Landlord and tenant are bound by the terms of a tenancy agreement, which outlines their respective responsibilities and entitlements. Legally, renting a house in Malaysia is sufficient without a tenancy agreement. Tenancy agreements are not legally required, but it is in everyone’s best interest to have one signed before the rental begins.
A tenancy agreement (“TA”) can be entered in writing or verbally. The TA need not be in writing to be valid under the law; an oral agreement is just as good. However, the oral tenancy would be more onerous and take longer to resolve disputes because there is no specific set of rules for resolving issues that may arise due to the parties’ contractual relationship.
A written TA clarifies the roles and duties of all parties involved on the paper. Although an oral tenancy agreement is legally binding, it is best practice to put the agreement in writing to clearly define the parties’ rights, responsibilities, and liabilities. Tenants and landlords alike can benefit from having their obligations spelt out in writing.
In Malaysia, there is no specific law or legal framework governing tenancy. Nonetheless, Malaysia has a well-established system in which it is common for a tenancy agreement to be drafted, prepared, signed, and witnessed (typically by a lawyer) within 7 to 14 days after the payment of the security deposit. Without specific legislation to regulate tenancy, TAs in Malaysia have been drafted with the guidance of these existing laws, including the Contracts Act 1950, Civil Law Act 1956, Distress Act 1951, and Specific Relief Act 1950.
There is no standard template for a TA, but in general terms and traditional practices, a TA should include the following provisos:
The type and location of the property must be described in detail. It is also essential to specify whether the tenant will rent the entire property or only a portion of it (e.g., only the master bedroom) and the property’s condition. The TA may have a schedule that details the fixtures, furnishings, and appliances that come with the property. If the landlord is renting out a vacant unit, there is no need to include this schedule.
The TA must specify the three separate deposits that a tenant must pay. Here is a summary of the deposits:
The due date and method of payment (e.g., electronic funds transfer, cheque, or cash) for the monthly rent and any other fees (such as maintenance fees and utility bills) must be specified in this section. If the tenant pays the rent after the due date or does not pay it at all, the landlord may want to include the specifics of the repercussions of any of these situations in this section.
Separate covenants outlining the respective responsibilities and obligations of the Landlord and Tenant are vital components of any TA. The TA should spell out that the landlord is responsible for the following, among other things:
Tenant’s obligations under the TA should include, but are not limited to, the following:
When creating a TA, the parties must specify the desired duration of the tenancy. A rental period typically lasts between one and three years; if it extends beyond three years, it is considered a lease rather than a tenancy. The difference between a lease and a tenancy must be discussed separately. At a glance, a lease is a rental for a longer duration (must be at least three years), and unlike a tenancy agreement, a lease agreement must be registered at the Land Office under the National Land Code 1965. However, parties may still endorse a TA by submitting a written application to the Land Office Registrar. The effect of registration and endorsement is to offer statutory protections under the NLC for the lease or tenancy agreement.
Regarding the tenancy period, a TA must be dated, and the dates at which it begin, and end must be made clear. Parties may also include a clause granting the tenant the right to renew or extend the TA for a specified period following the expiration date of the initial TA. If the parties consent to extend the tenancy, a new TA must be drafted so that a new tenancy cycle can commence. The new TA may or may not include adding new clauses or removing existing clauses, depending on what the landlord and tenant have agreed upon.
A TA should define a notice period to end the tenancy, stating how long the written notice should be given. In a termination clause, either party can request an early termination of the tenancy. Before terminating a tenancy, each tenant must notify their landlord.
This termination or break clause specifies the terms and conditions of early termination. Some common conditions (but not necessarily) include the penalty payment, forfeiture of security deposits, and tenancy buyout (which means the tenants must pay the remaining months of rent on the agreement to vacate the property before the end) of the tenancy). In certain instances, the landlord may also request an early termination from the tenant; if this is the case, the tenant may legally terminate the TA without penalty.
After signing a TA, the parties must present a copy or copies of the agreement to the nearest office of the Malaysian Inland Revenue Board (IRB) to be stamped. An unstamped agreement is still a valid agreement. However, it will only be admissible as evidence in court if IRB stamps it. As a result, it is customary for the authority to seal and stamp the TA in exchange for a prescribed fee known as stamp duty.
According to the third schedule of the Stamp Act of 1949, the tenant is responsible for paying stamp duty fees. The TA stamp duty is computed based on every RM250 from the annual rental amount. Below is the formula for calculating the stamp duty payable to IRB.
|DURATION OF TENANCY||AMOUNT CHARGED FOR EVERY RM250 (RINGGIT MALAYSIA) FROM THE TOTAL OF ANNUAL RENT|
|1 year or less||RM1|
|less than 1 year to 3 years||RM2|
|3 years and onwards||RM3|
Based on the table above, for every tenancy period of less than 1 year, the stamp duty is calculated at RM1 per RM250 of the annual rental amount. If your tenancy period is between 1 to 3 years, the stamp duty would be RM2 per RM250 and RM3 per RM250 of the total annual rent if the tenancy exceeds 3 years and onwards.
* The first RM2,400 in annual rental income is exempt from stamp duty. When calculating the stamp duty fee, you must subtract RM2400 from the yearly rental amount to determine the final taxable amount.
As an example, if a tenant is signing a tenancy agreement of 2 years and agreeing to pay a rent of RM2500 monthly, the calculation of stamp duty would be as follows:
In practice, two original copies of TA need to be stamped, each for the landlord and tenant. The additional copy of the stamped TA is charged at RM10. Therefore, as per the above example, the amount of stamp duty would be RM230.80 for two copies of stamped TA. You can estimate the rough amount of your stamp duty using the online calculator he re.
The thought of saving money on legal fees is always tempting, but landlords are strongly encouraged to engage with a lawyer to ensure that the TA contains all the necessary details. If things go wrong, a TA that a qualified lawyer drafted can assist in reducing the likelihood of conflicts and their impact on both parties.