home. For instance, are you renting it out sans furniture and equipment? If there are items included in the lease, the owner should attach an inventory in the rental contract, which the tenant needs to verify before signing.

2) Tenancy duration

The rental agreement needs to state the starting date of the lease as well as the last day of the tenancy, in addition to when the contract is inked by both parties. In Malaysia, the lease duration usually ranges from 1 year to 3 years. If you are letting your home on a monthly basis, mention that. Either party may also add clauses giving the occupant the right to extend or renew the tenancy for a fixed period, subject to certain requisites.

3) Rental amount and deposits

This part contains the exact rent the lessee needs to pay per month, along with when the rent is due and the manner it should be paid. For instance, should the tenant pay you in cash, or deposit in the landlord’s bank account. Also state the exact amount the tenant needs to pay for Security Deposit, Earnest Deposit, and Utility Deposit.

4) What is provided by the landlord (furniture, utilities, etc)

This section includes the inventory of furniture, fixtures, and equipment provided by the landlord to the tenant. The list should specify the conditions of such things. The tenant should check before signing off, while the landlord will check items during routine inspections and at the end of the tenancy.

5) Obligations of landlord

In a nutshell, the property owner is mandated to pay all necessary charges arising from the property, like quit rent, assessment, maintenance fees, and etc. He or she is also required to maintain and fix the property’s crucial infrastructure, including piping, electrical wirings, as well as posts and beams. Lastly, the landlord must give the tenant “quiet enjoyment” of the property and respect the tenant’s privacy. For more info, read Everything you should know about landlord rights and obligations in Malaysia.

6) Obligations of tenant

Generally, the obligation of the tenant includes paying the deposits and utilities, on top of paying the rent on time. The tenant is also obliged to keep the home safe and clean, as well as follow relevant laws or statutes. For more compressive information, check out Tenant’s Rights and Obligations in Malaysia.

7) House rules, prohibitions, and limitations

This section specifies what the lessee is not permitted to do with the property. For example, the tenant is not allowed to renovate the home, or sublet a room or any part of the house without the owner’s permission. The home can only be used as a residential property, meaning the occupant cannot run a business there. Prohibit the conduct of illegal activities in the premises, like using it as a drug or gambling den.

The landlord also has the option to add limitations, such as the residential property can only be occupied by a certain number of individuals or just one family can use it.

8) How to resolve disputes

This part states the dispute resolution process if by chance the tenancy agreement does not specify how some problems can be solved, if there are any misinterpretations of the provisions of the rental agreement, or if there are misunderstandings between both parties.

9) Special conditions/ clauses

These are special conditions and clauses that either the landlord or the tenant wants to incorporate in the rental agreement Malaysia. For instance, an expatriate tenant may want to include a clause giving him the right to terminate the tenancy before its official end date due to the possibility that he may be re-assigned in another country.

Many things need to be specified in a tenancy agreement. Therefore, the details have to be stated clearly to prevent misunderstanding and disagreement.

When do tenants sign the tenancy agreement? 

Once the potential tenant has viewed the property and agreed to the tenancy terms, this person will then give the landlord a ‘letter of offer’ together with an earnest deposit. 

Then, both the landlord and tenant will need to sign the tenancy agreement within seven days after the security and utility deposits are paid. The signed tenancy agreement is then stamped and becomes an official legal document.

3 rental deposits you should know!

Landlords usually require tenants to pay three types of deposits, which are:

Earnest deposit

This is a booking deposit to ensure the landlord doesn’t lease the property to anyone else within the next seven days. It can be kept in escrow by a real estate agent and is typically equivalent to one month’s rent. The earnest deposit is also accompanied by a signed “letter of offer” from the tenant.

The earnest deposit can be utilised as rental payment for the first month of occupancy when the tenancy begins.

Security deposit

This is used to protect the landlord in case the tenants violate the terms of the tenancy. The amount is usually equivalent to two month’s rents. It can be used to pay for repairs, key replacement and cleaning work. It can also be forfeited if the tenant leaves before the contract ends. 

However, if the tenant fulfils the contract and there are no issues throughout the tenancy, the entire amount is refunded when the tenancy ends.

Utility deposit

This is used to pay any outstanding utility bills ( such as gas, electricity, and water) that have not been paid at the end of the tenancy period. It is typically half a month’s rent.

How much is the stamp duty for a Malaysia tenancy agreement? 

A proper tenancy agreement should be stamped by Lembaga Hasil Dalam Negeri Malaysia (LHDN) or the Inland Revenue Board of Malaysia (IRB) for it to become a valid legal document. The PDS 1 and PDS 49(A) application forms will need to be submitted to the nearest LHDN office. 

The stamp duty for a tenancy agreement in Malaysia is calculated as the following:

Stamp duty of tenancy agreement

Period of tenancy	Annual rental	Stamp duty fees
For all tenancy period	Below RM2,400	Free
1 year	Above RM2,400	RM1 for every RM250
2-3 year	Above RM2,400	RM2 for every RM250
Over 3 years	Above RM2,400	RM4 for every RM250

How to calculate stamp duty for tenancy agreement

• If you want to rent out your unit at RM1,700 per month, your annual rental would be RM20,400 (RM1,700 per month x 12 months).
• As the first RM2,400 is exempted from stamp duty, the taxable rental amount would be RM18,000 (RM20,400– RM2,400).
• The stamp duty would be charged according to the duration of the tenancy (refer to the amounts at the start of this segment).

Here’s the formula :

As the case for this example (rent of RM1,700 per month), the final stamp duty fee is as the following:

1 year or less:

[(1700 x 12) – 2400]/ 250 x RM1 = RM72

Two copies need to be stamped, one for the landlord and one for the tenant. The additional copy of the stamped tenancy agreement is RM10.

> 1 to 3 years:

[(1700 x 12) – 2400]/ 250 x RM2 = RM144

> 3 years:

[(1700 x 12) – 2400]/ 250 x RM4 = RM288

READ: Stamp duty, administration and legal fees for a tenancy agreement in Malaysia

What is the structure of tenancy agreement

Like other legal documents, a tenancy agreement must be precisely drafted by a lawyer to ensure the document doesn’t mist any important details.  Here’s a breakdown of the common terms and clauses written in a tenancy agreement.

Section 1: Cover page 

The cover page includes the arrangement date and names and IC numbers of the landlord and tenant.

Section 2: Defining the agreement

This part establishes the definition of “landlord”, “tenant” and “demised premises”. It also refers to separate sections known as the “Schedule” and the “Inventory”. Usually, the first part of the agreement does not include the property details, contact details, rental amount, etc. That information will be in the “Schedule”.

Section 3: Duration of tenancy, rental amount and deposits 

It specifies the start and end date of the tenancy, rental amount and deposits.

Section 4: Tenant’s responsibilities and obligations

This section covers the tenant’s responsibilities and obligations. For example, paying bills and rent on time, keeping the house safe and undamaged, no subletting,g etc.

Section 5: Landlord’s responsibilities and obligations

This section covers the landlord’s responsibilities and obligations. Eg: Insuring the property, paying tax etc.

Section 6: Special conditions/ clauses

These are additional conditions of a standard agreement agreed between the Parties. This part defines what happens in the case of exceptions.

Section 7: Final definitions 

This part clarifies some definitions like the terms “landlord” and “tenant, numbers etc.

Section 8: Signatures

Signatures of the landlord, tenant, and witnesses.

Section 9: Schedule

This part provides actual information such as the property address, contact details of the landlord and tenant, and tenancy terms.

Section 10: Inventory 

The list of items that are provided by the landlord and handed over to the tenant. The items listed are expected to be returned in good working order at the end of the tenancy.

Get ready to earn some income!

A well-written tenancy agreement will help protect you as a landlord and avoid future disputes with your tenants. You should have the document ready before you put it on the rental market. If you want to increase your chances of getting quality tenant applications, you can list your rental property here at iProperty.com.my!