Tenancy agreement for condos (Part 1)

Update as of May 19th, 2024: The Board of Valuers, Appraisers, Estate Agents and Property Managers (BOVAEAP) issued Notification 3/202 dated March 1st, 2024. The notification states that estate agents must advise clients that tenancy agreements are legal documents and should, therefore, be prepared by qualified lawyers. Estate agents cannot prepare or draft client tenancy agreements as it contravenes Section 37 of the Legal Profession Act 1976 (Act 166). The Board will take disciplinary actions against any professional misconduct.

Malaysia currently does not have a statutory regulation for tenancy agreements. However, the Ministry of Housing and Local Government has proposed to table a Residential Tenancy Act in Parliament tentatively this year. Generally, the terms of a tenancy agreement are determined through mutual agreement between the landlord and tenant.

In this article, I will provide an overview of an agreement I reviewed recently. This particular tenancy agreement was provided by a real estate agency that facilitated the rental listing, and while it seemed quite comprehensive, I found that certain clauses lacked clarity. Therefore, I am providing a simplified explanation of the agreement, along with my own commentary and comparisons with other tenancy agreements.

Payment of security and utility deposit

Deposits shall be paid upon the signing of the agreement or upon occupation, whichever is earlier. The security deposit shall equal two months’ rental and utilities half a month’s rental. The amount has to be maintained throughout the tenancy, and the tenant can’t use it to offset the rental or bills. The deposits must be returned free of interest within 30 days from the expiry of the tenancy. (Some agreements do not put this 30-day limit. All required monies should be paid before entry is allowed.)

The agreement defines the security deposit as security for the tenant’s due observance and performance of all his duties and obligations. However, the agreement does not state if this deposit can be forfeited or used to offset any expenses caused by any breaches. (I have seen another agreement that expressly provides for this. It states that if there is damage to the premises, the landlord can use the security deposit to deduct the costs for damages.)

The landlord shall allow the tenant to remedy the breach at his own cost and expense, failing which the landlord can get done. To deduct from the deposit, he has to furnish a quote for the rectification and support the work done with invoices and receipts. (Not all agreements include this remedy.)

Note: An earnest deposit of one month’s rental is usually needed to reserve the property, and it is held in trust by the real estate agency firm. Upon signing the tenancy agreement and releasing the security and utility deposits to the landlord’s account, the earnest deposit becomes the agency’s professional fee.

Landlords should ensure they receive written confirmation from the agency firm if they are holding the deposit as stakeholders, that the deposits have cleared before signing the offer letter and tenancy agreement. They should not allow tenants entry into the property if the security and utility deposits have not been banked into the landlord’s account.

Tenant’s Covenants

I have reorganized and streamlined the clauses for clarity. They are not in the order laid out in the agreement.

1. Pay utility bills: water, electricity, gas and sewerage.

2. Keep the premises in good repair (except normal wear and tear, etc.): maintain all doors, windows, glass, shutters, locks, and fastenings; replace fluorescent bulbs at your own cost; and replace fixtures and fittings if they become damaged by direct substitution of equivalent value and quality.

3. Pay for minor repairs such as replacing fuses, switches, sockets, water taps, bidets, electric bulbs and minor damages arising from normal use not exceeding RM 200. (Not all agreements have this limit.)

4. Maintain premises in the present state and not make alterations without the landlord’s written consent: not to injure any walls, floors and ceilings such as hacking holes or driving anything into the walls or boring holes into the ceiling; not to stick any sticker on the walls, floors, ceilings, wardrobes, cabinets and all built-in. The tenant has to varnish and restore the teak timber finish of the floor if it’s scratched or damaged to its original condition (except for normal wear and tear, etc.) upon the termination of the agreement. (The details provided are useful for ensuring clarity for the tenant.)

5. Service all the air-conditioner units as required during the tenancy at the tenant’s own costs. Replacement and repairs will be at the landlord’s own cost unless the tenant’s misuse causes them.

6. Yield up the furnishings, fixtures and fittings in good repair when the tenancy expires or before it is renewed; reinstate at the tenant’s cost all additions and decorations back to original condition or to a condition as agreed to by both parties failing which the landlord may reinstate and charge the tenant.

7. Inform the landlord in writing of any structural repairs.

8. Permit entry for inspection and tenant to do repairs at own cost.

9. Allow viewing four weeks before the tenancy ends to secure another tenant.

10. Use the premises as a private residence and not use them for illegal or commercial purposes

11. Not to assign or sublet without consent of the landlord.

12. Not to do any act which will affect the landlord’s insurance against loss or damage by fire. tenant needs to repay the landlord all sums if the premiums are increased or if the insurance has to be renewed due to the breach of this covenant.

13. The tenant must insure his own valuables and belongings, including any additional furnishings, fixtures, and fittings, against loss and damage by fire or theft.

14. Observe the house rules of the condo and do not cause any nuisance to the neighbours.

15. Not to hold the landlord liable for any accident, damage or injury caused to the tenant unless they are due to the landlord’s fault.

Power of re-entry and termination of tenancy

Should the rental remain unpaid for 14 days after becoming payable or if the tenant breaches any of the covenants or becomes bankrupt, the tenancy will cease without any loss of any rights of action or remedy of the landlord, and the landlord can re-enter. (It is not stated that the landlord can keep the security deposit or use it to cover any unpaid rent.)

Note: This does not mean the landlord can barge in, demand unpaid rent and lock up the premises. If the tenant refuses to cooperate, he needs to get a court order for eviction and to recover the losses.

Early termination of tenancy

Should the tenant not fulfil the duration of the tenancy, he needs to pay a sum equivalent to the remaining tenancy period. Likewise, if the landlord terminates early, he must do the same thing as compensation. (If both parties consent to terminate the agreement ahead of schedule, regardless of what the agreement states, then there is no cause for concern.)

The rest of the clause is ambiguous. It says that the landlord has to refund the deposits if the tenant pays the compensation sum but it’s silent on whether the landlord can use the deposit to offset the sum or forfeit the deposit if the tenant does not pay.

Note: I have asked a legal counsel, and he concurs that if it is not expressly stated, the offset or forfeiture of the deposit should not be carried out. According to Donovan & Ho’s article (attached below), the landlord’s right to forfeit the tenant’s deposit is not automatic.

(Another agreement has clearer and more precise wording on early termination. It says the landlord has the right to forfeit the tenant’s security deposit if the tenant decides to terminate the tenancy before its expiration date.)

At the start of the agreement, it states that the security deposit shall not be treated at rent (by the tenant), but the landlord can deduct any sums due in respect of or to remedy any non-observance by the tenant of any of the terms and conditions in the agreement. (Be sure to take note of this in your agreement. You should check with your legal counsel on how to word these clauses.)

In practice, the situation is not always clear-cut, even if you have an airtight agreement covering all your rights. In a worst-case scenario, you may still need to seek court action to recover all your losses. The security deposit may be insufficient to cover the debt due to other breaches besides damages to the premises and rent arrears.

Note: In some company tenancy, there are expat break clauses that allow early termination after 12 months without any penalties if the company relocates the occupant or if the work visa is not renewed. The company must show proof and give the landlord at least 2 months’ notice. Be aware of undesirable deviations allowing early termination without requiring any reasons.

In part 2, I write about the landlord’s obligations, the option to renew, interests on late payment, sale subject to tenancy, destruction to premises and other clauses that a tenancy agreement would typically have.

Links to articles:

(1) How Would You go About Evicting A Tenant? | PropertyGuru Malaysia

(2) Malaysia Landlord 2018 : Default in Rental & Legal FAQ | MY Lawyer

(3) Consequences of Terminating a Tenancy Early | Donovan & Ho (dnh.com.my)

(Feature photo by Scott Graham on Unsplash)