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What is a rental deposit and 3 other things tenants should know

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This comprehensive guide explains everything you need to know about rental deposits in Malaysia including the types of deposits, how they are calculated, and what tenants can do if the landlord refuses to return the deposit.

deposit rumah sewa
@yuliang11 | 123RF

This article is translated from “Maksud deposit rumah sewa dan 3 perkara lain penyewa perlu tahuby Ashraf Wahab.

In this current day and age, rental properties are increasing in popularity. Compared to purchasing a house, a tenant will not be tied to the property for the next 30 years and can avoid paying interest to the bank.

But, have you ever been in a situation where you were browsing through rental house ads on platforms such as Facebook or iProperty.com.my, and found a rental house that caught your attention? However, when the time comes to make a tenancy agreement with the landlord, some confusing terms such as deposit of 1+1, 2+1, and 2+1+1 were brought forth.

This guide details everything you need to know about the meaning of the following terms and why it’s essential to be aware of all the available types of rental deposits in Malaysia.

What is a rental deposit?

A rental deposit is an advance payment that a tenant must make to a landlord before moving into a rental house. Usually, the deposit is used as a tenant’s guarantee towards the landlord and the amount to be paid will be determined by the landlord based on several factors that will be explained below.

Types of rental deposits

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Generally, each type of deposit below will be included in the total rental deposit amount set by the landlord and is based on their sole discretion.

The following are the types of rental house deposits that are usually used by rental landlords in Malaysia.

1. Earnest Deposit

As a tenant, it is important to know that the reservation deposit, better known as “earnest deposit”, is the most important advanced payment for the landlord. This is because when you have paid the earnest deposit, the house is indirectly considered yours to rent and rules out the opportunities of any other possible tenants.

2. Security Deposit

A security deposit serves as a guarantee for any conditions specified in the tenancy agreement that has been set and agreed upon by both the landlord and the tenant.

Typically, the security deposit requested by the landlords in Malaysia is an amount of 2 months deposit. For example, if your monthly rental payment is RM1,500, then the total security deposit will be RM3,000.

3. Utility Deposit

If a tenant is required to pay the utility deposit separately, generally the landlord will ask them to pay before moving in to ensure there are no arrears in the future. Utility deposits usually include rental house maintenance fees such as electricity, irrigation, sewage and other services.

The common amount of utility deposit is half of the monthly rental. A calculation example is shown below.

Utility deposit = Monthly rental amount ÷ 2

                       = RM1,500 ÷ 2

                       = RM750

4. Pet Deposit

For tenants with pets, a pet deposit will be charged to clean the effects of dirt or any damage caused by the pet during the rental period. For example, the landlord will deduct the pet deposit from the total deposit to wash and deodorize any stains left behind by the pet. This is so that the house is in good condition before being rented out to another tenant.

NOTE: Do take note that not all landlords allow tenants to bring pets with them to avoid the risk of damage to furniture.

RELATED: 9 things you need to know about keeping pets in highrise residences

Those are the 4 types of rental house deposits charged to tenants in Malaysia. However, some landlords do not include all types of rental deposits in the total deposit amount, such as shown and explained in the earnest deposit section above. Now let’s see why tenants must make an initial deposit payment before renting a property.

What is the function of a rental deposit?

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From the perspective of a landlord, they need to trust the strangers they are renting their house to, and one way to help gain that is through the money obtained from the deposit. Therefore, in a nutshell, a rental deposit serves as a guarantee towards the landlord for any eventuality that may occur in the future.

Let’s see what the function of a rental deposit is in a tenancy agreement.

1. Compensation for any damages to the rental house

In a tenancy agreement, it is the responsibility of the tenant to avoid any damages to the property. Whether intentionally or not, the deposit will be used as compensation for any damage that occurs.

This protects the landlord from having to use their own money for repairs, considering the damages were caused by the tenant.

2. Guaranteed period of the tenancy agreement

Additionally, the rental deposit also serves as a guarantee towards the landlord for the duration of the tenancy agreement. This is to avoid any situation where there are changes of tenants in a short period of time. This will be a burden for the landlords as they have to spend a large amount of money every time there is a change of tenant.

For example, in general, the period of a tenancy agreement is fixed for one year and the tenant needs to inform the end date of the agreement 2 months in advance. Therefore, if the tenant moves out earlier than the specified period, then the landlord has the right to not return a part of the rental deposit.

3. Pay off any utility bill arrears

Another function of the rental deposit payment is to pay off any utility bill arrears. As you already know, utility bills such as electricity and water bills must be paid every month and there are cases where irresponsible tenants let the bills arrears round up to thousands of ringgit. These bill arrears must then be borne by the landlord.

Therefore, it is only fair that the landlord uses the rental deposit to cover all the utility arrears.

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4. Accommodate any late monthly rental payments

Similar to the other functions, the rental deposit also serves to cover any late monthly rental payments. The attitude of tenants who fail to pay rent for months on end will cause landlords to suffer huge losses. With the existence of a rental deposit, the landlord can use a part of the deposit to cover the arrears.

READ: How to write a tenancy agreement in Malaysia?

How to calculate a rental deposit

There are 3 ways to calculate a rental deposit. Let’s take a look at these methods and how they are calculated.

Deposit MethodHow to calculate
2 + 12: Two months rent (Security Deposit) + 1: One month rent (Utility Deposit)
1 + 11: One month’s rent (Security Deposit) + 1: One month’s rent (Utility Deposit
2 + 1 + 12: Two months’ rent (Security Deposit) + 1: One month’s rent (Utility Deposit) + 1: One month’s rent (First month’s rent paid in advance before the rental period begins)
@iProperty.com.my

To make it easier for you to understand the calculation methods above, let’s take the example below where the landlord sets the rental deposit as 2+1+1.

2 {Two months’ rent (Security Deposit)} + 1 {One month’s rent (Utility Deposit)} + 1 {One month’s rent (First Month’s Rent)}

= (RM1,500 + RM1,500) + (RM750) + (RM1,500)

= RM3,000 + RM750 + RM1,500

= RM 5,250

Therefore, the total deposit to be paid by the tenant is RM5,250 before starting the rental period. If you, as a prospective tenant feel that the amount set by the landlord is too high, then you can opt to find a rental house that does not require any deposit instead.

What should you do if the landlord refuses to return your rental deposit?

@szefei | 123RF

It is imperative that you examine each clause in the tenancy agreement as it protects your rights as a tenant. Therefore, when signing the agreement, make sure there is a clause that states the deposit repayment period for the landlord.

For example, if the tenant has vacated all his possessions and the house is in good condition, then the landlord must repay the security and utility deposits within 14 days. However, if the landlord fails to do so, you as the tenant, have a right to claim the deposit.

You can make a Small Claims Procedure through Rule 93 of the Rules of Court 2012 – Small Claims Court. In the case of a claim like this, both parties will represent themselves and you do not have to spend any money by hiring a lawyer. You will only be charged a filing fee of RM20.

NOTE: The limit of the claim must be less than RM5,000. If the claim you want to make exceeds RM5,000, then you need to make a claim in the Civil Court.

If the landlord still refuses to make any payments to the tenant, then the Court can take the following actions:

  1. Allowing more time or for the payment to be made in instalments
  2. Ordering a writ of seizure and sale to be issued against the landlord
  3. Ordering the landlord to be put in prison

Now that you know everything you need to know about rental deposits, make sure you check all of these things before signing a tenancy agreement.

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📜 Early termination of Tenancy Agreement in Malaysia and its consequences

Disclaimer: The information is provided for general information only. iProperty.com Malaysia Sdn Bhd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.

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FAQ: About rental deposit in Malaysia

There are four main types: Earnest Deposit, Security Deposit, Utility Deposit, and Pet Deposit.
The Earnest Deposit, also known as the reservation deposit, ensures that the rental house is reserved for a particular tenant and removes the opportunity for other potential tenants.
From the landlord's viewpoint, the deposit serves as a guarantee for potential damages, ensuring adherence to the tenancy agreement duration, covering utility bill arrears, and accommodating any late monthly rental payments.
Ensure the tenancy agreement includes a clause detailing the deposit repayment period. If the landlord fails to return the deposit, tenants can make a Small Claims Procedure through Rule 93 of the Rules of Court 2012. If the claim is more than RM5,000, it should be filed in the Civil Court.