What should you check before signing a Tenancy Agreement?

Know what’s in the agreement before closing the deal.

Due to rising property prices in Malaysia, many are opting to rent a place instead of buying one. This applies to new business startups where premise renting is easier on their budgets. On of top of that, the availability of property renting websites like iProperty has also made it easier for both property owners and potential tenants to get in touch. Long gone were the days when one has to physically walk into a real estate agency to advertise their properties or to look for properties to rent.

So once the property owner and the tenant have agreed on the property, they will sign a Tenancy Agreement in order to protect the welfare of both the parties. However, with the rise of rental transactions each day, the chances of tenancy disputes has also increased. Therefore, here is some useful information that you as a landlord or a tenant should know before signing Tenancy Agreement.

Why is there a need for Tenancy Agreements?

Currently, there is no law in place to govern the legal framework of tenancy in Malaysia. The one and only document that governs the relationship between the landlord and the tenant is the Tenancy Agreement, and the terms and clauses can be easily negotiated and modified to suit the individual requirements of both parties. However, during the tabling of Budget 2018, the Prime Minister and Finance Minister Datuk Seri Najib Razak did propose the formulation of the Residential Rent Act to protect landlords and tenants. This proposed Act is needed to regulate the relationships between homeowners and tenants in order to protect their respective interest and rights.

Until the Residential Rent Act comes into effect, the tenancy agreement is the only document that protects the rights of the landlord and the tenants. A tenancy agreement falls under the Contract Act 1950 which assumes both parties have entered into the agreement at their own free will on mutually agreed terms. However, due to legal jargons that are used in the drafting of a tenancy agreement, many would not fully understand what the terms and conditions mean, and in the worst case scenario, some will go ahead and sign the agreement without fully knowing what they have signed up for. To simplify things for all, below are the major terms to discuss, negotiate, confirm and verify before signing the agreement.

1. Details of the landlord and tenant

It is the tenant’s responsibility to verify that the landlord is the legal owner of the property by sighting either a duly signed and stamped Sales and Purchase Agreement in which the landlord had acquired the property or a copy of the individual/strata title stating the landlord as the registered owner (if title has been issued). Confirm and check all the details of both the landlord and tenant (e.g. full name and NRIC number).

2. Address and details of the property

Ensure the address of the property is accurate and specify the exact area that is being rented, if applicable. For example, first floor, master bedroom, etc.

3. Tenancy period and option to renew

The duration of tenancy should be clearly stated. Tenancy agreements usually include an option to renew clause whereby the tenant wish to renew the contract, he/she may do so by giving a written notice to the landlord prior to the end of the tenancy period.

4. Deposit and rental amount (including GST if applicable)

Both the parties have to agree on the monthly rental amount, including Goods & Services Tax (GST) if the landlord is a GST registrant. There are two deposits – security deposit and utility deposit – which shall be paid by the tenant and to be kept by the landlord and shall be refunded to the tenant free of interest at the end of the tenancy. The deposits can be forfeited if the tenant breaches the contract or cause damage to the property.

5. Payment mode and payment due

This clause specifies how the landlord wished to be paid and when is the latest date the payment should be made. If the tenant is required to pay the utility bills, that should also be mentioned.

6. Purpose of the tenancy

Parties would be required to state what the premise is used for. For example, commercial, residential, warehouse, etc. And the premise should strictly be used for the purpose that is stated and nothing else.

7. Service provided

If there are electrical appliances like an air-conditioning unit, water heater or microwave oven, it should be clearly stated who is responsible for the maintenance of the appliances.

8. Termination

This is an important part of the agreement as it states the exit clause. Parties can include the methods to terminate the tenancy agreement prior to the end of the tenancy period.

Article was written by Rubaa.S