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Sublet Agreement In Malaysia – What You Should Know

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Thinking of lowering living expenses, or even earning from the property you’re currently renting? If you’re keen on doing the latter, ensure that you’re well within the confines of the law.

Sublet Agreement In Malaysia – What You Should Know
© gesrey | 123RF

So, you’ve rented a unit that comes with several rooms, which are currently occupied by your personal belongings or even cobwebs. Options? Keep them empty, OR get tenants for the unit.

Getting tenant(s) for those empty rooms means that you’re subletting your rented unit. The other type of subletting involves renting the entire unit out, where you move out and rent the entire unit out to one or several individuals.

Be it the entire unit or a room, when you sublet the property, you as the tenant, becomes the “landlord” to your tenants (also known as sub-tenants). Subletting could be for a long-term, or short term such as Airbnb.

iProperty Malaysia spoke to a senior associate at MahWengKwai & Associates, Marilyn Teh, to better understand the intricacies of subletting and subleasing.

MahWengKwai & Associates senior associate Marilyn Teh
© MahWengKwai & Associates

What’s the difference between tenancy and lease? Do you need your landlord’s consent? What should you include in a sublease agreement? Is the agreement legally binding? It’s all detailed below!

Firstly, Is There A Difference Between Tenancy And Lease?

According to the National Land Code that applies in Peninsula Malaysia, a tenancy is for a rent period of up to three years. Any longer than that, it is referred to as a lease. Then, herein comes the terms such as “lessor” and “lessee”.

A lessor is the person who owns the property and grants the lease, while the lessee is the person to whom the lease is granted to.

Secondly, Is There A Difference Between Sublet And Sublease?

Teh explained, “Sublet covers both sublease and subtenancy, while sublease strictly covers leasing of the land or property to a third-party as a subtenant.”

How To Sublet Or Sublease The Property You’ve Rented?

How To Sublet Or Sublease The Property You’ve Rented
© liudmilachernetska | 123RF

Doing your due diligence while finding a subtenant could save you from a lot of headaches. Here are a few tips on finding and choosing subtenants:

  • Advertise on e-platforms such as iProperty.com.my with the help of a registered property agent
  • Post on your social media – Facebook, Instagram, TikTok, Snapchat, and so on.
  • Ask your immediate circle of friends and family if they know of anyone who’s looking
  • Do a background check – Ask about their work, financial situation, hobbies, and so on. This is to ensure that they are financially stable, and their personality and lifestyle is a fit for you and other subtenants.  

Sublease On A Master Title Property: Is It Allowed?

Teh shared that the National Land Code has empowered registered owners to deal with the land or property in any way as the property owner deems fit.

Thus, the registered owner of the land or property is allowed to lease and subsequently, grant the renter the power of sublease the land/property.

The right of the renter to sublease the master title will be highly dependent on the terms of the lease agreement entered between the owner and the renter.

READ MORE: Strata title vs master title vs individual title: Know the differences

What Is The Memorandum of Sublease?

What Is The Memorandum of Sublease
© yaspe | 123RF

According to Teh, Section 340(1) of the National Land Code has conferred the indefeasibility of interest to the party whose interest has been registered on the title and that includes lease, charge or easement.

Hence, in order to register the interest of the dealing at the Land Office, the prescribed instrument of dealing has to be filed at the relevant Land Office.

For lease, the instrument that has been prescribed under the National Land Code is in the form of Form 15A and as for sublease, it will be in the form of Form 15B.

If there has been a charge that has been registered on the title, a prior written consent has to be obtained from the chargee before the instrument can be submitted to the Land Office for registration.

The rights of the parties under the lease depends solely on the lease agreement that has been entered between the lessor, the lessee and the sublessee.

Any public person is allowed to register the memorandum of lease at the Land Office as long as they are familiar with the procedure to do it. However, it is advisable to engage a lawyer to handle it for you as he/she is more well-versed with the procedure and relevant requirements of the Land Office.

Tenancy Agreement With Your Landlord (Lessor): What Does It Say?

Tenancy Agreement With Your Landlord (Lessor) What Does It Say
© andreypopov | 123RF

Before you put the word out on a property or room to let, check your tenancy agreement. Some agreements have a clause that prohibits subletting, while some agreements don’t have it. So, it’s on a case-to-case basis.

If subletting is not allowed, your landlord can immediately terminate your lease if he/she finds out.

However, some say there’s a loophole where the renter could say that the person occupying the room is a cousin or relative. Then, the onus is on the landlord to prove that the renter’s claim is false. 

What’s advisable is to do it legally. If possible, discuss with the landlord from the very beginning and amend the tenancy agreement accordingly. If there’s any breach of agreement, the landlord could terminate the contract, and you could be evicted and slapped with penalties. 

If you’ve already signed the agreement, and the clause states that you’ve to ask for permission from the landlord, ask your landlord in writing if you can sublet the property and get his consent in writing. This prevents any legal hassles later on.

READ: How to write a tenancy agreement in Malaysia?

Does Your Landlord Need To Sign The Sublease Agreement?

Teh shared, “It depends on the lease agreement that has been entered into between the landlord (lessor) and you (lessee). If the principal lease agreement has given the rights to you to sublease the unit, then you can enter into a sublease agreement with the subtenant.

“Usually your landlord’s execution to the sublease agreement is not required. You will have to just write in, inform the landlord of your intention to sublease the unit and get a written consent from the landlord.”

Does Your Landlord Need To Sign The Sublease Agreement
© nateemee | 123RF

Circumstances When Subleasing is Deemed Illegal

On whether or not subleasing is illegal, Teh said, “It depends on the lease agreement between the owner and the renter. If the lease agreement requires the renter to obtain prior consent from the owner and the renter leases it to a subtenant without the consent from the owner, then the sublease is deemed to be illegal.

“Besides, if the purpose of subleasing is for anything that is illegal under the law, the sublease will be deemed to be illegal too.”

If you’ve breached the terms of the lease agreement, the owner reserves the right to terminate the lease agreement and claim for damages.

Due to the breach, the owner will also stand the rights to evict the sub-tenant and the damages of which will have to be borne by you.

READ: How To Evict Tenant In Malaysia In 4 Steps

Sublease Agreement In Malaysia: What Should It Include?

Sublease Agreement In Malaysia What Should It Include
© snowing | 123RF

Once you’ve a tenant to sublet to, it’s best to draw up a written agreement to avoid any potential legal issues. Taking a security deposit from your tenant is advisable, in case the tenant leaves abruptly without notice or damages the property in any way.

Make sure there’s a clause in the sublease agreement about the lock-in period as well.

In drafting a sublease agreement, Teh ensures that the following points are taken into consideration:

1) Recitals

a. Details of the Lessor (owner) and the details of registration of the first lease from the lessor (owner) to the lessee (you)

b. Details of the principal Lease Agreement

c. Title details of the land/property

d. Location of the land/property (and to include in the drawing of the portion and/or land/property that is being subleased)

2) The Rental Terms

a. Monthly rental

b. Required security deposit

c. Tenure of the lease

d. Optional period

e. Purpose of the lease

3) The Undertaking From The Lessee (You) To The Sublessee (Sub-tenant)

a. Confirmation from the lessee that the lessee has been empowered to lease the land/property to the sublessee

b. Lessee will comply with all the terms and obligations in the lease agreement

c. Lessee will not breach any of the obligations in the principal lease agreement that will cause the sublease agreement to be terminated

d. Lessee will submit the application for consent to lease to the Land Office (if required) and obtain necessary documents from the Lessor to register the lease at the Land Office.

4) The Undertaking From The Sublessee (Sub-Tenant) To The Lessee (You):

a. Sublessee will pay the monthly rental on time

b. Sublessee will comply with the terms of the principal lease agreement and not to deal with the land/property in any way that it is not permissible that will cause the principal lease agreement to be terminated by the lessor (owner).

5) The Effect of Termination

a. What will happen in the event of a breach by the lessee

b. What will happen in the event of a breach by the sublessee;

c. The restoration of the place upon termination of the sublease agreement

d. The removal of the sublease upon completion and/or lawful termination of the sublease agreement

6) Registration of Sublease

The obligation of the Sublessee to register the sublease at the Land Office and also the obligation of the Lessee to obtain the consent from the Chargee Bank on the registration of the sublease.

It is also required for the principal lease agreement to be annexed in the sublease agreement. The sublessee (sub-tenant) can also ensure that the lessee (you) include a copy of the written consent from the lessor (owner) allowing the sublease to the sublessee.

Legal Fees For a Sublease Agreement In Malaysia

Legal Fees For a Sublease Agreement In Malaysia
© drozdirina | 123RF

Teh pointed out that it depends on the monthly rental rate of the lease. Pursuant to second schedule of the Solicitors Remuneration (Amendment) Order 2017, the legal fees will be calculated as follows:

  • For the first RM10,000: 50% of the monthly rental (subject to minimum fee of RM600)
  • For the subsequent RM90,000: 20% of the monthly rental
  • Anything in excess of RM100,000: Negotiable as long as it doesn’t exceed 20% of the monthly rental

Stamp Duty For A Sublease Agreement In Malaysia

Stamp Duty For A Sublease Agreement In Malaysia
© jack_the_sparrow | 123RF

Teh shared that it would depend on the annual rental of the lease. If the annual rental doesn’t exceed RM2,400, the stamp duty is free. For annual rental in excess of RM2,400, the stamp duty will be RM4 for every RM250.

In the event where the amount of the annual rental is not a multiple of RM250, the figure needs to be rounded up to the nearest RM250.

Hence, if the monthly rental rate is RM10,000, the annual rental rate for the land/property will be RM120,000.

The stamp duty will be calculated as follows:

(RM120,000 – RM2,400) / 250 x RM4 = RM1,884.00 (after roundup).

However, if the rental rates differ on a yearly basis, the calculation of the stamp duty will be based on the average monthly rental payable.

For example:

YearMonthly Rental
1st – 3rd yearRM10,000
4th yearRM15,000
5th yearRM20,000

The calculation of the stamp duty will then be based on the following:

Average monthly rental

(RM10,000 x 36 months) + (RM15,000 x 12 months) + (RM20,000 x 12 months) / 60 months = RM13,000 per month

Stamp duty payable

(RM13,000 x 12 months) – RM2,400 / 250 x RM4 = RM2,460 (after roundup)

Upon stamping of the sublease agreement, the agreement will be legally binding. However, that does not confer the indefeasibility of interest on the sublessee unless the sublease has been registered at the Land Office.

From drafting until the stamping of the sublease agreement, it’ll usually take 1 month to 1.5 months, depending on the negotiation between the parties and how fast LHDN takes to issue the stamp duty notice.

Differences Between A Residential and Commercial Sublease Agreement

strata-title-master-title-individual-title
© 123rf

For residential properties, the parties involved usually enter into a tenancy agreement.

The parties that enter into a lease agreement will have to register the lease at the Land Office and as such, registration fees on the memorandum of lease will be incurred, which might not be worth it for parties to proceed.

Besides, it also restricts the lessor from dealing with their property freely after such lease has been entered into and consent from the lessee has to be obtained before the lessor can deal with their property.

As such, parties will usually opt for a tenancy agreement instead of lease.

For commercial property, some parties will want to enter into a lease as they want to lock the parties to commit to the agreed tenure.

READ: Commercial vs residential: Can I convert commercial title to residential title?

4 Key Considerations Before Subletting

While subletting could result in a good return, there are several considerations prior to subletting the property, such as problematic subtenants and the maintenance of the property. Here are some of the key considerations:

  1. Extra wear and tear, and possible damage, to the property
  2. Neighbours complaining to the management and/or landlord about noise or number of people coming and going from the property
  3. Pay on behalf of the subtenant if he/she doesn’t pay rent on time
  4. Parking issue, especially for high-rise residential units

Need professional help with your sublet or sublease agreement? You may refer to law firms such as MahWengKwai & Associates to ensure that you’re adequately protected.

READ MORE:

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